January 22, 2018

Capitol Express Newsletter: Government Poised to Reopen After Shutdown, Tax Bill Creates New Community Investment Tool

Share Posted By:

CONGRESSIONAL AND ADMINISTRATION NEWS

Government Poised to Reopen After Brief Shutdown

Senate leadership have reached a deal to reopen the government, agreeing to a short term continuing resolution (CR) that will fund the government until February 8. A final vote on passage is expected later this afternoon. Disagreements over a deal on Deferred Action for Childhood Arrivals (DACA), which provides protections to roughly 700,000 people brought to the U.S. as children, and the Children’s Health Insurance Program (CHIP), which has expired, led to a three day government shutdown. The Senate deal would fully fund CHIP for six years, and Majority Leader Mitch McConnell (R-KY) promised to bring immigration legislation for consideration before the CR expires. The Senate and House are expected to pass the measure today and send to President Trump for his signature.

Congress has yet to pass a full year spending bill for FY 2018, in part because leadership and the White House are still negotiating a deal to lift the budget caps that were instated by the Budget Control Act of 2011. Housing and community development programs like Project-Based Rental Assistance, HOME Investment Partnerships Program, and Community Development Block Grants could all face cuts if caps aren’t raised for non-defense discretionary spending. Additional issues complicating the funding process are disaster assistance and potential tax legislation. An $81 billion package with supplemental funding for areas impacted by natural disasters passed the House before the winter holidays, but the Senate has yet to take up the bill. Congress may also take up “tax extenders” or other tax legislation, although it is unclear when they will be able to do so. 

Tax Reform Bill Creates New Financing Tool for Community Investments

The Tax Cuts and Jobs Act created a new class of community investment vehicles through the Opportunity Zones Program, which aims to drive long-term capital into distressed communities by providing tax benefits on investments in Opportunity Funds (O Funds), which allow investors to pool and deploy their resources in low-income census tracts. The program – which was developed by the Economic Innovation Group and introduced in the bipartisan Investing in Opportunity Act last year – will be managed by the U.S. Treasury Department and must go through the formal rule-making process before it can be finalized and investments can be made.

Governors in each state and U.S. territory will have the ability to identify up to 25 percent of their total low-income census tracts to be eligible to receive private investment through the program over the next decade. The 90-day determination period for designating Opportunity Zones began in late December, meaning that governors have only until late March to identify these census tracts. To assist states in this process, Enterprise has created a new mapping tool that shows the census tracts eligible for Opportunity Zone classification. See Enterprise’s new Opportunity Zone Classification Map. 

Tax Reform Expected to Reduce Affordable Housing Production Significantly

While the Tax Cuts and Jobs Act retained the Low-Income Housing Tax Credit (Housing Credit) and private activity bonds, including multifamily Housing Bonds, which together finance the vast majority of new affordable housing development nationwide, the bill is expected to result in decreased affordable housing production. The tax bill lowers the top corporate tax rate from 35 to 21 percent, which impacts equity pricing for Housing Credit investments and ultimately Housing Credit production. Accounting firm Novogradac & Company estimates that the change will reduce our future supply of affordable housing by 235,000 homes over the next decade. To address the already vast affordable housing shortage nationwide, Senator Maria Cantwell (D-WA) and Finance Committee Chairman Orrin Hatch (R-UT) have sponsored the Affordable Housing Credit Improvement Act (S. 548) to strengthen and expand the Housing Credit by 50 percent. Affordable housing advocates are making the case that, in light of the additional shortage of units that will result from the tax bill, it is now absolutely vital to advance the Cantwell-Hatch legislation and make a meaningful dent in the nation’s affordable housing crisis.

HUD Publishes FAQs After Delaying Deadline for Assessments of Fair Housing

Earlier this month HUD published a notice in the Federal Register announcing that it will delay the deadline for local governments to submit an Assessment of Fair Housing (AFH) until 2020 at the earliest. Last week HUD published Frequently Asked Questions (FAQs) to inform localities about how the suspension will impact their Affirmatively Furthering Fair Housing (AFFH) obligations. Included in the FAQs is clarification that HUD will use the deadline extension period to continue providing technical assistance and will work to improve the AFFH Data and Mapping Tool and the AFFH Assessment Tool User Interface. Additionally, the FAQs note that local governments that have already submitted an AFH that has been accepted must continue to execute the goals outlined in the AFH, while those localities that have submitted an AFH that was denied should not submit a revised AFH. Reps. Pramila Jayapal (D-WA-7) and Keith Ellison (D-MN-5) sent a letter to Secretary Carson expressing concern about HUD’s decision to suspend the rule and requesting clarification on the agency’s decision.

FHFA Proposes Changes to the Housing Finance System

Last week the Federal Housing Finance Agency (FHFA) outlined its proposals for housing finance reform as the Senate Banking Committee looks toward legislation to overhaul the current system. FHFA, which oversees Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs), recommends turning the GSEs into privately owned utilities with regulated rates of return, creating an explicit and paid-for government guarantee on mortgage-backed securities (MBS), and preserving the 30-year fixed-rate mortgage. The agency also recommends establishing shareholder-owned “secondary market entities” (SMEs) that would issue government-backed MBS’s, with Fannie and Freddie being the first two SMEs while the housing finance system transitions to this new model. In a letter sent to the Senate Banking Committee alongside the recommendations, FHFA Director Mel Watt wrote that the agency seeks to provide its views “independently and transparently,” adding that FHFA believes housing finance reform is the “prerogative and responsibility of Congress.” Read Enterprise’s recommendations for improving the housing finance system.

Treasury to Issue Recommendations on Updating Critical Low-Income Community Investment Rule

The U.S. Department of the Treasury announced this month that it plans to issue recommendations for updating the Community Reinvestment Act (CRA) early this year. The CRA was enacted in 1977 with the goal of spurring lending to low-income borrowers and addressing discriminatory practices that disproportionally harm households of color. In response to President Trump’s Executive Order calling for all executive agencies to review their regulations, Treasury released a report in June 2017 outlining its priorities, one of which identified the CRA as in need of modernization. Treasury Secretary Steven Mnuchin has also expressed his desire to ensure that the law is actually helping communities and “isn’t just a check the box to satisfy regulators.” However, community groups that support the law are concerned that the changes could make it easier for banks to meet certain lending requirements and impose lower penalties for compliance problems – both of which may decrease the access of lower-income households to loans and banking services over time.

Congress Announce New Committee Assignments, Rep. Tiberi Leaves Congress

New Senate committee assignments were announced following Senator Doug Jones’s (D-AL) swearing in to the Senate at the beginning of this year. Sen. Sheldon Whitehouse (D-RI) was appointed to the Finance Committee, which oversees tax policy, and Sen. Jerry Moran (R-KS) will be making a return to the Banking, Housing and Urban Affairs Committee, whose jurisdiction includes housing finance and HUD programs.

House leadership also announced new committee assignments, including the appointment of Rep. Darin LaHood (R-IL-18) to the Ways and Means Committee. This comes as Rep. Pat Tiberi (R-OH-12), former lead sponsor of the Affordable Housing Credit Improvement Act (H.R. 1661) and House Ways and Means Committee member, officially departed the House on January 15 and will now head the Ohio Business Roundtable. Taking his place as lead sponsor on the Affordable Housing Credit Improvement Act (H.R. 1661) is Rep. Carlos Curbelo (R-FL-26), an original co-sponsor of the legislation and a member of the Ways and Means Committee.

Banking Committee Re-Approves HUD Nominations

The Senate Banking Committee has approved the nomination of Brian Montgomery to be HUD Assistant Secretary for Housing and Commissioner of the Federal Housing Administration (FHA) and R. Hunter Kurtz to be HUD Assistant Secretary for Public and Indian Housing. The committee previously approved both nominations in November 2017, but because the full Senate did not vote to confirm the nominees before recessing at the end of the year, the President was required to resubmit the nominations. The committee also re-approved the nominations of Jerome Powell to serve as Chair of the Federal Reserve and Randal Quarles to serve as a member of the Federal Reserve’s Board of Governors. All nominees now advance to the full Senate once again for a final vote. 

RESEARCH AND REPORTS

New Report Indicates that Hazard Mitigation Projects Save Government Funds

The National Institute of Building Sciences’ newly released report shows that every $1 the federal government spends on hazard mitigation projects – such as elevating homes at risk of flooding, improving storm water management systems and strengthening buildings against earthquakes – can save the nation $6 in future disaster costs. The study, which examines the costs and benefits of the federal mitigation grants that were issued by FEMA, HUD and the U.S. Economic Development Administration (EDA) during the past 23 years, highlights that those $27 billion in mitigation funds led to an estimated $158 billion in benefits, including $58 billion in avoided property damage. The report’s findings highlight the critical role federal mitigation grants play in addressing the rising costs of natural disasters – last year was the costliest year on record for natural disasters, with total costs of nearly $306 billion.

STATE AND LOCAL POLICY 

Denver Looks to Use Excess of Luxury Rentals for Affordable Housing Needs

The city of Denver is proposing to address the city’s affordable housing shortage, in part, through a new rental subsidy program that would place middle-income households in vacant luxury housing. Denver has seen a rapid increase in the number of luxury rentals on the market, but as supply begins to exceed demand and those rentals sit vacant, the city is seizing an opportunity. Under the new program, households would pay 30 percent of their income toward rent of an otherwise vacant luxury apartment. City officials estimate that the average subsidy will cost roughly $500-900 per unit. The program is fueling an ongoing debate, with advocates hailing this as an immediate solution to the crisis, and proponents fearing that taxpayers are propping up the luxury rental market.

Local Governments in California Re-visit Inclusionary Zoning

As part of the historic housing package signed into law by California Governor Jerry Brown last year, the State of California clarified local governments’ authority to create inclusionary zoning policies. With that green light, localities are re-visiting their own policies to address more effectively the affordable housing crisis. In Ventura, the City Council is reconsidering a 2014 proposal to update an inclusionary zoning policy first implemented in 2006. While the housing crisis is pervasive throughout the state, officials in Ventura are also responding to the increased needs resulting from the recent fires that destroyed more than 520 homes and damaged many others. 

IN CASE YOU MISSED IT

In recent Community Developments, we highlighted how accessory dwelling units (ADUs) present a solution to help address affordability challenges, the decline in the national mortgage delinquency rate in October, an assessment that shows that the cumulative impact damage of the 2017 weather disasters exceeded $300 billion, and much more. Sign up here to receive the Community Developments newsletter.

HEARINGS AND EVENTS

Upcoming Hearings and Mark-Ups

There are no housing or community development-related hearings or mark-ups scheduled at this time. 

Upcoming Events

January 2018

February 2018

March 2018

April 2018