Will the Senate concur?
The Center on Budget and Policy Priorities has published an analysis by Will Fischer of the exchange option included in the House approved economic recovery plan. This would allow state housing agencies to exchange some credits for federal grants, which they would then distribute to developers to support the production of affordable rental housing.
The Senate bill being debated this week does not include this provision.
Click here to read the full report entitled Exchange Plan in House Recovery Bill offers Best Hope for Low-Income Housing Tax Credit.
These are some of the highlights.
The economic downturn has sharply reduced the effectiveness of the Low-Income Housing Tax Credit, the nation’s primary subsidy for development of affordable rental housing. Faced with lower profits and reduced access to capital, fewer corporations are willing to invest in affordable housing in exchange for the credits. As result, the LIHTC is supporting far less construction and rehabilitation of affordable housing and creating far fewer jobs than it has in the past. This is occurring at a time when the number of homeless families is rising and the already extensive need for affordable rental housing is likely to grow.
The economic recovery bill that the House of Representatives passed on January 28, 2009 contains a simple response to the problems in the LIHTC program. It would temporarily allow state housing agencies to exchange some credits for federal grants, which they would then distribute to developers to support the production of affordable rental housing. This exchange option offers the most cost effective way to promptly and reliably restore LIHTC-funded affordable housing production – and consequently to stimulate substantial economic activity. A broad range of housing organizations -representing state agencies, homebuilders, tax credit syndicators, low-income advocates, and others – have expressed support for an exchange option like that in the House bill.
Recovery legislation that the Senate Finance Committee approved on January 27, 2009 does not include the exchange option. Inclusion of the House provision in the final recovery legislation would strengthen the credit’s stimulative impact. Congress also could make the provision’s impact stronger by allowing exchange of a type of LIHTC (the “4 percent” credit) that the House provision does not cover.
The House exchange provision would allow states to trade in to the Treasury up to 40 percent of their 9 percent credits for 2009, and any unused 9 percent credits left over from earlier years, in return for upfront federal grants worth 85 percent of the value of the credits. The states would then allocate the grants to developers, which would be subject to the same affordability requirements as those that apply to regular credits.
This exchange option would increase the resources available to states to build affordable housing.
It would do so in two ways.
States would receive more funds in exchange for the credits than developers can now obtain from private investors. Because the exchange rate of 85 cents on the dollar is above the current market price of about 70 cents on the dollar, the grants would provide more funds for affordable housing development than investors would pay for the credits. In many cases, exchange grants would go to projects where developers now are unable to sell the credits they have been allocated at prices sufficient to build or rehabilitate affordable housing.
The exchange could stabilize or raise prices for credits that are not exchanged. Tax credit prices are determined by supply and demand. As a result, the removal of a large number of unsold credits from the market could stabilize or even push up prices for those that remain (though it is difficult to predict the extent of the impact). Higher prices for remaining credits would increase the funds available for development of affordable housing.
The exchange option would achieve these goals at little or no long-term federal cost. The option would have a significant short-term cost in 2009 – estimated at $3 billion by the Joint Tax Committee (JTC) – because the grants would be provided up front while the LIHTCs that would be traded in are normally claimed by investors over a period of ten years. By 2019, however, JTC estimates that the savings from the exchanged credits will have offset all but $69 million of the grant cost.
