2017 CAHEC Partners Conference Federal Legislative Discussion Wednesday, May 17, 2017 Greensboro, North Carolina Robert Rozen

The Future of the Low-Income Housing Tax Credit __________________________________ Tax Reform – Threats and Opportunities Increased Resources Program Modifications

House 238 Republicans 193 Democrats Republicans can lose 22 votes and still pass legislation Senate 52 Republicans 48 Democrats Republicans can only lose 2 votes and still pass legislation

Tax Reform -- The Continuing Threat _________________________________________ Eight year bipartisan effort in Congress Driven by desire to reduce top corporate income tax rate Key trade off: lower tax rates paid for by “broadening the tax base” which means eliminating special tax provisions including business tax credits such as the LIHTC

Tax Reform Republican majority expected to process tax reform through budget reconciliation process to facilitate passage through Senate with simple majority vote Nevertheless, assuming Democrats stick together, the margin is quite narrow. Republicans can only lose 2 Senators and still pass legislation. That gives each Senator tremendous power and will likely result in compromises on most controversial aspect of legislation.

Tax Reform – Major Initiatives _________________________________________ Trump Administration Plan April 2017 Outline 15% corporate tax rate while proposing “elimination of tax breaks for special interests” Administration says higher economic growth will offset costs Almost all of the individual tax cuts accrue to highest income households Scored by Tax Policy Center as costing $7 trillion over ten years

Tax Reform – Major Initiatives (cont House Republicans June 2016, House GOP conference releases tax reform blueprint to serve as policy position for campaign 20% maximum tax rate on corporations 20% border adjustable tax that raises significant revenues Immediate expensing of capital investments No deduction for net interest costs Scored by Tax Policy Center as costing $3 trillion over ten years

Tax Reform – Major Initiatives (cont Senate No plan yet

Tax Reform -- LIHTC, Risk and Opportunity _____________________________________ The December decision of Ways and Means GOP to retain the LIHTC was enormously important Given Finance Committee chairman Hatch’s cosponsorship of 50% increase bill, optimism for Senate is warranted Nevertheless, the program can be saved, yet severely undermined lower corporate rates tax exempt bonds interest deductibility write-off period for real estate tax capacity of LIHTC investors

Will There be Tax Reform. When Prospects for tax reform have declined since immediately after the election Not likely during 2017 Increasing odds that if anything is enacted it will be tax cuts rather than tax reform Maximum corporate rate unlikely to be below 25%

The Campaign for More LIHTC Resources __________________________________ S . 548 Cantwell – Hatch legislation 50% cap increase 18 miscellaneous changes to section 42 H.R. 1661 Tiberi--Neal legislation Virtually identical to Senate bill but without 50% cap increase

Major Provisions of LIHTC Legislation Permit up to 20% of units in project to serve tenants up to 80% of AMI as long as average resident qualification is 60% of AMI Standardize income eligibility rule for rural properties to facilitate more rural Housing Credit development Permit over-income tenants to stay in renovated property if they originally were income qualified Conform Housing Credit student rule to HUD student rule Create 50% basis boost for units serving ELI tenants Change ROFR to purchase option

Major Provisions of LIHTC Legislation Replace “10 Year Rule” prohibition with 10-year rule basis limitation Include relocation expenses in eligible basis Clarify that states have authority to determine the definition of a community revitalization Prohibit elected officials from influencing allocation award Allow states to award 30% “basis boost” to bond financed developments Minimum 4 percent Housing Credit rate for acquisition and tax- exempt bond projects Eliminate basis adjustment for using energy efficiency credits

Tax Reform -- LIHTC -- Risk and Opportunity Ways and Means GOP has informally decided to retain the LIHTC Considering modification to credit rate calculation to offset reduced value of Housing Credit due to lower corporate tax rate Given Finance Committee chairman Hatch’s cosponsorship of 50% increase bill, optimism for Senate is warranted Nevertheless, the program can be saved, yet severely undermined lower corporate rates tax exempt bonds interest deductibility write-off period for real estate tax capacity of LIHTC investors

Threats on Horizon __________________________________ Early 2018 – Government Accountability Office report on cost of development Opposition from those who oppose the federal government spending funds to affordable housing development Continuing cuts in HUD programs