Shared from the 12/7/2017 Albany Times Union eEdition


Tax plan could squeeze affordable housing funds

Senate proposal to end exemption may drive away bond investors


Those involved with building affordable housing across the state are bracing for a potential significant impact as the House and U.S. Senate look to reconcile legislative differences when it comes to how certain types of municipal bonds are treated in the federal tax code.

The backstory is dense, but the bottom line is advocates are preparing themselves for a loss of private investment for housing projects. That could lead to either government needing to find other funding to build housing for the needy, or smaller developments.

At issue is a proposal to get rid of tax exemptions for private activity bonds, which come with low-interest rates and are used to spur private investment in public projects because the interest payments to investors are tax exempt. The House has proposed scrapping the tax exemption, while the Senate leaves it in.

Those bonds are important for any number of public projects, but there’s an additional layer when it comes to affordable housing development. Both the House and Senate preserved low-income housing tax credits, another tool used by developers. But in order for those credits to be awarded for projects, at least half of a project’s financing must come from private activity bonds.

The rub, according to advocates, is that if nobody wants to buy private activity bonds because the tax exemption goes away, developers won’t meet the tax credit threshold.

In layman’s terms, “in order for me now to get capital dollars to maintain my properties, develop and redevelop my properties, I have to have these 4 percent (low-income housing) tax credits, I have to have these private activity bonds, that’s how I get my private investment,” said William Simmons, president of the state Public Housing Authority Directors Association. “Without that tool, we’re pretty much sunk in terms of redeveloping these properties.”

Statewide, the outlook is bleak at a time when the state has committed $20 billion over five years to create 100,000 affordable housing and 6,000 supportive housing units.

“We won’t stop, we still have some of the resources ... but basically the world at large will have to sort of step back and figure out how do we move forward,” state Homes and Community Renewal Commissioner RuthAnne Visnauskas said in an interview.

Since 2011, some $172 million in private activity bonds have been issued to support the creation or preservation of 1,747 affordable multifamily units in the Capital Region, according to HCR.

On a more micro level, Visnauskas pointed to a project pitch in Albany to rehabilitate 70 buildings in Arbor Hill. A Rochester developer has stated its intention to seek the low-income housing credits and historic tax credits, which are also in jeopardy.

“We couldn’t do it if private activity bonds are gone; we just wouldn’t have the resources,” she said.

The alternative, she said, would be to make the project smaller.

There are of course criticisms of tax exemptions for the private activity bonds.

Congress’ Joint Committee on Taxation estimated in 2016 that eliminating the tax exemption would increase revenues by $28 billion through 2026. That led the non-partisan Congressional Budget Office to opine that lawmakers could more efficiently support infrastructure investment and other projects through direct subsidies, rather than aiding development through the tax code.

Still, developers are seeking to lock in financing now as upfront costs for some projects increase due to uncertainty when it comes to bonds. That’s to say nothing of how lowering the corporate tax rate from 35 percent to 20 percent, as both the House and Senate have proposed, would effectively devalue low-income housing tax credits, leading to a $1.2 billion loss of investor equity nationwide.

“We just have to sit and wait and see how it plays out because there so many different discussions about what the final outcome may be,” said Adam Driscoll, development manager for Home Leasing, the Rochester developer looking to rehab the Clinton Avenue buildings. “... We obviously can’t control it and just want to wait and see to see what the final outcome is before we have to react.”

With Associated Press reports. mhamilton@ 518-454-5449 @matt_hamilton10

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