LIHTC

The debate over comprehensive tax reform and the implications of such reform on the tax credit program have been a long simmering issue in the affordable housing community. A flurry of reports on debt reduction over the past year and the debt-ceiling debate that followed have contributed to a fiscal and political environment that put many in the industry on watch.  So, with all of the attention this issue has been getting, what are the odds the low income housing tax credit is in any real danger from super-committee action? According to several industry experts, the answer appears to be low.

For starters, one of the committee’s co-chairs, Patty Murray (D – WA) is a staunch ally of affordable housing causes. “Patty Murray is very supportive of housing”, said Colleen Fisher, Executive Director of the Council on Affordable and Rural Housing. “John Kerry also has a very good track record… in general, amongst all members of the committee, there appears to be support on the tax credit side of things”.

Peter Lawrence, Senior Director of Public Policy & Government Affairs for Enterprise Community Partners, echoed Colleen’s sentiments, “Patty Murray has been a long standing champion of affordable housing and huge advocate for housing and community development.” He also mentioned Senator Kerry (D – MA) and Representative van Holland (D –MD) and Baccera (D – CA) as allies of the affordable housing cause.

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HUD’s detailed 2012 budget proposal reveals the following proposed changes to the Low Income Housing Tax Credit program:

The Department’s overall preservation agenda is complemented in the Department of Treasury’s budget for fiscal year 2012, which proposes two reforms to the Low Income Housing Tax Credit (LIHTC) that will: • Replace the current cap on household income at 60 percent of area median income with

the option that properties serve households whose average income is no greater than 60 percent of AMI and with no individual household above 80 percent of AMI. These

Fiscal Year 2012 Budget Summary 7changes to the Code’s low-income occupancy threshold requirements will accomplish three things: (i) allow greater income-mixing at the project level, creating opportunities for workforce housing; (ii) help align LIHTC with HUD’s and USDA’s affordable housing programs (which define low-income at 80 percent of area median income); and (iii) lead to the creation of more units targeted to the lowest income households.

It’s important to note that this income averaging proposal increase our ability to preserve HUD-assisted properties. 69,224 households living in public housing and 23,271 households in multifamily housing have incomes above 60% of AMI. This proposal allows these units to be counted in basis, increasing the equity flowing to these projects for preservation.

• Make the 4% credit a more viable source of funding for the preservation of the federal affordable housing stock by giving qualifying properties a 30% basis boost in the context of preserving, recapitalizing, and rehabilitating existing affordable housing, particularly public housing targeted by TRA (as well as Multifamily Housing, 236s, BMIRs, RAP, Rent Sup, 202, 811, HOME, McKinney and CDBG funded units, USDA-RD (515s)). This means that a greater amount of equity could be raised per credit even at the higher yields required by investors for 4% investments, which in turn will generate more interest in LIHTC preservation deals within the investor and developer community.

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December 30th program documents:

2011 Tax Credit Program Schedule

2011 Tax Credit Manual

How-to-apply Workshops:

Jan. 5 at The Southwest Virginia Housing Center
Jan. 6 at The Virginia Housing Center
Jan. 7 at the Marriott – Norfolk Marriott – Chesapeake
Jan. 12 at the Marriott – Fairview Park – Falls Church

Workshops begin at 8:30 AM. A discussion on the proposed changes to the 2012 QAP will follow the How-to-apply workshops. Topics to be discussed will include:

(1) Restructuring the pools based on new census data
(2) Transit oriented development
(3) Non-competitive preservation pool
(4) Units for extremely low income person, including homeless individuals

Register for a workshop by contacting Rebecca Rowe at rebecca.rowe@vhda.com or calling (804) 343 5518.

General tax credit questions can be directed to Jim Chandler at jim.chandler@vhda.com or (804) 343 5786.

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With the debate over extending the Bush-era tax cuts coming to a close, Washington has already set it’s sites on broader tax policy issues. A recent New York Times article revealed that a tax code overhaul could become a major component of the President’s tax plans in the coming two years. The suggestion follows recent comments made by the President:

I’ll have the opportunity to make the case that we’ve got to have tax reform, that we’ve got to simplify the system, that we do have to cut spending where it makes sense. But we’re also going to have to make sure that we’ve got a tax code that is fair and that looks after the interest of middle-class Americans and continues to grow the economy.

The President’s comments are supported by a slew of recent reports on the national debt and tax policy. A key component of all three reports is the elimination or signifiant reduction of tax expenditures. Expenditures that all reports indicate account for roughly $1 trillion dollars in lost tax revenue.

The Bipartisan Policy Center’s Debt Reduction Task Force released a report on November, 16th which suggest, “An end to almost all tax expenditures to offset the costs of the much lower tax rates”. The President’s Economics Recovery Advisory Board released a report in August which calls for, “Eliminating specific expenditures [to] improve efficiency while simplifying the tax code.”

Most recently, the The National Commission on Fiscal Responsibility and Reform called for a comprehensive tax reform that would, “Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many “tax expenditures”—another name for spending through the tax code.”

While the reports agree on tax expenditure reduction, they disagree on the scope of the reform. The Commission on Fiscal Responsibility offers two scenarios of expenditure reduction, a “zero-plan” that could, “reduce income tax rates to as low as 8%, 14%, and 23%”, and a less extreme reduction allowing for some remaining tax expenditures, “Even after adding back a number of larger tax expenditures, rates would still remain significantly lower than under current law.”

The Bipartisan Policy Center distinguishes between needless expenditures and those that offer an economic benefit, “While some tax expenditures promote important social and economic goals, others have little economic justification”. This is an important distinction for those in the Affordable Housing industry who fear a complete elimination of tax expenditures could mean the end of the LIHTC program.

“We are certainly following the issue very closely”, said Peter Lawrence, senior policy director for Enterprise Community Partners, Inc, “We have made the point of communicating [to the President and Congress] the Low Income Housing Tax Credit program’s 25-year track record of success.”

Both Mr. Lawrence and the reports see the alternative to LIHTC as the expansion of housing vouchers or a new grant program all-together. These limited options make the demise of the tax credit program seem less likely, “We are very skeptical that congress would decide, in the context of discussion on the national debt, to fund an 8 billion dollar grant program.”

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The Joint Center for Housing Studies of Harvard University recently released a report entitled “Long-Term Low Income Housing Tax Credit Policy Questions”. The report takes a look at LIHTC policy issues, investment demand issues, and ongoing capital needs and asset management for LIHTC properties. Below is an introduction followed by a link to the full report:

Looking beyond any lingering problems in investment demand for tax credits left over from the broader financial crisis, there are a number of longer-term questions about the future of the Low Income Housing Tax Credit (LIHTC) program that policy makers, advocates, policy analysts, and industry leaders have raised. This paper is a follow-up to a companion paper1 that discusses in more detail the disruption in the LIHTC market that resulted from the financial crisis, the implementation and effectiveness of the two stopgap measures promulgated in the American Recovery and Reinvestment Act (ARRA), and proposals for supporting investor demand and pricing going forward.2 Like that paper, this one is based on interviews with over two dozen industry experts, a review of analyses conducted by others, and a focus session with leading stakeholders held in November 2009. This paper additionally benefits from the input of industry experts during a teleconference in December 2009. Though the intention of this brief paper is to discuss long-term questions that have been posed concerning the future of the LIHTC program, further analysis would be required before having sufficient information to act on any of them.

This paper has three parts: first, a discussion of LIHTC policy issues, including program targeting; second, an examination of current issues surrounding tax credit investment demand; and third, a brief discussion of ongoing capital needs and asset management for LIHTC properties. It is not intended to be an exhaustive review of the issues but more an enumeration based on interviews and a review of the literature.

As might be expected, there are differences of opinion about what modifications to the program may be desirable and the policy aims to which the program ought to be directed. Inasmuch as possible, we have tried to make plain what the intention of the program was so that debates over alternative policy aims—from deeper targeting to more flexibility to create mixed income developments to pursuing other aims like transit-oriented development and inclusive development—are placed into context. It is also worth noting that states are granted considerable flexibility in establishing policy priorities, which they exercise through their Qualified Allocation Plans.

Long-Term Low Income Housing Tax Credit Policy Questions

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The state of Massachusetts does not make this information available online but kindly provided Housing Think with the pdfs for their round I LIHTC applications and allocations:

Applications:
2010-1 Apps Public

Allocations:
10-1ALLOC

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The national venture will manage a 3.4 billion dollar LIHTC portfolio comprised of 275 properties contributed by Citi (from a perviously foreclosed portfolio). Highbridge will provide equity as well as strategic partnerships to the new venture and Michael Costa will bring his operations and strategic planning background as well as his experience and expertise in the tax credit process.

Read the full story at Business Wire: Citi, Highridge and Costa Form National Affordable Housing Venture

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