Barbara Fields is the executive director of Rhode Island Housing. She responded recently to questions about how the federal Low Income Housing Tax Credit program would fare in the proposed revision of the federal tax code. The changes suggested in the House version of the tax overhaul would eliminate Private Activity Bonds, which have been used in Rhode Island for the renovation of low-income and subsidized apartments, as well as investments in infrastructure and student loans. The Senate version would leave this alone.
Congressional Republicans announced Wednesday they had reached a consensus on the sweeping tax code changes, according to a report in the New York Times. Details on the outcome for low-income housing credits had not been made public.
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PBN: What will happen to low-income housing tax credits under both the Senate and House versions of the tax bill?
FIELDS: On the House side, it eliminates all private activity bonds, and the private activity bonds are what we use for the 4 percent credits. So, the Low Income Housing Tax Credit has the deeper-dive 9 percent, and the 4 percent that we’re allowed to use based on our state’s private activity bonding capacity.
So, it repeals private activity bonds, which are used for other things, [such as] student loans and infrastructure, although the Senate bill retains it. The Low Income Housing Tax Credit is retained, there is no change in general. But the corporate tax rate, going from 35 to 20 percent, we would anticipate a 15 percent drop in equity that we could get, and you would have a bigger gap in the project.
PBN: What kind of an impact will that have across Rhode Island?
FIELDS: It would be big because it would erode the value and we would have to fill the gap. We predict over five years we could lose more than $35 million in equity, based on the volume we do today.
PBN: How often are these tools used now?
FIELDS: Every state gets an allocation of the tax credits and the bonds. We use this every year. The Low Income Housing Tax Credit, since it was created 30 years ago, is the major federal vehicle to develop multifamily housing. Over the past five years, 75 percent of the units that we do use the tax credit. The House and the Senate [bills], on the tax credit, leave it the same, but the challenge is we’ll have a reduced yield.
In the House [bill], they eliminated private activity bonds, so while they leave the tax credit alone, you can’t use the 4 percent credits without the activity bonds. So, it’s like, ‘Oh yeah, we left it alone,’ but you can’t use the 4 percent without this other thing that you’ve eliminated. We’ve used those 4 percent [credits] with the tax-exempt bonds, for $233 million in tax-exempt bonds in the last five years. We use the 4 percent usually for preservation because it’s a shallower subsidy. For upgrades and renovations, we’ve done 2,400 homes in the last five years.
PBN: Your gut reaction on seeing these changes?
FIELDS: It was stunning. Almost every elected official of whatever persuasion touts the idea of public-private partnership. In 1986, we reformed the tax code. This was the last investment left standing. Over the past 35 years, the housing production industry – private, nonprofit – has learned to use this credit effectively. Every year, it is used to produce tens of thousands of units of housing, all across the country. Here in R.I., with the 4 percent alone, we’re doing about 500 units of housing a year. Last year we were doing over 1,000 because we were preserving a lot.
PBN: Is there a chance any of this can be reinstated?
FIELDS: We’re very hopeful. On the Senate side, it has been reinstated. The Senate bill is often the default, but we’re staying on top of it both individually for R.I. but also through our trade association, the National Association of State Housing Agencies. … Where we have we used this: Veterans for Tomorrow in Providence was a development of 20 apartments for homeless veterans. That’s how we use those 4 percent [credits]. The other development we’re doing is revitalizing housing in Pawtucket called Prospect Heights. It’s 100 units in the first phase.
Mary MacDonald is a PBN staff writer. Email her at macdonald@pbn.com.
