On November 3, the House Rules Committee released a significant text update, or manager’s amendment, modifying the new Build Back Better Act framework that was released on October 28. This amended text of the legislation adds Enterprise’s top affordable housing and community development tax priorities, including a significant expansion of the Low-Income Housing Tax Credit (Housing Credit) and changes to preserve the long-term affordability of Housing Credit units and properties.
The new version rings in at $1.75 trillion, pared down from the $3.5 trillion package passed by the House Budget Committee in September. Congress plans to enact this major infrastructure legislation through the reconciliation process, which is a parliamentary procedure that allows legislation to be passed with a simple majority in the Senate, rather than the usual 60 votes. While this makes it easier for Democrats to pass this legislation given their tight majority margin, they will need every Democratic Senator to pass it, which remains a challenge in the negotiations process. Further, all of the provisions in the Build Back Better Act must have a significant budgetary impact – either cost or savings – to comply with the Byrd Rule, which governs what types of policies can be contained in bills passed through reconciliation.
Details of the Enterprise tax priorities included in the new Build Back Better Act legislative package follow, including the Housing Credit, New Markets Tax Credit (NMTC), and Neighborhood Homes Tax Credit (Neighborhood Homes), in addition to what to expect as the process and negotiations continue to unfold.
Low-Income Housing Tax Credit Provisions
The Housing Credit provisions in the manager’s amendment represent the most significant expansion to the program since its inception in 1986. In addition to the major production provisions included, which are modeled after those in the Affordable Housing Credit Improvement Act, there are a number of provisions that would both strengthen the preservation of Housing Credit properties as well as streamline the program.
- A temporary Housing Credit allocation increase of 10 percent plus inflation for each of the three years from 2022 to 2024 over the current baseline, which includes the 12.5 percent increase in effect for the past four years, with a reversion in 2025 to a lower baseline that doesn’t include the 12.5 percent increase. (Enterprise is actively working on getting the 12.5 percent increase to be made permanent). The allocation increases amount to a roughly 41 percent increase over current levels by 2024.
- The lowering of the bond financing threshold from 50 percent to 25 percent for five years, from 2022 to 2026.
- A permanent 50 percent basis boost for properties serving extremely low-income (ELI) tenants and an 8 percent minimum set-aside for ELI properties, with a limitation that the state can use no more than 13 percent of its state Housing Credit ceiling or 8 percent of its private activity bond cap on properties that receive the ELI basis boost.
- A permanent 30 percent basis boost for Native American areas.
- A repeal of the Qualified Contracts (QC) option and changing the purchase price for existing properties.
- Modifications to the Right of First Refusal (ROFR).
- A provision to strengthen the use of the Section 48 Energy Investment Tax Credit by ensuring that it can be taken without reducing the eligible basis for the Housing Credit.
The repeal of QCs and ROFR modifications are particularly important to both the integrity and longevity of the program. The QC provision corrects a loophole in the tax code allowing properties to get out of their affordability requirements after just 15 years, rather than 30 years as intended by Congress, leading to the premature loss of some 10,000 low-income homes annually. The ROFR changes also protect the affordability of Housing Credit properties by enabling nonprofit property owners to buy the buildings they develop for a minimal price at the end of the 15-year compliance period when the tax credit investor exits the partnership agreement, which is how Congress intended the program to work.
New Markets Tax Credit
The NMTC had been rumored to be completely “out” and not under consideration within the smaller Build Back Better Act; however, the newly released text does include a provision providing additional NMTC allocation for tribal statistical areas. The updated text does not include permanency of the NMTC program, and Enterprise will continue to advocate for this in the ongoing negotiations.
Neighborhood Homes Tax Credit
The manager’s amendment also includes the creation of the Neighborhood Homes Tax Credit, a federal tax incentive modeled after the Housing Credit. A state-administered tax subsidy, the Neighborhood Homes Tax Credit would encourage investment in distressed urban, suburban, and rural neighborhoods that face a “value gap” – where the cost of rehabilitating or building a home is greater than the post-construction value of that home. The program would target communities facing the greatest need – those with high poverty rates, low median family incomes, and low home values. Enterprise has actively advocated for this program via the bipartisan, bicameral Neighborhood Homes Investment Act (S. 98, H.R. 2143), which was introduced for the first time in the 117thCongress.
Speaker Pelosi detailed next steps for consideration of the Build Back Better Act in a “Dear Colleague” sent to her Democratic colleagues earlier this week. In another step toward the finish line, the Joint Committee on Taxation released a cost estimate, which indicated the provisions increasing taxes in the bill would raise $1.5 trillion over 10 years, which does not include the full spectrum of other pay-fors, which the Speaker has said boost the revenue raised to over $2 trillion.
Much negotiation still remains among Members of Congress before the possible final passage of the Build Back Better Act. With the House releasing bill text independent of the Senate, it sets the stage for the Senate to respond to the proposal if and when it passes the House. As Congress works towards passing comprehensive infrastructure legislation, Enterprise encourages our partners to continue advocating for robust affordable housing and community development investments in the final bill.
For specific and up-to-date advocacy information related to the Housing Credit, visit the ACTION Campaign blog. The ACTION Campaign, which Enterprise co-chairs, is a coalition of over 2,400 businesses and organizations across the country that support strengthening and expanding the Housing Credit. For additional details on the status of Enterprise’s non-tax affordable housing priorities in the Build Back Better Act, see a recent Enterprise blog by Alec Williams, Senior Policy Analyst.