Sens. Cantwell and Hatch Introduce 50% LIHTC Expansion Bill
Senate Finance Committee Chairman Orrin Hatch (R-UT) has joined long-time LIHTC champion Sen. Maria Cantwell (D-WA) in introducing legislation to expand allocations of Low Income Housing Tax Credits by 50%, phased in over five years. Sen. Cantwell estimates this expansion will generate an additional 400,000 units over 10 years. The bill, S. 2962, would also set a minimum 4% annual credit rate for bond-financed properties and building acquisition costs; and allow an average income test that would promote more mixed-income LIHTC properties.
Although Sen. Cantwell had previously announced her plans to introduce a LIHTC expansion, the bill’s prospects are greatly bolstered by the support of Chairman Hatch; Sen. Ron Wyden (OR), the committee’s ranking Democrat; and Sen. Chuck Schumer (NY), another senior committee Democrat and the expected Senate Democratic leader starting in 2017.
Broader business or individual tax reform legislation in 2017 or 2018 is the mostly likely vehicle for moving the bill forward. Introduction of the Cantwell-Hatch LIHTC bill this year is important to attracting broader support in the Congress in anticipation of broader tax legislation.
Phasing in the allocation expansion over five years reduces the estimated cost of the 50% volume increase. The 4% minimum credit rate would significantly expand the feasibility and number of tax-exempt bond financed projects, which automatically qualify for such credits, as well as preservation projects where building acquisition costs are significant. The corresponding rate under current law, set by a discounting formula, is about 3.2% today. The formula rate would be available if interest rates rise high enough for it to exceed the 4% floor.
The average income test would provide an optional alternative to current law, which allows credits only for units with rents and occupancy limited to 60% (or in some cases, 50%) of the area median income. Under the new provision, a LIHTC project sponsor could designate rent and occupancy limits for each unit at 20- 80% of the area median income, provided that the project-wide average does not exceed 60%. This provision will promote a broader mix of incomes and rents within LIHTC projects, and should be especially useful in advancing neighborhood revitalization, projects in sparsely populated rural areas, and the preservation of existing properties where some tenants’ incomes are 60-80% of the area median.
The Cantwell-Hatch bill does not include a number of other provisions that Sen. Cantwell had included in early drafts. These provisions could resurface as the legislative process develops.
NAAHL is a steering committee member of the national ACTION campaign to expand and improve the LIHTC authority.