February 16, 2016

UPDATE President Obama sent his last budget proposal to Congress on February 9, 2016. While abiding by the discretionary caps negotiated as part of the Bipartisan Budget Act of 2015, the FY 2017 Budget proposes a total of $1.1Trillion in discretionary spending for all federal programs that impact our work in building and preserving affordable homes, saving and creating jobs, and building community. The budget request also contains the Administration’s tax proposals.

The President’s budget proposal is the first step in the process of determining spending for FY 2017.  The Bipartisan Budget Act of 2015 set the context for these deliberations by raising the discretionary cap on spending by $50B, equally divided between defense and non-defense spending for FY 16 and FY 17. That determination set the “top line number” above the sequestration level investment permitted under the Budget Control Act. The National Development Council was an active participant in the successful Raise the Caps Campaign during 2015.

In the US House of Representatives Speaker Ryan delivered a message to his caucus this week that House Republicans had three choices: to pass a budget, punt, or just give up.  The Freedom Caucus (once called tea party) is raising objections to the funding blueprint and are urging lower domestic and more defense spending. Speaker Ryan told lawmakers that the best option is to adhere to the top-line levels set for 2017 and include provisions that outline a Republican Agenda because voting on a budget with spending cuts or defense increases would only meet a Senate roadblock. That scenario would leave the House Republicans seeking Democratic votes to pass a spending plan.

Our current effort to insure that adequate funds are dedicated to housing and community development is to advocate that the Congressional appropriations committees provide the Transportation, Housing and Urban Development subcommittees with the highest allocation possible. Here is an action step:

NDC and other leaders of the Campaign for Housing and Community Development launched a national letter to bring together affordable housing, community development and transportation supporters around a unified message: the allocation to the THUD Subcommittee must be a top priority!

It is critical that Congress provide the THUD Subcommittee with the highest allocation possible. With this investment, communities across the nation can access the federal resources they need to thrive and to meet the needs of their most vulnerable residents.

Sign the National THUD Letter by February 19!

We encourage all national, state, and local organizations, government officials, and advocates to sign the letter and share this Action Alert on social media.

The Budget Request – Tax Policy

The Budget also contains the Administration’s tax proposals. Of special interest to our client communities are the President’s request to make the New Markets Tax Credit permanent at $5B each year and six proposals to expand and strengthen the Low Income Housing Tax Credit (five are carried over from past years and one new to promote fair housing).

 

For the fourth consecutive year, the Administration proposes to allow states to convert a portion of their private activity bond (PAB) volume cap into Housing Credit authority.  The FY 2017 proposal is identical to the bond conversion proposal the Administration made in its FY 2016 Budget, which also allowed states to convert up to 18 percent of their PAB volume cap into Credit authority.

 

The Administration again proposes to repeal the Mortgage Revenue Bond (MRB) program purchase price limit and refinancing restriction; create a new permanent American Fast Forward (AFF) Bond program, which would be an optional alternative to traditional tax-exempt bonds; and to cap the value of itemized deductions and other tax preferences, including the income exclusion of interest on tax-exempt bonds, to 28 percent. Congress has not acted on these proposals in past years. In conjunction with the Municipal Bonds for America coalition NDC opposed the proposal to cap this interest income exclusion each year that it has been offered.

 

The Budget Request – Public Private Partnerships  

 

The budget request includes two proposals designed to promote public /private partnerships. As proposed in the budget, a new program would establish a new Federal credit program that would provide direct loans to U.S. infrastructure projects developed through a public-private partnership (P3). The Financing America’s Infrastructure Renewal (FAIR) program seeks to reduce the financing cost gap between P3s and traditional procurement, which will level the playing field for P3s and encourage the public sector, including state and local governments, to evaluate the merits of P3s for a given project. Eligible projects under the program will encompass the transportation, water, energy, and broadband sectors, as well as certain social infrastructure, such as educational facilities. The Budget estimates that the FAIR program will provide $15 billion in direct loans with no taxpayer subsidy from 2018 to 2026. Administrative costs for the program are estimated to be $2 million annually from 2017 to 2026. This is a new mandatory spending proposal.

Implementing a new National Surface Transportation and Innovative Finance Bureau: Building on the Administration’s successful Build America Investment Initiative, the FAST Act created the National Surface Transportation and Innovative Finance Bureau, a new office intended to help streamline and improve the application process for the Department’s credit assistance programs and will promote innovative financing best practices for Public Private Partnerships (PPP) across all modes. The Budget requests $3 million in targeted, new resources to support implementation of this high priority effort. The Budget also requests $275 million to cover the costs of providing credit subsidy through the Transportation Infrastructure Finance and Innovation Act (TIFIA) Program, along with flexibility to also use resources from a range of new multi-modal programs to cover subsidy costs.

The Budget Request – Housing and Urban Development

The Administration proposes $48.9 billion in HUD gross discretionary budget authority, a $6.3 billion, or 15 percent, increase over the $42.6 billion provided in the FY 2016 omnibus spending bill the President signed on December 18, 2015.  The Budget also proposes $11.3 billion in new mandatory spending over ten years, with an emphasis on ending family homelessness by 2020, supporting tribal communities, and making investments in communities to revitalize high-poverty neighborhoods.

The Budget proposes $950 million for HOME, equal to its FY 2016 funding level. The Budget sets aside $10 million of this total for the Self-Help Homeownership Opportunity Program (SHOP). The FY 2017 Budget proposes several new statutory changes to HOME, including:  eliminating the 24-month commitment requirement; eliminating the 15 percent Community Housing Development Organization (CHDO) set-aside requirement; and allowing recaptured HOME CHDO technical assistance funds to be reallocated as HOME technical assistance.  The Administration renewed proposals in last year’s Budget to establish a single qualification threshold of $500,000 irrespective of the appropriation amount and revise the current “grandfathering” provision so that participating jurisdictions that fall below the threshold three years during a five-year period are ineligible for direct formula funds. See detailed figures here.

The Budget Request – Small Business Lending   

President Obama’s fiscal year 2017 budget proposes a $27 billion authorization level for the SBA 7(a) program. In addition, a quick read of the budget documents shows:

  • 7(a) program remains at zero credit subsidy
  • Upfront fee on loans of $150,000 or less continue to be waived for borrowers
    • However, ongoing (lender) fee waiver on loans of $150,000 or less ends
  • Upfront fee waived on SBA Express loans between $150,000 and $350,000 made to Veterans; and,
    • 50% waiver of upfront fee on all non-Express loans between $150,000 and $500,000 made to Veterans

To address unanticipated spikes in lending, the Budget proposes Administrative flexibility to increase the 7(a) program level by 15% if the program demand were to exhaust the appropriated limit, with notification to the Appropriations and Small Business Committees. See Detail figures here.

The Budget Request – Rural Investment

Overall, USDA’s Rural Housing programs received a net increase of $5.2 million compared to FY 2016. USDA’s Section 521 Rural Rental Assistance program received a $15.3 million increase in funding to ensure that all current contacts are renewed. This increase was offset by a $9million cut to the Section 523 Mutual Self-Help Housing program ($18.5 million) and the elimination of Section 533 Rural Housing Preservation Grants. See detailed figures here.