December 2, 2017

Senate Passes Tax Reform Bill, Urgent Action Needed to Protect Housing Bonds and NMTC in Conference

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Last night the Senate passed its version of the “Tax Cuts and Jobs Act” by a vote of 51 - 49. All Democrats voted against the bill, in addition to Senator Bob Corker (R-TN). The Senate version of the bill retains the Low-Income Housing Tax Credit (Housing Credit); private activity bonds, including multifamily Housing Bonds; and the New Markets Tax Credit (NMTC), as currently authorized through 2019. It also makes several modifications directly and indirectly impacting the Housing Credit, outlined below.

The next step is for the two chambers to reconcile the differences between their bills. The House is expected to vote to proceed to a conference on Monday evening, and we expect negotiations to begin in earnest next week. It is also still possible that the House will forego a conference and instead vote on the Senate-passed version of the bill; however, at this point indications are that they will seek to conference their bills. 

The House version of the Tax Cuts and Jobs Act would retain the Housing Credit, but repeal private activity bonds, including multifamily Housing Bonds, and repeal the NMTC. If Housing Bonds are repealed, roughly 800,000 affordable homes would not be built over the next decade, according to analysis from Novogradac & Company. See state-by-state estimates of the impact of eliminating Housing Bonds here. Repealing the NMTC would also make it much more difficult to revitalize our nation’s most distressed communities.

Our top priority as the House and Senate head to conference is the preservation of multifamily Housing Bonds and NMTC, which face risk of elimination. See the ACTION Campaign’s talking points on Housing Bonds and the New Markets Tax Credit Coalition’s talking points on the NMTC, and reach out to your Republican members of Congress over the weekend urging them to retain Housing Bonds and the NMTC in the final tax reform bill.

Earlier this week Rep. Randy Hultgren (R-IL-14) sent a letter to House and Senate leadership signed by twenty additional Republican representatives urging for the restoration of private activity bonds, focusing on the need for bonds to support investments in our nation’s infrastructure and affordable housing for low- to moderate-income families. Also this week, 26 Republican representatives signed on to Rep. Lloyd Smucker’s (R-PA-16) letter to House leadership urging them to preserve the NMTC and Historic Tax Credit in tax reform. We encourage anyone represented by one of these members to thank them and ask for their continued support as the final bill is negotiated.

Modifications to the Housing Credit

The new version of the bill includes an amendment filed by Senator Pat Roberts (R-KS), which would make several additional changes to the Housing Credit:

  • Replace the existing Housing Credit general public use requirement exception for artist housing with one for veterans. Removing the current law safe harbor would put all existing artists' housing at risk for tax credit recapture, and
  • Treat rural areas as difficult development areas for purposes of receiving a basis boost. This provision is offset by reducing the maximum amount of basis boosts for all types of developments from 130 to 125 percent. The reduced basis boost could make some properties financially infeasible, particularly properties that have begun the development process but have not yet been placed in service, and we have and will continue to express those concerns as final negotiations progress.

The version of the bill approved by the Senate Finance Committee included several no-cost proposals to strengthen the Housing Credit, taken from the Cantwell-Hatch Affordable Housing Credit Improvement Act (S. 548), but these provisions were not included in the version of bill that was voted on last night.

Other Provisions Impacting the Housing Credit

The Senate bill would lower the top corporate tax rate to 20 percent, which would reduce the tax benefits associated with the Housing Credit, credit pricing and ultimately affordable housing production. We will continue to seek a compensatory adjustment to sustain affordable housing production in a lower corporate rate environment in future tax legislation.

In addition, there is a provision related to a “base erosion and anti-abuse” tax that would eliminate banks’ ability to use the Housing Credit to offset certain taxes related to foreign earnings and earnings going to foreign parent companies, which will impact some Housing Credit investors.

We will continue to advocate to sustain affordable housing production in light of these changes. 

Updated on December 4: See how the House and Senate versions of the Tax Cuts and Jobs Act would affect affordable housing development using the Housing Credit.