CBO targets tax credits and CDBG programs
The Congressional Budget Office (CBO) released last Thursday “Budget Options, Volume 2.” This focuses on various strategies to reduce spending or increase income to reduce the federal deficit. A total of 188 options are listed. To read the full report click here.
Among these would be two that directly impact housing.
One would drop wealthier communities from participating in the Community Development Block Grant program. This would save $5.36 billion over ten years.
The second would the repeal of the low-income tax credit program. This would increase revenue by $29,2 billion over ten years.
Neither seems to have the support necessary to implement them.
The following is part of the text form the report on these two recommendations.
To read the full report click here.
Community Development Block Grant
This option would focus CDBG entitlement grants on needier areas and reduce funding accordingly. The option could be implemented in a variety of ways, but one approach would be to exclude communities whose per capita income exceeds the national average by more than a specified percentage. For example, restricting the grants to communities whose per capita income was less than 110 percent of the national average would reduce entitlement funds by 21 percent. To illustrate the general approach, this option would make a slightly smaller cut of 20 percent, which would save $1.6 billion over five years. (The President’s budget for 2010 includes a proposal to improve the formula’s targeting of needy communities but does not specify the changes and increases in total spending on the program.) One argument in favor of this option is that it would reduce a program that should not exist, because it might not be appropriate to use federal funds for local development. An alternative argument is that even if the CDBG program can be justified because of its redistributive effects, redirecting money to wealthier communities serves no pressing interest.
The main argument against this option is that dropping wealthier communities from the CDBG program could reduce efforts to aid low-income households within those communities unless local governments reallocated their own funds to offset the lost grants.
Low Income Housing Tax Credits
An argument in favor of this option is that, in most places, federal housing vouchers could assist the same number of people at a lower cost. (The vouchers’ cost is not shown in the table.) The federal government’s voucher program helps eligible people pay some or all of the rent for housing they choose, provided the dwelling meets minimum standards for habitability. In most cases, vouchers are more likely than tax credits to help low-income people become renters because the existing housing stock generally provides adequate housing more affordably than new or substantially rehabilitated buildings can. Higher administrative costs also can make LIHC-subsidized housing more
expensive to produce and rent.
Another rationale for repealing the credit is that it does not by itself always fulfill its intended purpose. In general, unless renters or owners are given additional subsidies, the lowest-income households cannot afford the units built or rehabilitated under the LIHC. Instead, the credit tends to benefit lower-middle-income people who typically have too much income to qualify for vouchers or public housing.
Proponents of retaining the credit assert that the LIHC is needed because investment by owners in new or rehabilitated rental properties can help revitalize neighborhoods that have little existing housing that meets minimum standards for habitability at affordable rents. A similar amount of spending on housing vouchers is not likely to produce a noticeable change in a given neighborhood because the funds are not spent in a single project but are distributed across many neighborhoods.
