Transcript Slide 1

Federal Policy Update
Matt Josephs
Senior Vice President for Policy
Local Initiatives Support Corporation (LISC)
AHIC Conference
October 7, 2014
Overview of the Presentation
• Tax Reform
• FY 2015 and 2016 Appropriations
• Housing Finance Reform
• Community Reinvestment Act
• 2014 Elections
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Tax Reform in the 113th Congress
• In the first half of the 113th Congress and early in the second half, there was
some momentum for comprehensive tax reform – to the point where there
was a moratorium against introducing stand-alone tax legislation.
• Chairmen Baucus and Camp visited together various businesses around the
country to help highlight what is working and what needs to be fixed in the
tax code.
• Both indicated an interest in taking a “blank slate” approach to tax reform;
that they would take all tax expenditures out of the code and determine from
there which ones should remain.
• In the summer of 2013, Senators Baucus and Hatch asked all members of the
Senate to provide to them a list of which tax expenditures should remain in a
revised tax code, citing three criterion for inclusion:
1. Does it help grow the economy?
2. Does it makes the tax code fairer?
3. Does it promote important policy objectives?
Arguments for Preserving the Housing Credit
1.
It helps grow the economy, not only through direct investments in some
of the nation’s most distressed urban and rural communities, but also by
catalyzing additional investments and “freeing up” rental income of lowincome persons for more productive economic uses;
2.
It makes the tax code fairer by passing along real and tangible economic
benefits to low-income families that, according to the Congressional
Budget Office, don’t often accrue benefits through the tax code;
3.
It promotes important policy objectives, including financing affordable
housing and spurring investments in communities and projects that cannot
attract traditional capital investments; and,
4.
It spurs activity that would not occur but for the tax incentive. The
Housing Credit is somewhat unique in that it directs investments to
activities in which companies would not otherwise invest because: (a) it
does not further their normal business operations; and (b) if not for the
benefits provided in the tax code, they would not be profitable for the
company.
Tax Expenditures: What is the current distribution?
Some of the government’s largest tax expenditures compared with those that benefit low-income
populations (costs over a five-year period)
$1,200
$1,053.79
$1,000
Projected foregone revenue, 2011-15 ($ billions)
$800
Projected foregone revenue, 2010-14 ($ billions)
$637.56
$600
$360.84
$400
$300.06
$223.89
$200
$41.00
$36.31
$5.32
$0
Exclusion of
employer
contributuions
for medical
insurance
premiums and
medical care
MID
401 (k) plan
contributions
Deductability of Exclusion of net Earned income
non-business imputed rental
tax credit
state and local
income
taxes other than
owner-occupied
homes
Source: Daniel Mandel, Tax Expenditures and Social Policy: A
Primer. Smart Subsidy for Community Development.
LIHTC
Low- and
moderateincome savers
credit
$3.79
NMTC
$1.82
Work
opportunity tax
credit
Distribution by Income Class of the Mortgage Interest Deduction
– federal tax expenditures at 2012 rates and income levels
$30,000
4,701
$23,606
$25,000
$20,000
14,065
$29,068
Number of claimants in Income group
(in thousands)
$15,000
$10,000
5,799
$5,906
$5,000
$0
1
$1
177
$48
Below $10k
$10k
to
$20k
Source: Joint Committee on Taxation
489
$235
$20k
to
$30k
997
$585
$30k
to
$40k
6,081
$7,567
1,792
$1,151
$40k
to
$50k
$50k $75k $100k $200k
to
to
to
+
$75k $100k $200k
Total amount of tax expenditure made
by federal government (in $ millions)
paid out to members of given income
bracket
Rep. Camp’s Draft Proposal
• Representative Camp introduced a comprehensive tax reform proposal in February
of 2014.
• The proposal preserved the 9% Housing Credit, but made many other proposed
modifications to the Housing Credit and other changes to the code that could
prove very detrimental to affordable housing:
•
•
•
•
•
Repeal of the 4% credit and private activity bonds
Extending the credit period to 15 years
Extending the depreciation period to 40 years
Repealing the 130% basis boost
Limitations on occupancy preferences
• Lowering the corporate tax rate from 35% to 25% will also affect pricing of the
credit.
Impact of Chairman Camp’s Proposal
•
The ACTION Coalition estimates that the changes to the tax code contained in
Chairman Camp’s proposal could result in the development of 54,000 fewer affordable
housing units annually, a reduction of over 60% of annual Housing Credit production.
•
Multifamily tax exempt bonds (used with 4% credits) are responsible for more than
40% of annual Housing Credit production. In 2012 alone, 38,000 apartments were
created using tax exempt bond financing.
•
According to a report prepared by Novogradac and Company, the cumulative effect of
extending the credit period to 15 years, lowering the corporate tax rate to 25%, and
extending the depreciation period to 40 years would result in a loss of as much as 19%
of housing credit equity – over $1.5 billion or 13,000 units annually.
•
Eliminating the basis boost means that properties serving the most vulnerable
populations and communities may not be able to be financed.
LIHTC: A Fix for Floating Rates (S.1442; HR 4717)
• The credit rates for both the 9% credits and the 4% credits are based on a
formula that is set monthly and tied to U.S. Treasury’s borrowing rates,
which are at historic lows.
• Lower Treasury borrowing rates reduce the tax credit rates, which in
today’s interest rate environment results in 15-20% less equity being
available for projects.
• This makes development and rehabilitation of properties more difficult,
especially for properties that target the lowest income populations.
• The Housing and Economic Recovery Act of 2008 set a temporary floor
of 9 % for the 9% credits.
• S.1442 (28 co-sponsors) and HR 4717 (65 co-sponsors) would make this
fix permanent, and would also extend it to the 4% credit.
Status of Tax Extenders
•
In the absence of comprehensive tax reform, Congress must now consider the status
of about 55 tax provisions that expired in 2013.
•
Included in this set of expired provisions is the temporary fix that retained the floor
for the 9% credit.
•
The Senate Finance Committee passed an extenders package this summer that
included a fix for both the 9% and the 4% credit for all credits allocated through 2015.
•
The House Ways and Means Committee did not vote out an extenders package, but
rather held separate votes to on individual provisions that had expired so that these
could be made permanent. The 9% and 4% credit fixes were not brought up for votes
in Committee.
•
When Congress returns for a lame duck session, they are likely to vote on the entire
extenders package – minus perhaps a few provisions.
•
Relative to the 9% fix, the 4% fix has a higher hurdle for inclusion because: it wasn’t
part of the extenders package last year; it does have costs attributed to it (it is more
costly than the 9% fix); and it is inconsistent with Chairman Camp’s Tax Reform
proposal, which called for the elimination of the 4% credit.
Looking Ahead to the 114th Congress
•
In the 113th Congress, the tax credit industry was focused first and foremost on
preserving the Housing Credit in the context of tax reform, as well as making
permanent the fixes for both the 9% and 4% floor.
•
While this is most certainly going to be the top priority in the 114th Congress, there is a
growing consensus that we may need to be “on the offensive” more going forward.
•
The President’s 2016 budget is likely to include several provisions which would
strengthen the program, including:
– A provision to allow states to convert private activity bond volume cap to LIHTC
authority
– A provision to permit access to 4% credit without a requirement to finance
property with tax exempt bonds
– A provision to allow credits to serve residents with incomes of up to 80% of
AMI, so long as the average of all residents at a given property continue to remain
at or below 60% of AMI.
•
It is also notable that Bipartisan Policy Center’s Housing Commission recommended
increasing the credit allocations to states by 50%.
Appropriations
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FY 2015 and FY 2016 Appropriations
•
Congress failed to pass a single appropriations bill for the FY 2015 budget, and instead passed a
Continuing Resolution to fund the government at FY 2014 levels through December 11th, 2014.
•
At that time Congress will either pass an omnibus bill to fund agencies for the remainder of FY
2015, or if the Senate should flip to Republican control, may pass another short term Continuing
Resolution so that the new Senate will be in place to vote on the budget.
•
The bigger battle will be over the FY 2016 budget, which the President will introduce in February
or March of 2015, possibly to a Congress entirely under Republican control.
•
The Budget Control Act of 2011, which requires the government to operate within certain topline budget caps for defense and non-defense programs, was waived for 2014-2015 but will be
reinstated again for FY 2016.
•
It requires Congress to find an additional $1.2 trillion in savings over 10 years (either budget cuts
or revenue increases) or else face across the board cuts known as sequestration.
•
This could result in additional cuts of up to 8% annually for domestic discretionary programs. If
the past is any indication, Congress will work to preserve section 8 spending levels, causing
further erosion of HOME and CDBG funding.
HUD Budget Requests: FY 2015
(Numbers in millions)
$25,000
President's Request
House Appropriations Request
Senate Appropriations Request
$20,000
$15,000
President’s FY 2015 Budget
Request
House
Approps
Senate
Approps
Section 8: $20.045B
$19.356B
$19.562B
$3B
$3.02B
HOME: $950M
$700M
$950M
McKinney-Vento: $2.406B
$2.1B
$2.145B
Total HUD Budget:
$46.6B
$35B
$45.80B
CDBG: $2.8B
$10,000
$5,000
$0
Section 8
Tenant-Based
Rental
Assistance
Source: HUD Budget FY 2015
CDBG Formula
Grants
HOME
McKinney-Vento
Investment
Partnerships
HUD Budget Requests: FY 2014
(Numbers in millions)
$20,000
President's Request
House Appropriations Request
Senate Appropriations Request
$18,000
$16,000
$14,000
$12,000
President’s FY 2014 Budget
Request
House
Approps
Senate
Approps
$8,000
Section 8: $19.989B
$17B
$19.6B
$6,000
CDBG: $2.798B
$1.6B
$3.15B
$4,000
HOME: $950M
$700M
$1B
$2,000
McKinney-Vento: $2.381B
$2.1B
$2.3B
Total HUD Budget:
$34.94B
$28.46B
$35.02B
$10,000
$0
Section 8 TenantBased Rental
Assistance
Source: HUD Budget FY 2014
CDBG Formula
Grants
HOME Investment McKinney-Vento
Partnerships
HUD Budget Over the Past Ten Years
(numbers in millions)
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
$14,186
$15,881
$18,184
$18,000
FY 2004 enacted
$4,792
$5,976
$8,558
$9,321
FY 2007 enacted
$4,331
$3,704
$4,550
$3,085
Tenant Based Project Based
Rental
Rental
Assistance Assistance
CDBG
Formula
Grants
FY 2010 enacted
$2,006
$1,757
$1,825
$950
HOME
Investment
Partnership
Program
Sources: HUD Budget in Analytical Perspectives: Budget of the U.S. Government; NLIHC FY07 Budget Chart for
selected programs; Overview of FY2012 Budget, Department of Housing and Urban Development (Feb.14,2011);
Fiscal Year 2009 Budget Summary, U.S. Department of Housing and Urban Development.
FY 2013 (including
sequester)
HUD Budget Authority: Comparative
Summary between 2005 Enacted and the
President’s 2014 Budget Request
Enacted FY 2005 Budget Authority
30%
President’s Budget Request FY 2014
26%
42%
48%
7%
22%
15%
Total, TBRA
Total, Public Housing Operating Fund
Total, PBRA
Remainder of HUD budget
10%
Total, TBRA
Total, Public Housing Operating Fund
Total, PBRA
Remainder of HUD budget
Housing Finance Reform
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Government Sponsored Entity (GSE) Reform
House of Representatives: PATH Act Passed by
Financial Services Committee in July of 2013
Senate: Johnson-Crapo bill passed by Banking
Committee in May of 2014
• The GSEs would be terminated and replaced by a
National Mortgage Market Utility.
• The GSEs would be terminated and replaced with the
Federal Mortgage Insurance Corporation (FMIC).
• The principal purpose of the Utility is to standardize the
mortgage market and create a securitization platform.
• The FMIC would offer an explicit government
guarantee and also purchase and securitize single and
multifamily mortgage portfolios.
• The Utility cannot own, originate, service, insure or
guarantee mortgages.
• GSE affordable housing goals would be eliminated.
• Many of the affordable housing benefits inherent in the
GSE structure would therefore disappear with no
replacement:
• A fee of ten basis points would be assessed on all loans
securitized by the FMIC to fund affordable housing
activities.
- The multi-family business lines would be discontinued
- There would be no replacement of affordable housing goals
that had formerly applied to GSEs.
- There would be no replacement of the National Housing
Trust Fund (NHTF) and the Capital Magnet Fund.
- 75% of the funds would be provided to the National
Housing Trust Fund at HUD.
- 15% of the funds would be provided to the Capital
Magnet Fund at the Treasury Department.
- 10% of the funds would support a new Market Access
Fund
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Community Reinvestment Act
• The banking regulatory agencies have recently engaged in efforts to update
the CRA Q&A guidance document.
• In November of 2013, the regulators finalized the first set of changes to the
Q&A document. The changes are intended to:
– Clarify circumstances under which banks may receive CRA credit for community
development activities statewide and regional areas surrounding their “assessment areas”.
– Clarify circumstances under which banks can receive CRA credit for investing in nationwide
funds, stating that “side letters” are not required for such investments.
– Clarify that the community development lending performance is always considered in an
institution’s lending test rating and can negatively impact that score.
• On September 10th, the regulators posted several other proposed changes to
the Q&A document, including:
– Providing examples of what qualifies as innovative or flexible lending practices;
– Clarifying guidance on what constitutes economic development; and
– Providing examples of activities which are deemed to revitalize or stabilize a community.
• Public comments on these proposals are due on November 10th, 2014
2014 Congressional Elections
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Who Will Control the Senate?
• Democrats are defending 21 seats (including six in states
that Romney won).
• Republicans are only defending 15 seats, none of which are
in states that Obama won.
• The Republicans need to pick up 6 seats, and 3 seats are
solidly in their column (Montana, West Virginia and South
Dakota).
• Several predictive models are showing a 60-70% likelihood
that the Republicans will take over.
Potential Changes of Note in the Senate
• Under Republican control, based on seniority:
– Senator Hatch from Utah would take over as chair of the Finance
Committee.
– Senator Cochran from Mississippi could take over as chair of the
Appropriations Committee (the current Ranking Member is Senator
Shelby from Alabama).
– Senator Shelby could take over as Chair of the Banking Committee (the
current Ranking Member is Senator Crapo from Idaho).
• On the Finance Committee, Senator Rockefeller (D-WV) is retiring, and
Senator Roberts (R-KS) is in a tougher than expected re-election campaign.
• Other key retirements/tight races: Senator Johnson (D-SD); Senator Harkin
(D-IA); Senator Pryor (D-AR); Senator Udall (D-CO); and Senator Hagan
(D-NC)
Potential Changes of Note in the House
• Key Departures from Ways and Means Committee include:
– Chairman Camp is retiring. Kevin Brady (R-TX) and Paul Ryan (R-WI)
will vie for the Chairmanship.
– Jim Gerlach (R-PA), Tim Griffin (R-AR) and Allyson Schwartz (D-PA)
are retiring.
• Key Departures from Appropriations Committee include:
– Both the Chairman (Tom Latham, R-IA) and the Ranking Member (Ed
Pastor, D-AZ) of the THUD subcommittee will be retiring.
– Other retirements include senior members Frank Wolf (R-VA), Jack
Kingston (R-GA), and James Moran (D-VA).
• Key Departures from Financial Services Committee include:
– Spencer Bachus (R-AL), Shelly Moore Capito (R-WV), Michelle Bachman
(R-MN), John Campbell (R-CA), Carolyn McCarthy (D-NY), and Gary
Peters (D-MI).
Conclusion
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