Committee passes two significant extensions of HERA provisions for LIHTC
Let’s travel back in time four years ago to the summer of 2008. It was the tail-end of the Bush Administration and the national economy was falling apart. In an effort to alleviate some of the devastating effects of this situation on the housing market, Congress passed the Housing and Economic Recovery Act of 2008 (HERA). The Low-Income Housing Tax Credit (LIHTC) program, alone, benefitted from 26 different provisions included in this landmark legislation.
Fast-forward four years to the present and we find Congress readdressing some of these provisions which had expiration dates attached to them in the original law. On Aug. 2, two HERA provision extensions passed bipartisan voting through the Senate Finance Committee’s approval and reporting of the Family and Business Tax Cut Certainty Act of 2012. Senators Maria Cantwell (D-WA) and Olympia Snowe (R-ME) cosponsored the amendment to the bill, which would extend the fixed credit rate of 9% for all tax credit allocations made prior to Dec. 31, 2013, rather than all tax credit developments placed in service by that same date as stated in the original legislation. This is pending its full congressional passage, however, with voting expected later in the fall. Even though this is not the hoped-for permanent fixing of both the 9% and 4% credit rates for the LIHTC program, it is a start toward that end and considered a hopeful sign by many in the industry.
Prior to HERA, non-federally subsidized tax credit projects, or ‘9% deals,’ were subject to a monthly fluctuating credit rate that was market dependent and therefore harder to predict. The fixed 9% rate has helped stabilize underwriting for these deals and provided a higher rate of credit allocation than in the days before HERA. The federally-subsidized tax credit projects, or ‘4% deals.’ have continued to weather the fluctuating monthly rates published by the IRS as no change was included for them in the HERA legislation. There is currently momentum in the industry to push for permanently fixing this rate, along with the 9% rate, to add greater benefit to all tax credit projects.
The second provision that would be extended – or reinstated, rather, with an extension – is the exclusion of the military Basic Allowance for Housing (BAH) from income for LIHTC properties located in counties with military installations that grew by 20 percent or more from Dec. 31, 2005 to June 1, 2008, and to buildings in counties that are adjacent to such counties. This provision initially expired on Jan. 1, 2012, but is being recommended for extension through Dec. 31, 2013. Click here to download a PDF of the original legislation from our website.
So, what do we take from these two proposed extensions? First of all, it shows that there exists a recognized need for continuing relief in the housing credit industry in Congress. It also implies, to me at least, that Congress may be open to permanently fixing the credit rates as previously discussed since the extension measure passed committee in the Senate. Of course we are in the midst of an election cycle that could make or break the program in the long run, so that places us in wait-and-see mode for the time being. I choose to remain hopeful, however, that these measures will go on to pass full congressional approval and are a sign of better things to come. How about you?