1. Federal Affordable Housing Assistance Outlook Virginia Housing Coalition September 3, 2014 Robert Rozen Washington Council Ernst & Young

2. Spending Issues

3. Page 3 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

4. Page 4 Major Categories of HUD Spending Where Will Future Sequestration Cuts Come From Share of HUD Budget ► Section 8 vouchers45% ► Project based Section 823% ► Public Housing 15% ► CDBG 7% ► Homeless Assistance 5% ► HOME 2%

5. Page 5 Major Categories of HUD Spending Where 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%

6. Page 6 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

7. Tax Issues Agenda

8. Page 8 Challenges Ahead for LIHTC Program ► Reinstatement of minimum 9% tax credits ► Enactment of minimum 4% tax credits ► Continued erosion of gap financing ► TAX REFORM

9. Page 9 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

10. Page 10 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%

11. Page 11 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