By Orin Parvin

Several bills before Congress will have an impact on affordable housing developers’ access to affordable capital and the private sector’s interest in affordable housing investment. While several proposals are likely to go through numerous discussions and amendments, others are buried in bills that have unrelated focuses, and so may remain relatively intact.

Low Income Housing Tax Credit Recovery Act of 2010 S. 3141
The use of tax credits to develop low-income housing remains depressed for lack of investors. The Low Income Housing Tax Credit Recovery Act of 2010 would attempt to reinvigorate investment with extended carryback provisions.

LIHTC investment in 2009 was about $4.5 billion, only half of what it had been in 2006 and 2007. Fannie Mae and Freddie Mac, which together represented about 40 percent of the annual Housing Credit investment, have stopped investing. Other traditional investors cannot currently use tax credits because significant losses have depleted their taxable income. Some have temporarily exited the market and are not buying new credits, and some have accumulated credits they cannot currently use.

Senate bill S. 3141, introduced in March by Sen. Jeff Bingaman of New Mexico, would permit existing investors to carry back unusable existing housing credits for up to five years, an extension of the current limit of one year. This would allow investors to apply accumulated tax credits toward profits earned over the past five years, generating immediate cashflow via tax refunds. The proposal would apply only if the investor reinvested the entire amount carried back into new LIHTC investments, thus prompting existing investors to further invest in LIHTCs.

The future LIHTC investments made would also be allowed to be carried back five years. Of note, investments made with the carryback funds would not be subject to the reinvestment requirement. This could spur potential new LIHTC investors to get involved; some have heretofore been deterred by the LIHTC requirement that investors have reliably positive tax liability for at least 10 years, a prediction many new investors cannot confidently make.

A study by Ernst & Young determined the bill could add $5 billion in additional LIHTC investments.

The LIHTC Recovery Act bill has received strong industry support, including that of the National Affordable Housing Management Association, National Housing & Rehabilitation Association, American Association of Homes and Services for the Aging and the Council for Affordable and Rural Housing. At press time, it had been referred to the Committee on Finance. A similar bill, HR 4109, has been introduced in the House of Representatives. Senate bill S. 3326 also proposes a five-year carryback as well as a one-year extension of the LIHTC cash grant exchange program, which would be extended to 4 percent tax credits in addition to 9 percent credits.

The Housing Preservation and Tenant Protection Act of 2010 H.R. 4868
A 2004 Government Accountability Office report estimated that federally-subsidized debt covering over 193,000 units would mature by 2014, leaving those properties open to conversion to market rate housing when the mortgage subsidy and low-income affordability restrictions expire. House bill 4868 is being introduced to preserve those existing properties, and future federally-subsidized housing investments, as affordable housing.

The bill includes numerous budgetary and regulatory elements, but the four main subsections are:

• Provide resources and incentives to prevent the further loss of affordable housing units: These include grants and loans to recapitalize or transfer property to a ‘preservation purchaser’ along with several other provisions such as allowing owners to receive budget-based rent increases.
• Prevent tenant displacement: This provision would provide ‘tools’ to recapitalize the aging Section 202 elderly housing portfolio. Also included are notification requirements to ensure that tenants are given notice prior to market-rate conversion, as well as providing assurance that all low- and moderate-income tenants are eligible for enhanced vouchers in the event of a market-rate conversion.
• Preserve Rural Housing: The bill would make permanent a rural housing revitalization demonstration program launched in fiscal 2006 that is designed to preserve and recapitalize U.S. Department of Agriculture Section 515 properties. The section incorporates the Rural Housing Preservation Act proposed as HR 2876 in 2009 and as HR 4001 in 2008.
• Establish a nationwide public database of federally assisted properties to more effectively monitor and preserve the existing portfolio of affordable housing.

The extensive bill was introduced in March by House Financial Services Committee Chairman Barney Frank of Massachusetts and has been referred to several House committees. Overall, it has met with industry support, particularly for its inclusion of Section 202 and rural housing demonstration program provisions.

The bill does, however, require some additional reporting requirements. It includes a provision that would require that owners notify HUD of their intent to sell a property and give HUD first refusal to purchase properties for sale. A coalition of housing industry groups has expressed support for many of HR 4868’s provisions but has said it will oppose the bill unless amendments are made, including the removal of the first right of refusal provision. The group includes the Council for Affordable and Rural Housing, National Association of Affordable Housing Lenders, Affordable Housing Tax Credit Coalition, Institute of Real Estate Management and others.

American Jobs and Closing Tax Loopholes Act H.R. 4213
The unemployment extension bill was primarily introduced to extend eligibility to file for extended unemployment benefits until the end of this year. The bill also contains several provisions that are of interest to the affordable housing community.

Among them is the placed-in-service deadline extension, which would allow developers an additional two years to use Gulf Opportunity Zone (GO Zone) Low-Income Housing Tax Credits. Also included in this legislation is a one-year extension of the New Markets Tax Credit (NMTC) program, which would provide $5 billion to incentivize private investment in low-income urban neighborhoods and rural communities nationwide. The NMTC program expired at the end of 2009. Finally, the bill includes extension of the 9 percent LIHTC exchange program to the end of 2010.

Both the Senate and House have passed versions of the bill.

Small Business and Infrastructure Jobs Tax Act H.R. 4849
The small business tax act is foremost a tax relief bill for small business and also provides extensions for financing measures designed to create jobs. This bill, like HR 4213, has several provisions that will be of interest to developers: It would expand the LIHTC Exchange program to include 4 percent tax credits. It also would extend the Build America Bonds program, in which public entities can receive a refund of a percent of their interest costs on taxable debt (35 percent in 2010, though the percentage could change) through April 1, 2013.

H.R. 4849 was approved by the House of Representatives on March 24th but has yet to be approved in the Senate. Like H.R. 4213, it is likely to pass in some form.

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