Obama Administration's FY 2016 Budget Offers LIHTC Proposals

On Feb. 2, President Obama introduced his fiscal year (FY) 2016 budget. The proposal includes significant policy proposals aimed at improving the Low-Income Housing Tax Credit (LIHTC) program. The budget retains many of last year’s proposed modifications, and adds a new proposal to remove the population cap for Qualified Census Tract designations.

Specifically, the current budget proposal would modify the LIHTC program by:

• Allowing states, based on a formula, to convert up to 18 percent of their private activity bond (PAB) volume cap into low-income housing tax credits. Under the proposal, states would be authorized to convert PAB volume cap to be received for a calendar year into LIHTC allocation authorization applicable to the same year. The conversion ratio would be reset each calendar year to respond to changing interest rates. In addition, each state would be subject to an annual maximum amount of PAB volume cap that can be converted.
• Allowing owners to elect a third possible low-income set-aside in which at least 40 percent of the units in the project would have to be occupied by tenants with incomes that average no more than 60 percent of area median income (AMI). (This proposal is similar to a proposal included in the FY 2015 and FY 2014 budget proposals.) No rent-restricted unit, however, could be occupied by a tenant with income over 80 percent of AMI; and, for purposes of computing the average, any unit with an income limit that is less than 20 percent of AMI would be treated as having a 20-percent limit. Maximum allowable rents would be determined according to the income limit of the unit.
• Increasing the discount rate used in calculating LIHTCs for non-bond financed projects. The 9-percent temporary minimum applicable percentage would remain expired and the discount rate used in the present value calculation for allocated LIHTCs would increase. The new discount rate would better reflect private-market discount rates and would apply to both 70 percent and 30 percent allocated LIHTCs.
• Adding “preservation of federally assisted affordable housing” to Qualified Allocation Plan criteria.
• Removing the population cap limit for Qualified Census Tract designations. The limit stipulates that the aggregate population in census tracts designated as QCTs cannot exceed 20 percent of a metropolitan area’s population. Removing the cap would allow HUD to designate census tracts with a poverty rate of at least 25 percent or 50 percent or more of households with incomes less than 60 percent of AMI as a QCT.
• Implementing a requirement that LIHTC-supported housing protect domestic abuse victims. This policy proposal stipulates that owners may not refuse to rent any unit in a LIHTC-produced building to a person who has experienced domestic abuse and, in addition, such an experience of domestic abuse would not be cause for terminating a tenant’s occupancy. Under an agreement, owners could bifurcate a lease so that the owner could: (1) remove or evict a tenant who engaged in criminal activity directly related to domestic abuse, and (2) avoid evicting, terminating, or otherwise penalizing a tenant who is a victim of that criminal activity. The proposal would clarify that the continuing occupant could become a tenant and wouldn’t have to be re-tested for low-income status.