Last night the House passed a bipartisan tax bill that includes the first major expansion of Low Income Housing Tax Credits since 2000, a major NAAHL policy priority. The 359-70 vote was overwhelming, but Senate passage is far from certain.
The main pillars of the bill include a modest expansion of child tax credits and three business provisions. These, as well as the LIHTC portion, would apply only through next year, when Congress is expected to undertake a major review of numerous 2017 tax changes that are also set to expire then. Enacting the LIHTC provisions now would set the stage for extension as part of next year’s legislation.
The LIHTC changes would:
- Restore the temporary 12.5% increase in allocated (9%) credits that was in place from 2018-2021. The new increase would apply to 2023, 2024, and 2025.
- Reduce the tax-exempt bond financing threshold for 4% credits from 50% of total project costs to 30%. This change would apply to bonds issued before 2026 for projects placed in service after 2023.
Novogradac estimates these changes will generate more than 200,000 additional LIHTC apartments.
The tax-exempt private activity bond cap, of which 4% LIHTC projects are just one of several eligible uses, was under-utilized in most states until a few years ago, but it is constrained in many states today. To conserve the bond cap, it is common for states to issue bonds sufficient to finance only the minimum 50% of project costs. Reducing that threshold to 30% would effectively allow states to support 67% more production than is possible today. NAAHL and our allies had sought a reduction to 25%, but cost constraints made that impossible this year.
The House-approved bill reflects an agreement between House Ways and Means Committee Chair Jason Smith (R-MO) and Senate Finance Committee Chair Ron Wyden (D-OR). Its $78 billion total cost would be offset by curtailing the Employee Retention Tax Credit, a pandemic era provision that critics say is rife with fraud. Opposing Democrats said the child tax credit expansion was insufficient while opposing Republicans said it was too generous.
Including affordable housing in the bill was possible because of several factors: (1) almost one-half of all House members and 30% of the Senate – evenly divided between Republicans and Democrats in each chamber – are sponsoring LIHTC expansion legislation; (2) the Biden administration and Senate Finance Chair Wyden have made affordable housing tax credits a priority; (3) housing affordability challenges have become more urgent and politically prominent nationwide; and (4) a wide range of advocates, including NAAHL, have sustained a relentless, multiyear campaign to expand and otherwise improve the LIHTC statute. The bill omits the Neighborhood Homes Investment Act, another NAAHL tax policy priority, which would produce an estimated 50,000 ownership homes annually in distressed communities.
Senate consideration is uncertain. The strong House support should generate momentum and Senate Majority Leader Chuck Schumer (D-NY) favors passage. However, Finance Committee Ranking Member Mike Crapo (R-ID) has said he wants to scale back the child tax credit expansion. Former committee chair Charles Grassley (R-IA) opposes the bill because it could help President Joe Biden’s re-election prospects.
