Af­ford­able Hous­ing Ad­vo­cates Take Stock of Tax Bill Pro­vi­sions

The Bond Buyer - - Front Page - By Kee­ley WeB­ster

LOS AN­GE­LES — The House GOP tax bill would un­der­mine Cal­i­for­nia’s ef­forts to fight its hous­ing short­age, say af­ford­able hous­ing ad­vo­cates.

The im­pact would be na­tional, but would be keenly felt in Cal­i­for­nia, where the leg­is­la­ture just passed 15 bills aimed at tack­ling the state’s hous­ing cri­sis.

The leg­is­la­tion would erad­i­cate pri­vate ac­tiv­ity bonds and un­der­mine the low-in­come hous­ing tax credit by elim­i­nat­ing the avail­abil­ity of cred­its for projects where at least 50% is fi­nanced by tax-ex­empt pri­vate ac­tiv­ity bonds.

“Nearly two-thirds of af­ford­able hous­ing in the state is pro­duced be­cause of pri­vate ac­tiv­ity bonds,” State Trea­surer John Chi­ang said at the Cal­i­for­nia Eco­nomic Sum­mit ear­lier this month in San Diego.

Un­der a bill ad­vanced Thurs­day by the House Ways and Means Com­mit­tee, the tax ex­emp­tion for pri­vate ac­tivi- ty bonds would be ter­mi­nated af­ter Dec. 31. Ter­mi­nat­ing the tax ex­emp­tion for all PABs af­ter Dec. 31 would raise $38.9 bil­lion over 10 years to fund Repub­li­can plans to lower other taxes, ac­cord­ing to the Joint

Com­mit­tee on Tax­a­tion.

The re­peal of the PAB ex­emp­tion would elim­i­nate credit avail­abil­ity for hous­ing projects where at least half is fi­nanced by PABs, ac­cord­ing to a pub­li­ca­tion posted Nov. 3 by Bal­lard Spahr.

“About half of the pro­gram would be ef­fec­tively elim­i­nated by re­peal­ing pri­vate ac­tiv­ity bonds,” said Ali­cia Glen, New York’s deputy mayor for hous­ing and eco­nomic de­vel­op­ment.

Chi­ang sent a let­ter Fri­day to House Ma­jor­ity Leader Con­gress­man Kevin McCarthy, R-Calif., a leader in the House’s tax ef­forts, urg­ing him “to pre­serve fund­ing for the Low In­come Hous­ing Tax Credit and pri­vate ac­tiv­ity bond pro­gram.”

Cal­i­for­nia is the largest ben­e­fi­ciary of the 4% Hous­ing Credit and tax-ex­empt pri­vate ac­tiv­ity bonds in the coun­try, ac­cord­ing to Chi­ang’s let­ter.

The tax credit and PAB pro­grams alone are re­spon­si­ble for 101 projects since 2013 that pro­duced 9,418 af­ford­able hous­ing units in Cal­i­for­nia’s 14 GOP-held con­gres­sional dis­tricts alone, Chi­ang said Fri­day. In all, Cal­i­for­nia has 53 con­gres­sional dis­tricts.

In 2016, af­ford­able hous­ing projects in Cal­i­for­nia re­ceived $2.2 bil­lion of 4% hous­ing cred­its and the state de­ployed more than $6 bil­lion of pri­vate ac­tiv­ity tax-ex­empt bond author­ity for mul­ti­fam­ily and sin­gle fam­ily homes, ac­cord­ing to Chi­ang’s let­ter. These two fund­ing sources cre­ated or pre­served more than 20,600 af­ford­able homes in 2016, of which 19,275 homes were for house­holds earn­ing 60% or less of area me­dian in­come.

More than 6,699 hous­ing units in­volve new con­struc­tion and 5,037 of the 20,600 homes have been set aside to house se­niors and house­holds with spe­cial needs in­di­vid­u­als.

“We can­not over­state the vi­tal role these pro­grams play in build­ing and pre­serv­ing af­ford­able hous­ing through­out the na­tion, but es­pe­cially in Cal­i­for­nia as we strug­gle with a hous­ing cri­sis that is quickly metas­ta­siz­ing into a hu­man­i­tar­ian and pub­lic health catas­tro­phe,” Chi­ang wrote. “Not only does Cal­i­for­nia ac­count for one-fifth of the na­tion’s home­less, but one-in-three renters com­mit more than half of their wages to rent.”

The elim­i­na­tion of the pri­vate ac­tiv­ity bond pro­gram “would throw gaso­line on a hous­ing short­age that al­ready stands at one and a half mil­lion units and is grow­ing by an alarm­ing 60,000 units each year,” Chi­ang said.

Af­ford­able hous­ing ini­tia­tives in New York would be dev­as­tated, ac­cord­ing to that state’s top hous­ing of­fi­cial.

“The pro­posed elim­i­na­tion of pri­vate ac­tiv­ity bonds jeop­ar­dizes the un­prece­dented com­mit­ment of Gov­er­nor [An­drew] Cuomo to pro­vide safe af­ford­able hous­ing and com­bat home­less­ness across New York State,” said RuthAnne Vis­nauskas, com­mis­sioner for New York State Homes and Com­mu­nity Re­newal.

Her agency has is­sued more than $10.9 bil­lion of tax-ex­empt bonds along with $13 bil­lion in pri­vate cap­i­tal since 2011, ac­cord­ing to Vis­nauskas, who was ap­pointed to the hous­ing post in March.

The tax re­form plan “is wip­ing out the as­sem­bly of all pri­vate ac­tiv­ity bonds, which is the crux of most post-rede­vel­op­ment agency deals,” said Larry Kos­mont, pres­i­dent and chief ex­ec­u­tive of­fi­cer of Kos­mont Com­pa­nies, a gov­ern­ment and real es­tate con­sult­ing firm in South­ern Cal­i­for­nia.

A Cal­i­for­nia law passed in 2011 dis­solved its more than 400 rede­vel­op­ment agen­cies.

In ad­di­tion to en­cour­ag­ing pri­vate de­vel­op­ment in blighted ar­eas, the state’s for­mer RDAs were also re­quired to set aside 20% for af­ford­able hous­ing.

The rede­vel­op­ment agen­cies con­trib­uted $1 bil­lion a year to af­ford­able hous­ing through the 20% set-aside, a con­tri­bu­tion that ended when the rede­vel­op­ment agen­cies were abol­ished, Kos­mont said.

Chi­ang and for­mer Los An­ge­les Mayor An­to­nio Vil­laraigosa, who are both run­ning for gov­er­nor in 2018, said they would bring back rede­vel­op­ment agen­cies to aid in tack­ling the state’s hous­ing cri­sis.

The state needs to build 180,000 new homes over the next decade to deal with pop­u­la­tion growth and house cur­rent res­i­dents, ac­cord­ing to a state Depart­ment of Fi­nance re­port. The state’s hous­ing bills passed re­cently would get at 10% of that fig­ure, ac­cord­ing to Kos­mont.

If PABs are elim­i­nated, the pic­ture will get much bleaker.

The low-in­come tax credit for af­ford­able hous­ing will be in­ef­fec­tive with­out the abil­ity to use it in con­junc­tion with tax-ex­empt pri­vate ac­tiv­ity bonds, Kos­mont said.

“The only way we can do them is through PABs,” Kos­mont said. “The other op­tion is lease-lease­backs, but in Cal­i­for­nia you are then faced with pre­vail­ing wage and other high-cost items that make that op­tion com­pli­cated.”

States and lo­cal gov­ern­ments would have to find some other way to pro­vide af­ford­able hous­ing, said Richard Jost, di­rec­tor of Las Ve­gas law firm Fen­nemore Craig.

“There would still be low in­come hous­ing tax cred­its to gen­er­ate pro­duc­tion of rental hous­ing for low and mod­er­ate hous­ing, but there is tight com­pe­ti­tion to get the 9% cred­its,” Jost said.

States auc­tion off 9% tax cred­its once or twice a year to af­ford­able hous­ing devel­op­ers, who put in bids. Any af­ford­able hous­ing of which more than 50% of the cost was fi­nanced through tax ex­empt bonds got the 4% tax cred­its, Jost said.

In or­der to qual­ify for the 4% tax credit pro­gram, af­ford­able hous­ing devel­op­ers need to be able to part­ner with the gov­ern­ment on the is­suance of pri­vate ac­tiv­ity bonds to sup­port the project.

“That has been help­ful for states like Ne­vada where the 9% tax cred­its did not go far enough,” Jost said.

“If all the states are left with are 9% tax cred­its, the com­pe­ti­tion for those cred­its would be hor­ri­ble,” Jost said.

“In states like Cal­i­for­nia, there are much big­ger needs, be­cause of the fires and other prob­lems they have ex­pe­ri­enced,” Jost said. “I think it would be dev­as­tat­ing for them.”

This year’s Cal­i­for­nia hous­ing leg­is­la­tion would be un­der­mined by the House tax bill, Kos­mont said. The state’s vot­ers will be asked in Novem­ber 2018 through a bond mea­sure to au­tho­rize $4 bil­lion of bonds with the hope of lever­ag­ing nearly $11 bil­lion more in fed­eral tax cred­its.

“The state just ap­proved 15 hous­ing bills in Cal­i­for­nia, sev­eral of which are de­pen­dent on lever­ag­ing and pro­vid­ing fed­eral sup­port through tax cred­its – those would be de­stroyed by the pro­posed fed­eral leg­is­la­tion,” Kos­mont said.

Chi­ang said the elim­i­na­tion of PABs, would be a huge blow to those ef­forts and other states’ ef­forts to sup­port new hous­ing for mid­dle class and poor peo­ple.

The elim­i­na­tion of the pri­vate ac­tiv­ity bond pro­gram “would throw gaso­line on a hous­ing short­age that al­ready stands at one and a half mil­lion units,” said Cal­i­for­nia State Trea­surer John Chi­ang.

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