2012 Housing Land Advocates Conference How Federal Policy Changes May Affect the Financing of Affordable Housing Barbara Sard 2012 Housing Land Advocates Conference Portland, Oregon September 14, 2012

4 Key Policy Dimensions Deficit Reduction Tax Reform Housing Finance Reform Affordable Housing Program Reform

1. Deficit reduction

HUD Rental Assistance Has Remained Flat Despite Increase in Need Worst-Case Housing Needs Have Increased by More than 40 Percent from 2001 – 2009 Source: HUD analysis of Census data; CBPP analysis of HUD data Uses HUD’s WCN data. About 1 out of 4 LI households (74% based on HUD’s 2009 WCN report) eligible for HUD rental assistance that have housing needs do not receive it. Unmet need of elderly and disabled households somewhat lower (59% and 55%, respectively – though disabled count is probably an underestimate). Will be difficult even to avoid reduction in families receiving federal housing assistance over next decade, given constraints already enacted in BCA and risks of even deeper cuts to NDD. In Oregon, more than 140,000 renter households with incomes under 60% of AMI/200% of FPL paid more than half their income for housing in 2010.

Change in Funding, 2010 – 2012, in millions of nominal dollars Since 2010, Funding for Housing and Community Development Have Been Cut Significantly Change in Funding, 2010 – 2012, in millions of nominal dollars by $2.5B (6%) and CD by $1.5B (24%) Source: OMB public budget database. Figures are for discretionary programs, in nominal dollars.

Budget Control Act Cuts Funding for Nondefense Discretionary Programs FY 2012, adj. for inflation BCA Spending Cap BCA Sequestration Cuts discretionary spending by nearly $1 trillion over ten years, enforced by binding annual spending caps Tasked a bipartisan, bicameral committee to identify at least $1.2 trillion more in deficit reduction Because the “Supercommittee” failed, requires: Automatic, across-the-board cuts in many programs in 2013; 8.4% cut below cap for nondefense discretionary programs Reductions in each year from 2014 – 2021 in the annual caps on discretionary programs, as well as automatic cuts in non-exempt entitlement programs These cuts total an additional $1.2 trillion in deficit reduction over the decade Source: CBPP analysis based on CBO data. cbpp.org 5

Bipartisan Consensus on Three Fiscal Policy Issues The leaders of both parties, including President Obama, broadly concur on three key fiscal policy matters: That we need at least enough deficit reduction over the coming decade to stop the debt from growing faster than the economy; this requires more than $3 trillion in additional deficit reduction over the coming decade on top of the roughly $1 trillion in cuts under the BCA. That we shouldn’t reduce Social Security and Medicare benefits much — if at all — for people now 55 and over, meaning there will be little savings there over the coming decade. That we should not reduce defense below the caps set in the BCA, meaning there will be little additional defense savings beyond those reflected in the caps.

How to Get $3 Trillion+ in Deficit Reduction? If Social Security, Medicare, and defense are largely protected… And there is little or no new revenue… Then there are only two major parts of the budget left from which the bulk of the savings will have to come: the entitlement safety net for low-income households; and nondefense discretionary programs, including employment and training, education, Head Start, WIC, low-income housing, research, infrastructure, environmental protection, and international. Revenues are key: without them, nondefense discretionary programs and anti-poverty programs will face massive cuts. The Ryan budget is an illustration of this. 7 9/21/2018

But NDD is only a small share of the budget – 16% in 2011, of which about $1 out of every $8 is for H/CD and a little more than $1 of every $5 benefits low-income households – and it has already been cut. 8

Strategies for Deficit Reduction Goal is a balance of spending cuts and revenues in a comprehensive deficit reduction package that will not increase poverty or inequality. Make no further cuts in nondefense discretionary spending. Make Medicaid/Medicare sustainable without major structural changes that undermine the ability to serve needy recipients. Do not extend the Bush-era tax cuts for households with the highest incomes (top 2% with incomes above $250K). Reform inefficient, regressive tax subsidies (loopholes, deductions) Cancel/modify sequestration only as part of a comprehensive, balanced deficit reduction plan. cbpp.org

House (Ryan) Plan Forces Very Deep Cuts in Nondefense Programs FY 2012, adj. for inflation BCA Spending Cap BCA Sequestration Alternative is very grim House (Ryan) FY 2013 Budget Source: CBPP analysis based on OMB and CBO data.

Fiscal Debate Threatens Vulnerable People 9/21/2018 Fiscal Debate Threatens Vulnerable People Better known for gradually ending traditional Medicare’s guaranteed benefit, Ryan cut relies on cuts to low-income programs for nearly two-thirds of its budget cuts over the first ten years. Plan would slash Medicaid in half. We need to control, not shift health costs. Tuesday, April 24, 2012

2. Tax Reform

Tax Reform Holds Risks for Low-Income People and Programs Bush tax cuts and the Obama tax cuts for low-income working families — which lift 1.6 million people out of poverty and reduce the severity of poverty for 13 million others —will expire at the end of 2012. Congress may consider tax reform in 2013, to improve efficiency of tax code and help reduce deficits. Some agreement that reducing “tax expenditures” is a worthwhile approach, but this category includes key benefits for low-income families (e.g., Earned Income and Child Tax Credits) and the Low Income Housing Tax Credit (LIHTC). LIHTC = $6.5B in 2012 3

But Tax Reform Could Present Opportunity to Rebalance Housing Policy Tax reform may include changes in homeownership and other tax deductions, as recommended by 3 bipartisan panels. Using a portion of savings from tax reform for a new renters’ tax credit as a complement to the LIHTC and rental assistance programs could make housing spending more fair and effective. 3

Most Federal Housing Spending Benefits Homeowners Three-Quarters of Federal Housing Expenditures Benefit Homeowners Source: OMB public budget database and Budget of the United States, FY 2013, Analytical Perspectives. Figures for spending on homeownership and rental housing include estimated outlays and tax expenditures for 2012. Share of total housing tax expenditures and outlays that are rental-related ranged from 23% in 2009 to 30% in 2007, due not only to varying appropriations levels but also to effect of economy on various tax expenditures. But the share has been consistently lower than the renter share of the population. Did NOT include federal costs for GSEs – which would make rental an even smaller share. Rental also would have been smaller using BA instead of outlays. Note that about 1/5 of Rental expenditures are not targeted on lower income households (passive loss, accelerated depreciation and exclusion of mortgage bond interest). Expenditures included in the “other” categories are:   Homowner: deferral of income from installment sales, Homebuyer credit, TARP housing, homeowner mortgage subsidy bond interest exclusion, HOME, discharge of mortgage indebtedness, housing counseling, SHHOP, and a smattering of USDA and other homeownership programs. Renter: accelerated depreciation on rental housing, homeless assistance grants, HOME, Section 202 and 811 housing, rental mortgage subsidy bond interest exclusion, Native American/Hawaiian housing block grants, Section 521 rental assistance, and various other small assistance programs.  “LIHTC” include outlays for the Tax Credit Exchange program. Did not include CDBG – of roughly $1.1B spent on housing, >2/3 for h/o.

Benefits of Federal Housing Spending Are Concentrated on Higher Income Families More Than Half of All Housing Assistance Goes to Households with Incomes Above $100,000 Source: Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2011 – 2015, Table 3, and CBPP analysis of HUD program data and the OMB public budget database. Tax expenditures include the mortgage interest and real property tax deductions; income figures are for tax filing units. Rental subsidies include total outlays for the Housing Choice Voucher, Section 8 Project-Based, Public Housing, Housing for the Elderly (Section 202), and Housing for People with Disabilities (Section 811) programs. This picture is conservative in 2 ways: 2010 had lower totals than usual for MID/prop tax spending because of the recession, reducing the size of the bars for higher income households; AND we used tax filing units for tax expenditures rather than households, which lowers somewhat the income profile for recipients of h/o tax expenditures. Relatively low level of spending on households $30 - $75,000 would be somewhat rectified by changing h/o tax expenditures to credits rather than deductions. Data on the income of beneficiaries of various federal housing expenditures available only for the largest programs, and (to us) not later than 2010. Tax expenditures include only the mortgage interest and real property tax deductions (51% of h/o spending in 2010); income figures are for tax filing units. Rental subsidies include total outlays for the Housing Choice Voucher, Section 8 Project-Based, Public Housing, Housing for the Elderly (Section 202), and Housing for People with Disabilities (Section 811) programs (65% of rental spending in 2010). In 2011 and estimated for 2012, the selected categories of h/o and rental spending were more equal.

Average Housing Benefit for Higher Income Households Four Times Benefit for Lower Income Households Uses same programs as prior slide. Average benefit of housing outlays and tax expenditures for 21.9M households with income of less than $20,000 was $1,763 in 2010, in large part because only a small share of households receive any benefit. In contrast, the average benefit for the 4.9M households with income of $200,000 or more – i.e., at least 10 times higher income – was $7,014 in 2010 (and this somewhat understates the average value because JCT averages are for tax filing units and income data are for households). 7

Overview of Renter Credit Proposal Would authorize states to allocate capped amount credits to make housing affordable for low-income renters. Families assisted with credits generally would pay no more than 30 percent of their income for rent and property owners (or sometimes banks that lend to them) would receive a tax credit in exchange. If capped at $5 billion, the proposal could help 1.2 million families afford housing, reduce rents by an average of $400, and lift four of five of the poorest families it assists out of deep poverty. About 16,000 households/year in Oregon could be assisted, almost a 1/3 increase in households receiving RA in the state. cbpp.org

3. Housing Finance Reform

Unpredictable Future of Mortgage Lending Implementation of Dodd-Frank may alter downpayment requirements for non-FHA loans (“Qualified Residential Mortgage”) Obama Administration is trying to reduce federal role and increase incentives for buyers to use private mortgage insurance No political consensus on extent of federal role needed after housing market rebounds, if any Multifamily lending tends to be overlooked

4. Affordable Housing program Reform

SEVRA/AHSSIA Provisions Could Stretch Funds and Improve Project-based Voucher Policies • April 2012 House draft would reduce Section 8 and public housing program costs by about $2.8 billion over 5 years. Streamlined rules for rents and HQS inspections that would reduce administrative burdens/costs for PHAs’ and owners. • A stable, predictable policy on voucher renewal funding that would encourage PHAs to serve more families with existing funds. • PBV changes would increase share of vouchers that PHAs may project-base, facilitate project-basing in tight markets, and allow site- based waiting lists. • Minimum rent and expansion of MTW carry risks, but recent draft could limit harmful effects of these provisions. • Congressional appropriators are very interested in enacting at least the cost-saving provisions of the bill. cbpp.org

In Second Term, Likely Increased Focus on Regulatory Changes Proposed rule on Affirmatively Furthering Fair Housing may be published after election if Obama wins. Additional priority areas may include: Streamlining within HUD’s authority if AHSSIA/SEVRA changes not enacted; Consortia and other changes to facilitate economies of scale of administering agencies Improved performance measurement focused on outcomes in Housing Choice Voucher and Public Housing programs

CBPP Resources Background/analysis of low-income housing policy http://www.cbpp.org/research/index.cfm?fa=topic&id=33 Renters’ Credit proposal: http://www.cbpp.org/rentercredit Fact sheets on federal rental assistance programs http://www.cbpp.org/cms/index.cfm?fa=view&id=3586 Timely updates on housing policy issues http://www.offthechartsblog.org/category/housing/ http://www.cbpp.org/research/index.cfm?fa=topic&id=143 Sign up for CBPP housing email updates http://www.cbpp.org/research/index.cfm?fa=housing Background/analysis of federal budget issues http://www.cbpp.org/research/index.cfm?fa=topic&id=29