Prospect of Comprehensive Tax Reform Disrupting LIHTC Equity Market
The expectation that President Trump and Congress will cut corporate taxes is already affecting the pricing of LIHTCs for investors. The anticipation of comprehensive tax reform has made some LIHTC investors pause activity or make decisions based on the assumption of less equity per dollar of credit. Because the LIHTC is a dollar-for-dollar credit that allows corporations and banks to offset tax liability by investing directly in affordable housing projects, the value of these credits drop if tax rates go down.
Various state allocating agencies are responding to the disruption in the LIHTC equity markets. There’s a wide variety of responses across state allocating agencies. Generally, their actions involve trying to either assess the extent of disruption or to help close unexpected funding gaps in some affordable housing deals. Some allocating agencies are reserving some of their 2017 LIHTCs to fill gaps in 2016 projects. Some agencies are also pushing back their 2017 program deadlines to later in the year. Other responses include lowering equity price assumptions for 2017 applications and in a few cases, the resulting policies involve amending qualified allocation plans (QAPs).