Bill Introduced to Strengthen the Low-Income Housing Tax Credit Program
Representative Pat Tiberi (R-OH-12) and Ways and Means Committee Ranking Member Richard Neal (D-MA-1) recently introduced the Affordable Housing Credit Improvement Act of 2017 (H.R. 1661). This is the companion legislation to S. 548, which Senator Maria Cantwell (D-WA) and Senate Finance Committee Chairman Orrin Hatch (R-UT) introduced earlier to strengthen and expand the Low Income Housing Tax Credit program.
The comprehensive bipartisan House bill aims to improve the Low Income Housing Tax Credit through a number of changes. Although the Tiberi/Neal legislation does not include the Senate proposal to expand the LIHTC by 50 percent, key provisions in the bill include:
Average income test. Under current law, LIHTC apartments serve renters with incomes up to 60 percent of area median income (AMI) and rents are comparably restricted. This section creates a new test that would allow the 60 percent of AMI ceiling to apply to the average of all apartments within a property rather than to every individual LIHTC apartment. The maximum income to qualify for any Housing Credit apartment would be limited to 80 percent of AMI. The higher rents that households with incomes above 60 percent of AMI could afford have the potential to offset the lower rents that households below 40 or 30 percent of AMI could afford, allowing developments to maintain financial feasibility while providing a deeper level of affordability.
Uniform income eligibility for rural projects. This provision would standardize tenant income limit rules for LIHTC projects in rural areas regardless of whether they’re financed with tax-exempt bonds, making bond-financed projects more feasible in rural areas while streamlining program rules.
Codification of rules relating to increased tenant income. This would allow existing tenants of federally assisted affordable housing projects that are subsequently recapitalized with tax credits to be considered low income for purposes of determining LIHTC eligibility if the tenant met the LIHTC income requirement upon initial occupancy in a unit that at that time was subject to a federal, state, or local government income restriction, provided her income hasn’t risen above 120 percent of AMI.
Modification of student occupancy rules. This would provision simplify the current LIHTC student rule by replacing it with a new rule that makes households composed entirely of adult students under the age of 24 who are enrolled full time at an institution(s) of higher education ineligible to reside in a LIHTC unit. Exceptions are provided for students who are married, veterans, the disabled, those with one or more dependent children, and those who are income eligible under LIHTC income limits and can show they are financially independent of their parents and guardians, as are those aging out of foster care and formerly homeless youth.
Tenant voucher payments taken into account as rent for certain purposes. This would require that tenant-based voucher payments count towards meeting the rent limits for projects electing the average income test in the minimum credit rate provision.
Minimum credit rate. This would establish a minimum 4 percent rate for credits used to finance acquisitions and in housing bond-financed developments. This program modification would provide more predictability and flexibility in LIHTC financing, allowing developers to target more units to very and extremely low-income households at rents they could afford and make more types of properties financially feasible.
Reconstruction or replacement period after casualty loss. This provision clarifies that there is no recapture and no loss of the ability to claim LIHTC during a restoration period that results from any casualty, provided that the building is restored within a reasonable period as determined by the state housing tax credit agency, but not to exceed 25 months from the date of the casualty.
Modification of rights relating to building purchase. This would replace the existing right of first refusal, which allows the nonprofit sponsors of tax credit properties, at the end of the property’s initial 15-year compliance period, to gain full control of the property in order to maintain the affordable housing use restrictions, with a purchase option at the current law minimum purchase price.
Modification of 10-year rule; limitation on acquisition basis. This provision would modify the prohibition on claiming acquisition credits for properties placed in service in the previous 10 years by creating an option to instead limit the acquisition basis of the building to the lowest price paid for the building during the last 10 years (with an adjustment for the cost of living) plus any capital improvements that are reflected in the sellers’ basis.
Certain relocation costs taken into account as rehabilitation expenditures. This would allow for relocation costs incurred in connection with a rehabilitation of a building to be capitalized as part of the cost of the rehabilitation.
Repeal of qualified census tract (QCT) population cap. This provision would remove the aggregate QCT population cap, enabling properties in more areas to receive a 30 percent basis boost, if necessary to make the project financially feasible.
Determination of community revitalization plan to be made by state housing credit agency. This provision would require state housing credit agencies to establish definitions and clear parameters of concerted community revitalization plans, including whether the plan: (1) is geographically specific; (2) includes a plan for implementation and goals for progress; (3) includes a strategy for obtaining public and private commitments in other, non-housing infrastructure or other improvements beyond tax credit developments; and (4) demonstrates the need for revitalization before projects located in QCTs are eligible for a basis boost.
Prohibition of local approval and contribution requirements. This provision would prohibit states from including local approval and contribution provisions as either a threshold requirement or part of a point system in their qualified allocation plans, except to the extent that contributions are taken into consideration as a part of a broader measure of a project’s ability to leverage outside investment, and are considered on a level playing field with all funding sources.
Increase in credit for certain projects designated to serve extremely low-income households. This would provide flexibility for state housing credit agencies to increase the basis of projects in which 20 percent of the units are designated for occupancy by households with incomes that are 30 percent of area median income or lower, by up to 50 percent if it is necessary for the project to be financially feasible.
Increase in credit for bond-financed projects designated by state agency. This would provide parity for bond financed projects to be eligible for the 30 percent basis boost available to non-bond-financed projects.
Elimination of basis reduction for low-income housing properties receiving certain energy benefits. This provision would eliminate the basis reduction for tax credit projects that also claim the Section 48 Energy Credit.
Restriction of planned foreclosures. This would allow state housing finance agencies to prohibit the termination of long-term use agreements to restrict rents when the purpose of a transaction is specifically to terminate those agreements.
Increase of population cap for difficult to develop areas. This provision would raise the current law 20 percent cap on difficult to develop areas with a 30 percent cap.