GAO Director Testifies and Updates Status of LIHTC Report Recommendations
The Senate Finance Committee recently held a hearing on “America’s Affordable Housing Crisis: Challenges and Solutions.” The hearing demonstrated bipartisan support for affordable housing. It emphasized the importance of the LIHTC as an affordable rental housing tool, and S. 548, the legislation sponsored by Senator Maria Cantwell (D-WA) and Senator Hatch (R-UT) to expand and improve the LIHTC to help address affordable housing needs.
A variety of witnesses testified at the hearing. One witness was Daniel Garcia-Diaz, a director of the U.S. Government Accountability Office’s (GAO) Financial Markets and Community Investment Division. In conjunction with this testimony, the GAO released a report titled “Low-Income Housing Tax Credit: Actions Needed to Strengthen Oversight and Accountability.” This report was Director Garcia-Diaz’s prepared written testimony, which summarized GAO’s LIHTC report series, focusing on federal and state administration, the role of investors and syndicators, and a forthcoming report (expected in the first half of 2018) on LIHTC development costs.
According to the testimony, in its May 2016 report on the LIHTC program of the IRS, GAO found that state and local housing finance agencies (allocating agencies) implemented requirements for allocating credits, reviewing costs, and monitoring projects in varying ways. Moreover, some allocating agencies’ day-to-day practices to administer LIHTCs also raised concerns. For example:
- Qualified allocation plans (developed by 58 allocating agencies) that GAO analyzed did not always mention all selection criteria and preferences that Section 42 of the Internal Revenue Code requires; and
- Allocating agencies could increase (boost) the eligible basis used to determine allocation amounts for certain buildings if needed for financial feasibility. However, they were not required to document the justification for the increases. The criteria used to award boosts varied, with some allocating agencies allowing boosts for specific types of projects and one allowing boosts for all projects in its state.
In its 2015 and 2016 reports, GAO found IRS oversight of the LIHTC program was minimal. Additionally, the IRS collected little data on or performed limited analysis of compliance in the program. Specifically, GAO found that:
- Since 1986, the IRS conducted seven audits of the 58 allocating agencies it reviewed. Reasons for the minimal oversight may include LIHTC being viewed as a peripheral program in the IRS in terms of its mission and priorities for resources and staffing.
- The IRS hadn’t reviewed the criteria allocating agencies used to award discretionary basis “boosts,” which raised concerns about over-subsidizing projects (and reducing the number of projects funded).
- IRS guidance to allocating agencies on reporting noncompliance was conflicting. As a result, allocating agencies’ reporting of property noncompliance was inconsistent.
- The IRS hadn’t participated in and leveraged the work of the physical inspection initiative of the Rental Policy Working Group—established to better align the operations of federal rental assistance programs—to augment its databases with physical inspection data on LIHTC properties that HUD maintains.
In its prior reports, GAO made a total of four recommendations to the IRS. As of July 2017, the IRS had implemented one recommendation to include relevant IRS staff in the working group. The IRS has not implemented the remaining three recommendations, including improving the data quality of its LIHTC database, clarifying guidance to agencies on reporting noncompliance, and evaluating how the information HUD collects could be used for identifying noncompliance issues. In addition, because of the limited oversight of LIHTC, in its 2015 report GAO asked that Congress consider designating certain oversight responsibilities to HUD because the agency has experience working with allocating agencies and has processes in place to oversee the agencies. As of July 2017, Congress had not enacted legislation to give HUD an oversight role for LIHTC.