Senate Tax Bill Measure Preserves LIHTC, Private Activity Bonds

Since the publication of the Insider’s Special Issue detailing the House of Representatives’ tax reform bill, the House passed its version of tax reform legislation, the Tax Cuts and Jobs Act, H.R. 1, with a vote of 227 to 205. The Tax Cut and Jobs Act eliminates the tax exemption for private activity bonds, including housing bonds. Thirteen Republicans voted against the bill, along with all of the Democrats casting a vote.

At this time, the Senate Finance Committee’s version of the tax reform bill hasn’t yet been brought up for a vote. The Senate returned from its Thanksgiving recess with a limited number of working days to accomplish major legislative priorities before the year’s end, including passing a comprehensive tax reform bill. Prior to leaving Washington, the Senate Finance Committee reported its version of the Tax Cuts and Jobs Act out of committee, on a party-line vote of 14 to 12.

The Senate Finance Committee’s bill is better for affordable housing and the LIHTC industry than the House bill. Private activity bonds (PABs) are retained, preserving the 4 percent LIHTC tax-exempt bond program; the depreciation period for all residential and nonresidential real property is reduced to 25 years; and the corporate tax rate is reduced to 20 percent but delayed until 2019 (H.R. 1 would implement a 20 percent corporate tax rate starting in 2018).

The Senate is continuing negotiations and is expected to vote on a modified version of its bill soon. The Modified Mark includes several provisions of the Affordable Housing Credit Improvement Act, S. 548, sponsored by the Chairman and Senator Maria Cantwell (D-WA). These provisions would:

• Allow state allocating agencies to determine a reasonable reconstruction or replacement period after a casualty loss;
• Replace the right of first refusal with a purchase option to help project sponsors ensure long-term affordability of a property after an investor exit;

• Modify the preference for housing locating in a Qualified Census Tract that contributes to a concerted community revitalization plan to clarify that the state allocating agency—not the federal government—has the authority to set parameters for what constitutes a concerted community revitalization plan in its state and set broad criteria the state should consider in its determination of such plans;
• Prohibit Qualified Allocation Plans (QAPs) from considering local support or opposition as selection criteria, including local government contributions unless considered under a broader context of a project’s ability to leverage outside funding sources;
• Require QAPs to have selection criteria considering the affordable housing needs of the state’s Indian tribe members; and
• Rename the Low Income Housing Tax Credit the “Affordable Housing Tax Credit.”

However, the Modified Mark leaves out aspects of the Affordable Housing Credit Improvement Act that would help maintain credit production in a lower corporate tax rate environment, such as increasing the national credit allocation amount by 50 percent and creating a permanent floor for the 4 percent credit.