Written by Claire Altman, Executive Vice President, Capalino+Company
Financing the ambitious affordable housing plans put forth by Mayor de Blasio and Governor Cuomo – as well as Mayors and Governors across the US – depends in large part on financing incentives in the tax code. Two of the most important of these are Tax Exempt Private Activity Bonds and the Low Income Housing Tax Credit (LIHTC).
Last week, House Republicans unveiled their tax reform plan, “The Tax Cuts and Jobs Act (HR 1)”, which includes a number of features that will have serious consequences for affordable housing development in New York. In addition to the potential elimination of the Home Mortgage Interest Deduction (MD) and the State and Local Tax deduction (SALT), the plan proposes the elimination of Tax Exempt Private Activity Bonds, which stands to have a significant impact on affordable housing.
The New York Housing Conference warns that the loss of the ability of states and municipalities to issue tax exempt private activity bonds “will devastate NYC’s affordable housing plan and will certainly impede plans to expand it,” with a similar impact on the Governor’s recently announced statewide housing plan.
Private activity bonds, more commonly known as tax exempt bonds, are widely used in conjunction with the 4% Low Income Housing Tax Credit (LIHTC). Annually in New York State, these combined financing vehicles of housing bonds and LIHTC generate annual investments of $4.85 billion that produce 17,128 affordable homes. Over the past 5 years, this investment has created more than 140,000 jobs across the state.
The 1986 Tax Reform Act established The Low Income Housing Tax Credit (LIHTC), which provides $8 billion in annual budget authority for affordable housing nationwide. Since its passage, the LIHTC has been a key financing tool in the creation and rehabilitation of 2.97 million affordable housing units (1987-2015).
The Low Income Housing Tax Credit has two versions. First, a 9% credit is allocated to states based on population. The second 4% credit is used in conjunction with tax exempt (or private activity) bonds. In addition, private activity bonds support much of New York State’s homeownership opportunities for first time homebuyers.
Although LIHTC is scheduled to be retained, a lower corporate tax rate will diminish its value, as most of the buyers of these credits are corporations. However, the Historic Tax Credit and the New Market Tax Credit- both used to support the development of many community development and small business projects – are slated to be repealed.
Take Action Today!
The New York Housing Conference is urging all New Yorkers to write your Congressional representatives and request that the Private Activity Bonds be restored in the Chairman’s Amendment (scheduled to be finalized on November 6).
In addition, we encourage you to write your Senators to demand that private activity bonds remain in the tax code in the Senate version of the bill.
Capalino+Company will continue to track this important legislation, and our team is available to consult with you on how this could affect your existing facilities or projects under development.
Contact Claire Altman, Executive Vice President, at 212-616-5839 or Claire@capalino.com.
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