Ways and Means Infrastructure Plan Includes Key Tax Priorities
Last week, on September 9, the House Ways and Means Committee began marking up its portion of the Democrats’ Build Back Better reconciliation legislation. The multi-day markup extends into this week, with the committee set to reconvene this Tuesday, and will include consideration of its proposals for the “Infrastructure Financing and Community Development” portion of the $3.5 trillion infrastructure package.
Late Friday, September 10, House Ways and Means Chairman Richard Neal (D-MA-01) released additional legislative text of those infrastructure and community development tax provisions, which includes historic investments in all of Enterprise’s key affordable housing and community development tax priorities The bill provides the largest investment in the Low-Income Housing Tax Credit (Housing Credit) program since its inception in 1986, makes the New Markets Tax Credit (NMTC) permanent in addition to allocation increases, and establishes the Neighborhood Homes Tax Credit program. Additional details on the specific program provisions are below.
Housing Credit Provisions
The Ways and Means Build Back Better legislation includes key financing provisions from the Affordable Housing Credit Improvement Act (AHCIA), S. 1136 and H.R.2573, in addition to provisions to reform the Qualified Contract loophole and Right of First Refusal provision, which are also top priorities for Enterprise that would preserve affordable housing and strengthen the program. Specific proposals to increase the production of Housing Credit properties include:
- Increasing the annual Housing Credit allocation by 60 percent, with a four-year phase-in (2022 to 2025). For calendar years 2026, 2027, and 2028, the Housing Credit volume cap will be the amount provided in 2025 with inflation adjustments for each year. The allocation increase includes in its baseline the 12.5 percent temporary allocation increase that would otherwise expire at the end of this year. The cap increase is inclusive of a 10 percent set-aside for developments in which at least 20 percent of the units are reserved for extremely low-income (ELI) households and rent restricted accordingly.
- Lowering the 50 percent bond financing threshold test to 25 percent for seven years (2022 to 2028) for buildings placed in service in taxable years after December 31, 2021, which would allow state housing agencies to more efficiently use their limited bond resources.
- Provide basis boosts (additional upfront equity) for Extremely Low-Income (ELI) households, rural communities, Native areas, and other areas identified by state agencies as needing additional Housing Credits for financial feasibility.
- Providing up to a 50 percent basis boost for developments serving Extremely Low-Income (ELI) households for 10 years (2022 to 2031). Properties eligible for the basis boost are those in which 20 percent of the units are rent-restricted and available only to ELI households. States could devote no more than 15 percent of their Housing Credit authority and 10 percent of their private activity bond authority for such properties
- Allowing allocating agencies at their discretion to provide up to a 30 percent basis boost for properties financed with 4 percent Housing Credits and Multifamily Housing Bonds if needed for financial feasibility for 7 years (2022 to 2028).
- Allowing allocating agencies to provide up to a 30 percent basis boost for developments in rural communities and Indian areas if needed for financial feasibility, effective for buildings placed in service after December 31, 2021. This provision would be a permanent part of the tax code
New Markets Tax Credit Provisions
The NMTC is currently operating under a five-year extension at $5 billion enacted in the December 2020 omnibus. Chairman Neal, who was the lead on the NMTC Extension Act in previous Congresses before he assumed leadership of the Ways and Means Committee, was instrumental in that extension. The proposal builds on that support by providing permanency for the NMTC program at $5 billion in annual allocation as well as several other provisions from the New Market Tax Credit Extension Act of 2021, S. 456 and H.R. 1321. Specifically, the proposal includes:
- Providing permanent authority for the NMTC at $5 billion in annual allocation.
- Adding emergency allocations of $3 billion to support the economic recovery, including $2 billion in 2022 and $1 billion in 2023. This proposal is along the lines of H.R. 2, passed by the House in 2020.
- Providing $175 million in annual allocation for Tribal communities, starting in 2022.
- Providing an exemption from the Alternative Minimum Tax for NMTC investments (from the NMTC Extension Act of 2021); and
- Providing an annual allocation of $80 million to territories, including $20 million to Puerto Rico. The House passed similar disaster assistance for Trust territories in 2019.
- Adjusting the credit for inflation at the baseline allocation level ($5 billion), the allocation for tribes ($175 million), and the allocation for territories ($80 million) would all receive an annual inflation adjustment starting in 2024.
Neighborhood Homes Tax Credit
The proposal also includes Neighborhood Homes Tax Credit authority to states on a per-capita basis and awarded through a competitive process, as proposed in the Neighborhood Homes Investment Act, S.98 and H.R. 2143. Similar to the role that the Housing Credit plays for affordable multi-family rental housing, this credit incentivizes investment for one to four family homes. In particular, it would cover the gap between development costs and sales prices, up to 35 percent of eligible development costs. Rehabilitated homes must be owner-occupied for investors to receive the credits and the homeowners must be below certain income limitations. In addition, the sales prices are capped, and qualifying neighborhoods must have elevated poverty rates, lower incomes, and modest home values.
The release of the Ways and Means proposal comes as Congressional committees in the Senate and the House continue to draft the details of the $3.5 trillion infrastructure package, following instructions on spending and revenue topline figures passed in the budget resolution that made its way through both chambers in August.
The $3.5 trillion infrastructure package – one part of a two-track infrastructure process currently underway in Congress, with the Senate-passed, bipartisan $1.2 trillion infrastructure package currently under consideration in the House – includes additional infrastructure priorities from Democrats, which they aim to pass through the reconciliation process. Reconciliation is a parliamentary procedure that allows legislation to be passed with a simple majority in the Senate, rather than the usual 60 votes, but whose provisions must have a budgetary impact – either cost or savings – to comply with the Byrd Rule.
While this is still an initial step in the formation of the ultimate reconciliation package, it shows strong support from those charged with leadership on tax and puts affordable housing and community development provisions in an excellent position moving forward. Enterprise will continue advocating for these top tax priorities as the process advances to ensure critical investments in the Housing Credit, NMTC, and Neighborhood Homes Tax Credit are enacted to provide much-needed resources to revitalize neighborhoods, create jobs, and provide decent, safe, and affordable homes for all people and communities.
For information on the Build Back Better provisions proposed by the House Financial Services Committee, please see Alec Williams' post.