July 14, 2016
In May, Senator Maria Cantwell and Senator Orrin Hatch introduced the Affordable Housing Credit Improvement Act of 2016, containing improvements to the Low-Income Housing Tax Credit (LIHTC) in addition to a 50 percent expansion. Today, they announced a second more comprehensive bill, that follows S. 2962.
The new, expanded bill contains the same three provisions as in S. 2962:
- A 50 percent increase in per-capita and small state minimum allocations, phased in over five years (section 101 of the legislation),
- An new income-averaging election, which would allow properties to reserve at least 40 percent of the apartments in a development for renters at an average of 60 percent of the area median gross income (AMGI), as long as no renter is more than 80 percent of AMGI when moving in (section 201), and
- A permanent minimum 4 percent rate for LIHTCs used to finance the acquisition of property or generated by tax-exempt bonds (section 301).
In addition to these provisions, the second bill has 17 other improvements that would provide more resources for affordable rental housing development, increase the financial feasibility of developments, or otherwise streamline and simplify the LIHTC.
More resources and greater financial feasibility
The bill would:
- Give states discretion to provide a 30 percent basis boost for tax-exempt bond-financed developments, allowing more those developments to be financially feasible (section 310),
- Repeal the qualified census tract (QCT) population cap, enabling affordable rental properties in a greater number of areas to receive a basis boost and thus become more financially feasible (section 306),
- Include relocation expenses in eligible basis, consistent with the treatment of other indirect costs, in order to avoid adding unnecessary costs or sacrificing resident safety during rehabilitation (section 305),
- Eliminate basis reduction for LIHTC properties receiving energy efficiency and renewable energy tax incentives, enabling those properties to become more energy efficient and more easily access renewable energy (section 311), and
- Encourage the development of affordable rental housing in Native American communities by treating all qualifying Indian housing developments as difficult development areas (DDAs), enabling those developments to receive a basis boost (section 402).
Increase financial feasibility
The bill would also:
- Give states discretion to provide a 50 percent basis boost for apartments targeting extremely low-income renters, making more deeply income targeted developments more financially feasible (section 309),
- Provide flexibility around existing tenant income eligibility to eliminate tension between allowing existing tenants to stay in their homes and recapitalizing LIHTC properties (section 203), and
- Replace the “10 Year rule” with a limit on the acquisition basis of LIHTC properties if last placed in service in the prior 10 years, thus supporting the preservation of properties in need of rehabilitation (section 304), and
- Standardize rural income limit rules by conforming the income limit rule for tax-exempt bond-financed developments to that of allocated LIHTC to facilitate more rural LIHTC development (section 202).
Streamline, simplify, or otherwise modernize the LIHTC
In addition, the bill would:
- Simplify the LIHTC student rule by aligning it more closely with the U.S. Department of housing and Urban Development (HUD) student rule, which better achieves the intended targeting (section 204),
- Clarify the ability to claim LIHTCs after casualty losses so LIHTC property owners have a reasonable amount of time to repair and reoccupy properties after damage, regardless of whether it results from a presidentially declared disaster (section 302),
- Replace the right of first refusal (ROFR) with a purchase option to facilitate the ability of nonprofits to maintain LIHTC properties beyond Year 15 (section 303),
- Encourage the development of affordable rental housing in Native American communities by creating a selection criterion (but not a required preference) for Indian housing (section 401),
- Modify the rent-setting rule for LIHTC properties using the income-averaging option or 50 percent boost so that rents for apartments with tenant-based vouchers are set at no higher than the LIHTC rent (section 205),
- Clarify the community revitalization plan, as included in one of the three LIHTC preferences, is determined by the relevant state LIHTC allocating agency (section 307),
- Direct the U.S. Treasury Department to issue regulations to prohibit local approval or contribution requirements, either as a threshold or through competitive points (section 308), and
- Change the official name of LIHTC to the Affordable Housing Tax Credit (section 501).