The Low Income Housing Tax Credit (LIHTC) Program is currently the most significant program financing homes that are affordable to rent.
The Low Income Housing Tax Credit (LIHTC) program has helped create over 29,000 new homes in Minnesota since its inception in 1987.
LIHTC faces an unprecedented crisis. Many tax credits awarded since 2008 remain unused due to lack of investor interest since the start of recession in 2008.
- Major investors cannot benefit unless they have profits against which to take tax credits over the next 10 years. They are unwilling to invest at this time.
- Tax credit value has declined from $0.90+ per dollar to $0.70. The credits, even when purchased by investors, provide far less capital for projects than before. This has stalled many new tax credit projects.
The Housing and Economic Recovery Act (HERA) of 2008 provided reforms, and then ARRA financed assistance for tax credit projects. ARRA created:
- Tax Credit Assistance Program (TCAP) to make up for the loss of value in credits for new tax credit projects that are stalled.
- Tax Credit Exchange Program (TCEP) allows states to exchange for cash up to 40% of 2009 credits and any unused credits from prior years.
Federal:
Coalition of housing groups has proposed several fixes;
- The Low Income Housing Tax Credit Exchange Expansion and Job Creation Act of 2010 (HR 4687) was introduced in February, 2010 by Rep. Linda Sanchez. It would make it possible for developers to exchange both 9% and 4% tax credits for cash from the Treasury, allowing many stalled acquisition/rehab projects to proceed due to lack of capital.
- The Job Creation and Housing Act of 2010 (S. 3326) was introduced on May 6, 2010 by Sen. Maria Cantwell. It would provide an exchange program for the 4% tax credit and expand the ability of investors to apply tax credits to profits of up to 5 years in the past to increase marketability of the credits.
Funding:
- TCAP amount for MN is $28 million in American Recovery and Reinvestment Act (ARRA).
- ARRA authorized tax credit exchange (TCEP) to make approx. $38 million available to MN.
- On average, about $11 million allocated annually.
Federal Administration:
- Treasury Department administers LIHTC.
- Treasury allocates tax credit resources and administers the TCEP program.
- TCAP is a HUD program.
State Administration:
- MHFA allocates distribution of LIHTC, TCAP, & TCEP funds.
- Qualified local cities and counties also serve as suballocators.
Kristen Fitzpatrick, Metropolitan Consortium of Community Developers, is a contributor to MHP's coverage of this issue.
Updated May 11, 2010.