Tax overhaul hits affordable housing

Corporate tax cut lowers value of developer credits

More than a year ago, President Donald Trump tweeted that Congress would soon be considering a major tax reform package.

That tweet ended up adding about $600,000 to the cost of a Santa Fe senior housing renovation project, says Ed Romero, executive director of the Santa Fe Civic Housing Authority, the agency that oversees public housing assistance in a city long struggling with a shortage of affordable housing.

“That tweet caused a ripple in the market,” Romero recalled recently, adding it prompted housing officials to renegotiate a contract to renovate the Pasatiempo and Villa Hermosa complex off Alta Vista and Luisa streets.

But Romero says that incident pales in comparison to the threat to the housing authority’s efforts posed by the tax package that Congress passed and Trump signed last year. “It’s going to hurt,” Romero said. Romero was talking about a federal tax credit program created in 1986. Part of President Ronald Reagan’s tax overhaul, Congress created an incentive meant to encourage the private sector to help build affordable housing. Corporations have received tax credits totalling about $9 billion a year for financing construction of about three million apartments for low-income residents across the country.

For example, when the Santa Fe Civic Housing Authority broke ground in 2010 on the new Villa Alegre housing complex near downtown on West Alameda Street, a breakdown of the financing for the $23.4 million in development costs showed that about $9.5 million came from investors such as Google and Verizon in exchange for credits allowing them to offset their federal income tax liability by becoming silent partners in such projects.

“Conservatives saw the approach as a tax break and a way to use private markets to solve public problems,” explained a January article in The New

York Times. “Liberals saw it as a way to direct federal money to local communities.” Then came last year’s tax cuts. The Republican-crafted plan significantly lowered the tax rate for corporations. Thus, experts say, the value of affordable housing credits also is reduced.

“The only way we’ve been able to produce affordable rental housing in Santa Fe in the past 20 years or so is through this federal incentive,” Alexandra Ladd, the city’s housing projects manager, said Friday.

The new federal tax law “kills any incentive for the private market to participate in affordable housing,” Ladd said.

The New York Times quoted an analysis by the San Francisco-based Novogradac & Company, a national accounting firm, that said the new tax law will reduce the growth of subsidized affordable housing by 235,000 units over the next decade, compounding an existing shortage.

Michael Novogradac, managing partner of the firm, told the Times: “It’s the greatest shock to the affordable-housing system since the Great Recession.”

U.S. Sen. Martin Heinrich, D-N.M., who voted against the tax bill, said Friday that there was no discussion in the Senate of the effect of the tax cuts on the affordable housing incentives.

“I think it’s a symptom of when you write tax legislation in the leader’s office and you don’t have exhaustive public hearings,” he said. “You don’t know what the unintended consequences are going to be. So we will see many more of these kind of stories over time.”

While private participation in affordable housing could dry up, the need for such housing is not decreasing, both Romero and Ladd say.

Ladd referred to a recent study of low-income rentals in Santa Fe — for those who can only afford to pay $600 a month or less — that showed a gap of at least 2,500 units.

She also said a developer at a recent real estate conference said the total market gap for affordable housing in Santa Fe was about 6,000 dwellings.

“That doesn’t mean there are 6,000 homeless people,” she said. “It means that about 6,000 people with moderate incomes are being stretched. They’re paying more than 30 percent of their income on housing. And it means lowincome people are living on couches or in their cars or in disgusting hotel rooms with 10 other people.”

While the Santa Fe Civic Housing Authority oversees a half-dozen public housing complexes with 563 units for families, seniors and disabled households, a notice on the authority’s website says the waiting list for families and disabled households is closed.

The agency also administers a federal voucher program that subsidizes rents for households with an average income of about $12,600 a year, but the waiting list for those benefits also is closed, the website says, noting that “it was last opened in November 2014.”