Congress’ One-Year Tax Extenders Package Falls Short
On Wednesday, the House of Representatives passed a bill that would extend a number of tax breaks that had expired at the end of 2013 through January 1, 2015, including the minimum 9 percent Low-Income Housing Tax Credit (Housing Credit) rate and the New Markets Tax Credit (NMTC). While this one-year extension of various corporate and individual tax provisions will provide one additional round of NMTC allocation and will benefit some other industries retroactively, it will essentially be of no use to Housing Credit stakeholders.
If the Senate agrees to this one-year extension, the Community Development Financial Institutions (CDFI) Fund will be authorized to award $3.5 billion in NMTCs to Community Development Entities that submitted applications by October 1, 2014. Over 250 applicants applied for the 2014 round, requesting an aggregate total of $19.9 billion in NMTCs that far exceeds the bill’s authorization. The $3.5 billion is expected to result in roughly $7 billion invested in low-income communities, 75 percent of which have unemployment rates of at least 1.5 times the national average and poverty rates of over 30 percent.
Though one additional round of NMTC allocation is good news and far preferable to having the program expired, future investment in disadvantaged communities is at risk without an extension of the NMTC beyond 2014. While we believe the NMTC should be made permanent, even a two-year extension would not only double the impact in distressed communities, but also provide greater predictability.
A two-year extension of expired provisions is also necessary in order to have any positive impacts on affordable housing development. Ever since the minimum 9 percent Housing Credit rate expired at the end of 2013, Housing Credit developments have been underwritten using a floating rate, which has hovered near 7.5 percent. That means each Housing Credit development has been able to receive somewhere between 15-20 percent less equity than it would be able to receive with the minimum credit rate. As a result, affordable housing financing has become more difficult, meaning many developments have had to cut back on features that benefit residents, serve higher-income tenants, and/or rely more heavily on other sources of financing which are facing their own constraints. In the worst cases, some affordable housing developments have simply become unfeasible. Nonetheless, the 2014 Housing Credit allocation has been distributed and the vast majority of deals have already closed, meaning retroactively approving a minimum credit rate will provide no benefit.
In order for an extension of minimum Housing Credit rates to make a difference, it must apply to future affordable housing developments. Because the one-year tax extender bill would only provide a minimum 9 percent rate through January 1, there are essentially no deals that could benefit.
Enterprise and the ACTION campaign are urging Congress to, at the very least, extend the Housing Credit’s 9 percent minimum credit rate floor for two years until the end of 2015. Though one year has already been lost to the floating rate, the two year extension would effectively provide one year of the minimum 9 percent rate while the one year extension provides zero.
Enterprise urges Congress to pass a longer term solution - at the very least a two-year extension of both of the NMTC and the minimum Housing Credit rate. With so many families in need, we cannot afford to let these important affordable housing and community development provisions remain expired.