Event Sponsor
Washington Wire for the 2015 Housing Colorado NOW! Conference 2 Mike Morrison, CPA Novogradac & Company LLP Mike.morrison@novoco.com @novogradac David Gasson Boston Capital dgasson@bostoncapital.com @dsgasson
Agenda Since Last We Spoke Will We Have Tax Reform? Proactive Agenda National Political Landscape Advocacy Efforts HUD Budget & Housing Trust Fund Update 3
SINCE LAST WE SPOKE 4
Outline 2014 2015 CR-Omnibus Camp Extenders Passed in December 2014 Kept government funded through 9/30/15 Increased RAD from 60K to 185K units and funded through 2018 Introduced tax reform legislation Keeps low income housing credits Eliminates tax exempt bonds 9% floor rate expires Passed Extended 9% floor for 2014 Extended 50% bonus depreciation Extended 45L credits 5
WILL WE HAVE TAX REFORM? 6
Leadership Players - SENATE - - HOUSE -? 7 Sen. Mitch McConnell (R-KY) Senate Majority Leader Sen. Sen. Harry Chuck Reid Schumer (D-NV) Senate (D-NY) Democratic Likely Leader Incoming Senate Democratic Leader Rep. John Boehner (R-OH) Speaker of the House Rep. Nancy Pelosi (D-CA) House Democratic Leader
Keep up to date! @novogradac 8
Leadership Players - SENATE - Finance Committee - HOUSE - Ways and Means Committee 9 Sen. Orrin Hatch (R-UT) Sen. Ron Wyden (D-OR) Rep. Paul Ryan (R-WI) Rep. Sander Levin (D-MI)
Senate Finance Committee Working Groups Individual Income Tax Sen. Enzi, R Wyo. Sen. Grassley, R IA Sen. Stabenow, D Mich. Business Income Tax Sen. Thune, R S.D. Sen. Cardin, D Md. Savings & Investment Sen. Crapo, R Idaho Sen. Brown, D Ohio International Tax Sen. Portman, R Ohio Sen. Schumer, D N.Y. 10 Community Development & Infrastructure Sen. Heller, R Nev. Sen. Bennet, D Colo.
Senate Finance Committee Working Groups Individual Working Income group Tax reports released Business early Income July! Tax Sen. Enzi, R Wyo. Sen. Grassley, R IA Sen. Stabenow, D Mich. Sen. Thune, R S.D. Sen. Cardin, D Md. Savings & Investment Sen. Crapo, R Idaho Sen. Brown, D Ohio International Tax Sen. Portman, R Ohio Sen. Schumer, D N.Y. 11 Community Development & Infrastructure Sen. Heller, R Nev. Sen. Bennet, D Colo.
Tax Reform Lessons Hearing Bipartisanship Strong support from the White House Former Senate Finance Committee Chairman Bob Packwood Former Committee Member Bill Bradley Budget reconciliation process? 12
Protect Current Resources 13 Preserve 9 and 4 Percent LIHTC in Tax Code Preserve Multifamily Housing Private Activity Bonds Tax Exemption Retain 27.5 Year Depreciation for LIHTC Properties Compensating Proposal for Loss of LIHTC Equity if Corporate Tax Rate is Reduced
PROACTIVE AGENDA 14
Proactive Proposals Increase LIHTC Resources Per Capita Allocation Cap Increase Community Renewal Tax Relief Act of 2000 Housing and Economic Recovery Act of 2008 15 Bond Conversion Bonds LIHTCs
Proactive Proposals Private Activity Bond Conversion Proposal Would allow states to increase their LIHTC authority by converting up to 18 percent of their private activity bond (PAB) volume cap to 9 percent LIHTC authority 50% The maximum increase in LIHTC authority states would be allowed to convert under this proposal would be about 50 percent 16 Conversion Rate = $1000 x 2 x applicable percentage of the 30 percent value LIHTC in December of the previous year For example, using December 2014 rate of 3.22 percent $1000 of PAB cap x 6.44% = $64.40 in LIHTC authority www.taxcredithousing.com
Proactive Proposals Private Activity Bond Conversion Proposal Would allow states to increase their LIHTC authority by converting up to 18 percent of their private activity bond (PAB) volume cap to 9 percent LIHTC authority 50% The maximum increase in LIHTC authority states would be allowed to convert under this proposal would be about 50 percent 17 Sen. Sherrod Brown (D-OH) Conversion Rate = $1000 x 2 x applicable percentage of the 30 percent value LIHTC in December of the previous year For example, using December 2014 rate of 3.22 percent $1000 of PAB cap x 6.44% = $64.40 in LIHTC authority
Proactive Proposals Make minimum 9 percent rate permanent Establish permanent minimum 4 percent rate for acquisition LIHTC Establish permanent minimum 4 percent rate for bond financed projects 18
Proactive Proposals Income mixing 40 percent of units at an average of 60 percent of AMI Maximum of 80 percent AMI on initial income certification Applied to entire property, not building Would help: 1. High housing cost areas, where rents of residents earning 60-80 percent AMI cross-subsidize rents of residents earning below 40 percent AMI. 2. Low-income neighborhood revitalization, and 3. Rural areas where sparse populations and very low AMI s make it difficult to finance properties or maintain an appropriate income mix 19
9 Percent LIHTC Extension - HOUSE - 20 Rep. Pat Tiberi R Ohio Rep. Richard Neal D Mass.
9 Percent LIHTC Extension - HOUSE - 21 Rep. Pat Tiberi R Ohio Rep. Richard Neal D Mass.
9 Percent LIHTC Extension - SENATE - 22 Sen. Maria Cantwell D Wash. Sen. Pat Roberts R Kan.
INTERSTATE $$ mid Nov. to mid Dec. The end of October! September 30 End of FY15 October 29 Authorization of Highway Trust Fund expires December/November Debt ceiling December expected 11 End of the continuing resolution December 31 CBO Deadline Sec. for Tax Lew extenders Oct Nov Dec Jan 23 Now-Late November International Tax Reform Possible 2015 2016
NATIONAL POLITICAL LANDSCAPE 24
The Republicans BUSH CARSON CHRISTIE CRUZ FIORINA 25 GILMORE GRAHAM HUCKABEE JINDAL KASICH PATAKI PAUL PERRY RUBIO SANTORUM TRUMP WALKER
The Republicans Gambling Odds BUSH CARSON CHRISTIE CRUZ FIORINA 9/2 25/1 40/1 50/1 18/1 26 GILMORE GRAHAM HUCKABEE JINDAL KASICH PATAKI PAUL 100/1 100/1 100/1 40/1 33/1 100/1 33/1 PERRY Source: Paddy Power RUBIO SANTORUM TRUMP 8/1 66/1 9/2 WALKER
The Democrats? CHAFEE CLINTON LESSIG O MALLEY SANDERS WEBB BIDEN 27
The Democrats Gambling Odds? CHAFEE CLINTON LESSIG O MALLEY SANDERS WEBB BIDEN 11/8 125/1 40/1 8/1 50/1 8/1 28 Source: Paddy Power
Affordable Housing on the Campaign Trail 29 /journal
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Key Senate Finance Committee Members Site Visits 31 Mike Enzi R-Wyoming Johnny Isakson R-Georgia Michael Bennet D-Colorado Dean Heller R-Nevada
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www.taxcredithousing.com 33
www.taxcredithousing.com 34 www.taxcredithousing.com
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HUD Budget & Housing Trust Update 36
Obama s Budget Released Released on February 2015 Includes the following: Conversion of private activity bond volume cap into tax credits Change in the 9% formula Change in how QCT are determined Did NOT have the fixing of the 9% budget 37
Long Train Runnin Remember the Sequester Dominating the current conversation Budget Control Act of 2011 A 5% reduction in HUD s Budget in 2013 What has happened since? Depends on who you ask LIHTC Industry, including those who participate Project based Section 8?The answer is probably - not much. Project based Section 8 contracts were honored and payments were made if a bit late. Congress passed a provision converting Project Based Section 8 to a calendar 12 month program, a one time savings. Public Housing Authorities? It was deeply felt. Suffered a further loss of capacity. Low income tenants? Nothing immediate, but 38
Blackwater HOME has never recovered nor has CDBG It doesn t sound like it matters it matters a lot potentially HOME was reduced to $948 Million in 2013 Kept at $950 Million in 2014 Reduced again to $900 Million in 2015 Current House THUD mark is $767 Million HUD s request is $950 Million HOME is bound up in the heated issue relating to the Housing Trust Fund CDBG is currently marked at $3.066 billion, over a 25% reduction from its non- ARRA high seven years ago Important because State funding is down in many places Many nonprofit developers rely on HOME It affects trend lines on soft money finance, deal size and general health of the deal 39
FY 2015 Enacted President s FY 2016 Proposed House FY Senate FY 2016 2016 Subcommittee Subcommittee Bill Bill Housing Choice Voucher $19,304 $21,123 $19,918 $19,934 Project Based Section 8 $9,730 $10,760 $10,654 $10,826 Public Housing Operating Fund $4,440 $4,600 $4,440 $4,500 Public Housing Capital Fund $1,875 $1,970 $1,681 $1,742 Section 202 $420 $455 $414 $420 Section 811 $135 $177 $152 $137 40 HOPWA $330 $332 $332 $330 CDBG $3,000 $2,800 $3,000 $2,900 HOME $900 $1,060 $900 $66 Homeless Assistance $2,135 $2,480 $2,185 $2,235 Choice Neighborhoods Initiative $80 $250 $20 $65 www.taxcredithousing.com
Housing Trust Fund Mel Watt Federal Housing Finance Agency Director Julian Castro HUD Secretary In calendar year 2015, contributions will be set aside by Fannie Mae & Freddie Mac Watt December 11, 2014 letters to Fannie Mae, Freddie Mac Grants to be for affordable rental housing that targets extremely low income-income individuals and households HUD released interim rule on January 30 41 2014 2015
Housing Trust Fund How much should we expect for 2015? Housing Trust Fund $325M Capital Magnet Fund $120M $65M $175M $178M $84M 42 As low as As high as But we estimate 2015
Washington Wire for the 2015 Housing Colorado NOW! Conference 43 Mike Morrison, CPA Novogradac & Company LLP Mike.morrison@novoco.com @novogradac David Gasson Boston Capital dgasson@bostoncapital.com @dsgasson