Affordable housing developers could be dealt a debilitating blow by the new federal tax bill, depending on how the House and Senate versions are reconciled before heading to President Trump’s desk. The bill passed by the House in mid-November seeks to eliminate “private activity bonds” (PABs) a financing tool that allows cities to borrow on behalf of private companies and nonprofits, thus lowering borrowing costs.
But the political chasm between D.C. the seat of federal authority and D.C. the city is on display once again, with Mayor Muriel Bowser’s announcement that her administration will go ahead and implement its own strategy for maintaining affordable housing funds. The District of Columbia Housing Finance Agency (DCHFA) will issue up to $500 million tax-exempt PABs, as well as introduce a Convertible Option Bond (COB) to preserve the city’s bond cap.
The DCHFA plans to accomplish this through either a private placement or public offering that would not exceed its unused volume cap prior to the 4 percent Low Income Housing Tax Credits (LIHTC) proposed elimination date under the House bill of Dec. 31, 2017. If tax-exempt PABs are, in fact, axed, DCHFA would no longer be able to leverage 4 percent LIHTCs for multifamily housing. Thus, according to a statement from the city, the “immediate delivery of proceeds is required to preserve the tax-exempt status of the bonds” and DCHFA anticipates that the funds “would preserve the agency’s ability to leverage tax-exempt bonds and 4 percent LIHTCs for affordable housing development through calendar year 2020, as permitted by the House-passed tax bill, allowing for the production or preservation of 4,000 units of affordable housing.”
“While some members of Congress seem indifferent to the plight of low-income and middle-class Americans, our D.C. values mandate that we do more for those families,” Mayor Bowser said in a statement. “Regardless of the outcome of this pending legislation, we will continue to build and preserve housing that meets the needs of our residents.”
As Next City reported last week, D.C.’s Council recently approved a new $10 million affordable housing preservation fund, and not a moment too soon. The city lost around 1,000 units of subsidized housing between 2006 and 2014 and another 13,700 units have subsidies that are set to expire in 2020.
Mayor Bowser, meanwhile, has made affordable housing a cornerstone of her administration, committing $100 million annually to the city’s Housing Production Trust Fund. Under her direction, a “Housing Preservation Strike Force” has also set the goal of maintaining as affordable 100 percent of units currently receiving federal or city subsidy.
Even if the Senate bill prevails in regards to PABs, they may be in trouble. As the Bond Buyer recently reported, while the Senate bill doesn’t eliminate them, it includes an amendment to keep both the individual and corporate alternative minimum tax, which applies to PABs that are not 501(c)(3) bonds.
Rachel Dovey is an award-winning freelance writer and former USC Annenberg fellow living at the northern tip of California’s Bay Area. She writes about infrastructure, water and climate change and has been published by Bust, Wired, Paste, SF Weekly, the East Bay Express and the North Bay Bohemian.