CARH Submits Comments on Tax Reform & LIHTC Program; Overview of FY14 Proposed Budget

CARH'S Broadcast Email — Legislative and Regulatory Update - April 18, 2013

1) CARH Submits Comments to Working Groups within House Ways and Means Committee on Tax Reform and the Low Income Housing Tax Credit (LIHTC) Program

As members of both parties in the House and Senate as well as the president look to comprehensive tax reform as a way to reduce the deficit in the long term and increase our economic stability, there is beginning a full scale review of all tax credits in the current Internal Revenue Code.

To help with this review, the chair and ranking member of the House Ways and Means Committee, Representatives Dave Camp (R-MI) and Sander Levin (D-MI) Committee created eleven tax reform working groups, which are charged with examining portions of the tax code and soliciting public comments through April 15. Soon after, the results of the review and comment period will be shared with the full committee in a report by the Joint Committee on Taxation.

The Real Estate Tax Reform Working Group, chaired by Reps. Sam Johnson (R-Texas) and Bill Pascrell (D-N.J.), are responsible for review of all revenue measures which impact the housing arena. CARH, with input from members of our developers and owners committees submitted comments (click here for a copy of the letter) to this working group as well as two other working groups which have some overlap into the Low Income Housing Tax Credit (LIHTC) discussion. In our comments CARH, told the committee members of the importance of the housing credit for rural housing transactions, its success as well as some recommended changes which could open up the credit to more rural transactions. CARH also suggested that Committee members should support changes to the tax code allowing for exit tax relief for preservation activities. CARH also signed on to a letter circulated by a very large coalition of affordable housing groups that specifically dealt with LIHTC.

At a breakfast on Tuesday, April 16, 2013 with the House Democratic Leader, Nancy Pelosi and other members of the Ways and Means Committee, Colleen M. Fisher, CARH’s Executive Director, reiterated the need for the LIHTC program vis-à-vis rural housing, particularly the preservation of the existing stock. It is estimated that the House Ways and Means Committee will begin to consider tax reform issues in earnest this summer. It will be important for CARH members to continue your interaction with your Members of Congress on this important issue. Feel free to share the linked letter with your members of Congress and staff. The LIHTC program will also be one of the top issues that will be discussed during CARH’s Annual Meeting and Legislative Conference in June.

2) Overview of the FY 2014 Proposed Budget by Administration

Last week, the Administration formally submitted to Congress the proposed budget for the federal government for Fiscal Year (FY) 2014. This proposed budget would replace the across-the-board budget cuts imposed by sequestration with a more targeted approach to deficit reduction. The provisions included in this proposal would bring total deficit reduction to $4.3 trillion – enough to offset the 5 percent sequestration implemented on March 1. In order to achieve this, the president’s deficit reduction proposals would include: $580 billion in additional tax revenue from tax reform that closes loopholes and reduces tax benefits for the highest-income households; $400 billion in health savings; $200 billion in savings from other mandatory programs like farm subsidies and federal retirement benefits; $200 billion in discretionary savings (split evenly between defense and non-defense programs); $230 billion in savings from using a chained measure of inflation for cost-of-living adjustments in Social Security; and $210 billion in savings from reduced interest payments on the debt. The proposal would also provide $50 billion in immediate infrastructure investments to spur economic activity.

Both the House and Senate have passed non-binding budget resolutions. These resolutions were passed prior to the Administration’s proposed budget. The Administration’s budget was issued late this year due to the March 1st sequestration and the FY 2013 Continuing Resolution that passed at the end of March. The current fiscal year’s budget is usually the starting point for the next year’s budget but sequestration and the Continuing Resolution made across the board cuts that complicated the proposed budget. The attached charts indicate proposed funding for both the Departments of Housing and Urban Development (HUD) and the United States Department of Agriculture’s Rural Development (RD) housing programs.

The Administration proposes $33.1 billion in HUD budget authority, a $288 million, or 1 percent, decrease from the $33.4 billion HUD appropriation provided under the FY2013 spending bill the President signed March 26, 2013. After accounting for offsetting receipts, mostly from the FHA mortgage insurance program, the budget proposes to spend $47.6 billion on HUD programs, a $3 billion, or 6.7 percent, increase over its FY2013 funding level. The HOME Investments Partnership Program on the other hand, would be funded at $950 million, a 5% cut from FY2012 enacted levels. There is a request of $1 billion to fund the Housing Trust Fund, which, as CARH members will recall, was to be funded several years ago from the profits of Fannie Mae and Freddie Mac. However, with the conservatorship of both of these Government Sponsored Enterprises (GSEs) this did not happen. There is also a long-term concern that the 10-year budget projections now show a decline in HUD’s projected allocations. The Administration requests $30 billion in commitment authority for HUD’s multifamily, healthcare and hospital programs. HUD’s commitment authority for FY2013 is $25 billion, and HUD expects to need another $5 billion this summer, before we reach FY2014. CARH is working with an industry coalition to secure this additional $5 billion in commitment authority for FY2013. While multifamily housing remains strong, FHA has been hearing concerns about its position in its single family programs. FHA expects to draw $934 billion from the Treasury to pay for single family loan losses.

For RD’s housing programs, $28.4 million would be allocated for the Section 515 Rural Rental Housing Loan program, $2.9 million less than its FY2013 funding level of $31.3 million. The budget also proposes $20 million for the Multifamily Preservation and Revitalization (MPR) demonstration program, a $2.7 million increase from its FY2013 appropriation. The Section 521 Rental Assistance program would be funded at $1.015 billion or $100 million over the FY2013 level. This proposed increase is due primarily to renewal of existing contracts as well as ones that will move from five year to one year renewals. The Section 538 Guaranteed Rural Rental Housing Loan program would receive $150 million in budget authority, equal to its FY2013 funding level. Proposed funding for the Section 542 Rural Housing Voucher program is $12.6 million, an increase of $2.6 million from the FY2013 appropriated amount. Finally, $360 million would be provided for the Section 502 single-family subsidized direct loan program, a $540 million, or 60 percent, decrease from its FY2013 appropriation. The budget recommends funding the Section 502 unsubsidized guaranteed loan program at $24 billion, equal to its FY2013 funding level.

In addition to permanently changing the formula to determine 9 percent and 4 percent rates to provide a flat or more consistent credit rate. The budget proposal includes a number of Low Income Housing Tax Credit (LIHTC) program proposals that would:

• Allow states to increase their LIHTC authority by converting some of their private activity bond volume cap into housing credits allocations.

• Change the formulas used to produce the credit rates. Rather than extend the 9 and 4 percent floors permanently, the proposal would use revised formulas effective December 31, 2013, to produce annual allocated-credit rates that are somewhat higher than the rates that today’s present-value formulas.

• Modify income eligibility rules to allow projects to comply with an income-averaging rule, under which the income limits for at least 40 percent of the units in a project could average 60 percent of area median income (AMI) or lower, so long as none of the units are occupied by an individual with income greater than 80 percent of AMI. There would be exceptions to the income averaging rule for tenants in LIHTC properties receiving rental subsidies from HUD or RD.

• Add preservation of federally assisted affordable housing as a mandatory selection criterion for states as they award housing credit allocations.

• Make LIHTCs beneficial to real estate investment trusts (REITs) by allowing REITs to designate some dividends as tax exempt.

The proposed budget also includes a permanent reauthorization of the New Markets Tax Credit (NMTC) at $5 billion in allocation authority per year, in addition to authority to offset Alternative Minimum Tax liability.

Again, funding levels and the impact of reforming the tax code on all affordable housing programs will be a major topic during CARH’s Annual Meeting and Legislative Conference in June. CARH members should look for broadcast email updates on the budget throughout the year.

Please contact the CARH national office at or 703-837-9001 should you have further questions.

Posted in: HUD, LIHTC, USDA