Federal Affordable Housing Assistance Outlook

Virginia Housing CoalitionSeptember 3, 2014

Robert Rozen

Washington Council Ernst & Young

Spending Issues

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Long Term Trends in Federal Spending

► Budget Control Act of 2011► 10 year budget caps for appropriated spending, 2% growth ► Fast-track process for additional $1.92 trillion deficit reduction

through “Supercommittee”► Triggered annual “sequestration” of appropriated spending if

Supercommittee fails to reach agreement

► FY 2013 Budget – Sequestration goes into effect with across the board spending cuts

► Bipartisan Budget Act of 2013– Agreement to eliminate sequester for FY 2014, and partially ameliorate FY 2015 cuts

► FYs 2016-2021 – Appropriated accounts, including HUD, will be cut an additional 5% to 7% annually

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Major Categories of HUD SpendingWhere Will Future Sequestration Cuts Come From

Share of HUD Budget

► Section 8 vouchers 45%► Project based Section 8 23%► Public Housing 15%► CDBG 7%► Homeless Assistance 5%► HOME 2%

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Major Categories of HUD SpendingWhere Will Future Sequestration Cuts Come From

Percentage Change Since 2010

► Section 8 vouchers + 5%► Project based Section 8 +16%► Public Housing -14%► CDBG -30%► Homeless Assistance +13%► HOME -55%

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Potential New Source of Federal Funding for Affordable Housing

► Housing Trust Fund► Established in 2008► 90% for rental housing; at least 75% for ELI households and no

money for households greater than VLI ► Funded from mortgage volume of Fannie and Freddie► Funding delayed by conservatorship

► Potential New Source of Funding: GSE Reform► Warner-Corker, Johnson-Crapo Committee bill► New fee on guaranteed mortgages

Tax Issues

Agenda

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Challenges Ahead for LIHTC Program

► Reinstatement of minimum 9% tax credits

► Enactment of minimum 4% tax credits

► Continued erosion of gap financing

► TAX REFORM

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Minimum Tax Credits

► Minimum 9% tax credits expired for 2014 allocations

► Likely extension during December lame-duck session

► But likely expiration again for 2016 allocations

► Possibility of extending minimum credit to 4% acquisition credits

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House Ways and Means Tax Reform Act of 2014 – Affordable Housing highlights

► Preserves Low-Income Housing Tax Credit but with a number of modifications, including:► Extension of credit period from 10 years to 15 years► Elimination of tax-exempt multifamily housing bonds► Elimination of 4% credit for acquisition for existing property► Repeal of 130% basis boost for “high-cost and difficult

development areas”

► Lengthens residential real estate depreciation period from 27.5 years to 40 years.

► Full impact of House Ways and Means tax reform draft could erode the capacity of LIHTC program by 35 to 55%

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Potential Opportunities for LIHTC

Obama Administration Budget Proposals► Permit States to trade-in private activity bond authority

for up to a 23% increase in LIHTC cap► Permit projects to receive 4% bond credits without

using bonds► Permit states to provide that up to 40% of units can be

targeted to residents up to 80% of AMI with higher rents used to subsidize units for residents at 40% of AMI

► Housing Commission of Bipartisan Policy Center ► 50% Increase in Allocation Authority► $1 billion increase in HOME for gap financing