How the administration’s proposed budget might impact LIHTC
Upon review of this year’s budget proposals released by the Obama Administration last month, I remembered having written an article on this same topic last year. Interestingly enough, we find some repeat provisions pertaining to LIHTC that did not make it into final passage last year, a new provision or two for this year and one of last year’s items that also did not make budget approval but was nevertheless included in legislation in the meantime. Once again I will caution that these provisions will be under Congressional scrutiny and will not be enacted without Congressional approval, but I believe that it is always good to keep an eye on the horizon to see what may be coming our way.
One of the repeats from FY 2013 is to broaden the income criteria to support the creation of mixed-income housing by adding a third minimum set-aside option available for owners to elect at the end of the first year of the credit period, allowing for at least 40 percent of the units in the project to be qualified by and occupied by households having incomes that average no more than 60 percent of Area Median Income (AMI). The cap on income-targeting would be 80 percent of AMI and any set-asides less than 20 percent AMI would be included in the average as having 20 percent targeting. Of course this will open up the LIHTC applicant pool to a larger portion of qualifying families which will increase the income diversity and hopefully help meet the goal of serving the needs of those most in need. It should also help alleviate “the inflexibility of the income criteria [that] makes it difficult for LIHTC to support the acquisition of partially or fully occupied properties for preservation or repurposing.”
Even more compelling, at least to some, is that it also proposes a “special rule that would apply to rehabilitation projects that contain units that receive ongoing subsidies”. This portion of the proposal would allow for existing tenants at acquisition/rehab properties to qualify for the LIHTC program as long as their initially qualifying income was no greater than 60 percent AMI and their income at LIHTC qualification is no more than 80% AMI, if it exceeds the 60% limit. Those units falling into this category would not be taken into consideration for averaging purposes, the Next Available Unit Rule would apply and “the tenant’s unit would be treated as rent restricted if the gross rent collected from the unit does not exceed 30 percent of the Credit-Year-1 AMI Percentage times current AMI”. If and when they move out of the unit, then it would revert to the qualifying income level of either 50 percent or 60 percent AMI as determined by its owner’s given election. This, of course, will make it easier for in-place tenants to remain qualified when tax credits are layered onto their property’s existing subsidies, which in turn may make preservation deals more attractive to developers and help in actually preserving more of our nation’s currently aging affordable housing stock.
And speaking of preservation, along these same lines is the provision included in this year’s Budget Proposal that would add preservation of federally assisted affordable housing to LIHTC allocation criteria. Recognizing that “preservation and rehabilitation of existing affordable housing is often a more efficient way of supplying affordable housing than is new construction”, this proposal would add an eleventh selection criterion that Qualified Allocation Plans (QAPs) must include and would be effective for tax credit allocations made in the calendar years beginning after the date of enactment. This obviously shines the spotlight on our nation’s aging affordable housing portfolio and prioritizes the need for its preservation.
The provision of note from last year’s budget proposal missing this year is the one that would have required LIHTC-supported housing to provide appropriate protections to victims of domestic violence. With the reauthorization of the Violence Against Women Act (VAWA) on March 8, 2013, this budget proposal became a moot point, however, since the LIHTC Program is now included in VAWA. In addition, VAWA protections have now been extended to Native Americans, immigrants, and Gay, Lesbian, Bisexual and Transgender (LGBT) communities. We have not received any guidance from the IRS on this issue, however, so stay tuned for further direction on how these protections should be implemented at your LIHTC properties.
You may find the document detailing the revenue proposals online at:
http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf. There are few additional provisions that affect LIHTC explained in the document, but those outlined in this article have the greatest applicability for management. It is, of course, hard to predict at this juncture which provisions will come to pass but again, it is good to stay informed on latest industry proposals and trends to help us understand what changes we may be seeing over the next while.