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) and private activity bonds, including multifamily Housing Bonds, which are essential for the production of roughly half of Housing Credit developments because they trigger the 4 percent Housing Credit. The Senate bill 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. If Housing Bonds are repealed, roughly 800,000 affordable homes would not be built over the next decade, according to analysis from Novogradac & Company.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.
Our top priority as the House and Senate head to conference is the preservation of multifamily Housing Bonds, which face risk of elimination. See our talking points on Housing Bonds and reach out to your Republican Senators and Representatives over the weekend insisting that Housing Bonds be retained in the final tax reform bill.
Earlier this week Rep. Randy Hultgren (R-IL-14) sent a letter to House and Senate leadershipsigned 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. We encourage anyone represented by one of these members to thank them and ask for their continued support in a final bill.
We ask ACTION members to focus your energy squarely on protecting tax-exempt multifamily Housing Bonds. Please keep up your calls to members of Congress, especially Republicans, to make sure they understand all that is at stake. Make sure they are talking to their leadership and letting them know how important it is that they retain Housing Bonds in the final package.
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 basis boost for all types of boost-eligible 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.