2014 Housing tax credit program outlook

After experiencing the full wrath of the polar vortex in northern Minnesota, northern Wisconsin and Michigan (with minus 39 degree wind chills) the previous week, I spent much of my time last week thawing out in Washington, D.C., at the National Council of State Housing Agencies (NCSHA) 2014 HFA Institute.

The HFA Institute is an annual meeting focused on providing the latest updates on legislative and regulatory developments in affordable housing – including the Low Income Housing Tax Credit (LIHTC) program. State allocating agencies, administration officials, and nationally recognized experts were all in attendance.

The annual meeting is important and resourceful as the new year begins. It’s also nice to be able to spend a few days visiting with staff of the state allocating agencies.

Travois works hard to keep the needs of our clients and housing in Indian Country at the forefront of the affordable housing industry. Our NCSHA membership and time spent at these types of conferences is critical to our efforts.

Much work remains to be done to increase access to LIHTCs to fund affordable housing in Indian Country. While it’s certainly one of Travois’ primary objectives, I can’t say the same for Washington or at the state level. For example, one topic mentioned at the 2014 HFA Institute was the proposed Section 42 modification included as part of the NAHASDA Reauthorization Bill, which unfortunately was removed in the final version that was sent for approval.

I attended the “2014 Housing Credit Program Outlook” session on the first day. I have summarized key points below. Panelists for this session included: Garth Rieman (NCSHA), Richard Goldstein (Nixon Peabody LLP), David Leopold (Bank of America Merrill Lynch), Michael Novogradac (Novogradac & Company LLP), Nancy Rase (Homes for America Inc.) and Robert Rozen (Washington Council Ernst & Young).

  • Tax Reform – The general consensus is that nothing will happen in 2014. A bill may be released, however, it will be deemed dead on arrival. Significant time was spent on thanking everyone for lobbying and support. Even more time was spent on stressing the importance of continued lobbying and support – this includes taking every chance possible to have your local representatives visit your completed LIHTC projects so that they can return to Washington with more success stories.

    While tax reform is dead, or in an “induced coma” as Richard Goldstein put it, by no means should we sleep calmly at night because the wheels continue to turn in Washington.

  • 9% Extension – As with tax reform, the panel agreed that Congress is paralyzed to making any decisions. The consensus was that the 9 percent rate will be extended eventually (most likely retroactively and will happen later this year after all initial allocations are made for 2014 LIHTCs). This will put state allocating agencies in an interesting position having already allocated 2014 credits at the “floating” rate — currently 7.60 percent.
  • Credit Authority – There continues to be a push with Congress to figure out a way to increase each state’s credit allocating authority, meaning more credits allocated to states to allocate to tax credit projects. NCSHA has asked for a 50 percent increase in each state’s volume cap. Other proposals have been presented, one of which includes allowing states to trade in unused Private Activity Bonds (up to 7 percent) for tax credits. Stats show that this could increase each state’s credit authority by up to 19 percent. NCSHA supports this “trade in,” however, they would like to see this in addition to the 50 percent volume cap increase.
  • Equity Markets – Overall the markets are stable. The recent Financial Accounting Standards Board (FASB) ruling regarding accounting standards for investments in qualified affordable housing projects will ultimately help increase the flow of capital to affordable housing. How soon? That’s to be determined. David Leopold, of Bank of America Merrill Lynch, stated that BOA’s appetite is likely to remain unchanged in the short-term based on the potential for reform and the FASB changes. He stated BOA, like most other investors, will continue to focus on location, Community Reinvestment Act (CRA) credits and strength of the market to direct where their investments funnel. Michael Novogradac seemed more encouraged by the FASB rulings in terms of bringing more non-CRA motivated investors to the table.
  • CRA credits – As alluded to above, CRA is extremely important to investors and is as equally important for developers. Both seem to go hand-in-hand, and interestingly enough as does the state allocating agency’s involvement.  Investors want to invest where they get CRA credit. Developers want to build in areas where they can find the best equity pricing. State allocating agencies are giving higher preference to projects located in urban areas, close to amenities and transportation — in other words, your typical CRA markets. Do you see the cycle?
    Intended or unintended, a vicious cycle is created that has a disparate impact on rural, and more specifically Native American, communities. Mr. Leopold mentioned that there is a pretty sizable spread between BOA’s CRA and non-CRA investments for pricing per tax credit. The spread is as much as 350 basis points (as much as $0.12) between low and high CRA markets. He anticipates this spread to continue as the current CRA language is too ambiguous leaving BOA to continue to focus on its core markets.

What can we do to change this? We need to work together to show Congress how essential the LIHTC program is to Indian Country and why the need is so great. Read about our latest advocacy efforts here or send an email to advocacy@travois.com if you’d like to get involved.