Housing Programs Fair Well in Omnibus Spending Bill
5/14/2018 12:13:23 PM

Changes will Impact the Industy

By Jo Ikelheimer

The fear that gripped much of the affordable housing industry over potential federal budget cuts dissipated on the afternoon of March 23rd with the signing by President Trump of the Omnibus Spending Bill of 2018.

On the HUD side, the budget increased by $3.9 billion to $42.7 billion, including a $1.362 billion increase in HOME funding – a whopping 43% increase over 2017. Considering that the administration’s original budget had no funding allocated for HOME, this is a huge development. In addition, the cap for converting Public Housing units under the Rental Assistance Demonstration (RAD) program increased from 225,000 to 455,000 units and the initiative’s expiration was extended until 2024. RAD, which has received broad bi-partisan support, is converting the traditional low-income public housing program into something akin to the Section 8 project-based model. USDA’s Rural Housing Programs saw an increase in their budgets as well.

Two of the most significant provisions of the bill for the expansion and strengthening of affordable housing, however, pertain to the Low-Income Housing Tax Credit Program (LIHTC).Originating in the Affordable Housing Credit Improvement Act, the newly approved 12.5% increase in credit authority to be implemented over four years beginning in 2018 was initially proposed as a 50% cap increase by Senator Maria Cantwell (D-WA) who was its sponsor. The House version of this bill, the Affordable Housing Credit Improvement Act of 2017 H.R. 1661, was identical to the Senate bill with the exception of having no proposed cap increase. Therefore, the final result included in the Omnibus Bill represents a legislative compromise. Although it is a greatly reduced percentage, the increase still scores a win for the creation and preservation of more affordable housing for those in need with the added economic benefits associated with housing credit development.

The other LIHTC provision from the Omnibus bill was included in multiple budget proposals under the Obama Administration first and then added as a key component of both the Senate and House Affordable Housing Credit Improvement Act proposals. It adds a third minimum set-aside option for owners of LIHTC properties, which will allow the 60% AMI ceiling to apply to the average of all unit income qualifications rather than the cap on each individual unit. The maximum level of qualifying income will be 80% AMI, which HUD refers to as Low Income. The thought behind this provision was that the higher rents associated with the higher level of income targeting will potentially offset lower rents for tenants qualifying at the lower end of the income scale (50% or 30% AMI), thus providing deeper affordability while still maintaining financial feasibility for these properties. The provision also reduces the need for additional subsidy to achieve greater affordability at LIHTC properties. Since this is a permanent change to the LIHTC program structure, its impact over time is potentially greater than the volume cap increase. The change also creates the opportunity for LIHTC to serve a wider range of those in need of affordable housing.

How will these changes affect management of LIHTC properties? On a macro level, it means that there will be more tax credit housing to manage so naturally this creates the need for more management staff. Management companies should start thinking ahead to prepare for this expansion. Practitioners in the management field should view this as greater opportunity for advancing their careers. On a more micro level, it means that the process of qualifying tenants is going to change to include those with higher levels of income in some instances, which will also create a larger strata of income levels within those properties which will need to be properly managed. The methodology for determining income eligibility isn’t changing, but a layer of complexity has been added by expanding the income qualification criteria. And of course the Tenant Income Certification (TIC) forms, as well as IRS from 8609, will also need to be amended to reflect this change so our state housing agencies and the IRS should be providing further guidance on these.

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