Dec 11

Historic Housing Credit Investment Included in Senate Finance Committee Build Back Better Bill

Today the Senate Finance Committee released its portion of the updated Build Back Better reconciliation bill, which would provide an historic investment in the Housing Credit and finance 819,900 affordable homes over the next decade, according to a study by Novogradac. See the Senate Finance Committee bill text here.

The Housing Credit provisions are largely similar to those passed by the House of Representatives in November, with one key change to the annual Housing Credit allocation increase and two technical changes to the basis boost for extremely low-income (ELI) households that were made at the request of the affordable housing industry:

  1. Extending the allocation increase through 2025 instead of 2024, which requires a much lower allocation increase in the earlier years to eventually achieve the same allocation increase in 2025, but provides a much better position to extend the provision beyond 2025, and
  2. Modifying the ELI basis boost to clarify that the boost applies to the fraction of units that serve ELI households and language relating to Private Activity Bond issuance.

The House-passed provisions to reduce the 50 percent test from 2022 to 2026 and establish a permanent basis boost for tribal areas are unchanged. See below for more details about these provisions and other key provisions included in the Senate bill.

The Senate bill is continuing to undergo a ‘Byrd Bath,’ the process in which the Senate parliamentarian analyzes the bill to ensure that each provision complies with the rules of budget reconciliation (e.g., producing a sufficient budgetary effect). This analysis, and subsequent changes to conform with the rules of reconciliation, are expected to continue into next week. Once finalized, the bill can move to the Senate floor, where it will undergo a lengthy ‘vote-a-rama’ process, during which many amendments can be offered. Congressional leadership has stated a goal to complete this process and pass the reconciliation bill before Christmas, though that timeline may be pushed back.

Thank you to all AHTCC members for your support of the Housing Credit through this process. We encourage AHTCC members to thank Democratic members of Congress for their support, especially Democratic members of the Senate Finance Committee and Senate Majority Leader Chuck Schumer (D-NY). AHTCC members will receive more information about opportunities to advocate for these proposals in the coming weeks. Learn more about AHTCC membership here.

Senate Housing Credit Production Provisions with Changes from House Bill

Housing Credit Allocation Increase

  • Increasing the annual Housing Credit allocation by extending through 2025 the 12.5 percent Housing Credit allocation increase that was previously enacted for years 2018 through 2021, plus inflation, and further increasing the 2025 Housing Credit allocation to roughly 37.5 percent higher than current levels.
    • House Version: The House bill would have increased the Housing Credit allocation by roughly 10 percent plus inflation each year from 2022 to 2024, but would have reduced the allocation to a level much lower than the current allocation for 2025.
    • Rationale for Change: In order to conform with the limitations of budget reconciliation and other cost constraints, the allocation increase included in Build Back Better is temporary, and extension will be required. In 2024, there are virtually no other expiring provisions alongside which the Housing Credit allocation could be extended. In 2025, there is likely to be a more comprehensive tax extenders package because there are numerous tax provisions set to expire, meaning that if the allocation increase expires in 2025, it is in a much stronger position for extension.
    • Senate Per Capita and Small State Minimum Allocation Amounts for 2022 to 2025:
      • 2022: $2.93 per capita; $3,346,875 small state minimum
        • This is a continuation of the 12.5 percent allocation increase previously enacted from 2018 to 2021, plus inflation, for an allocation that is 4.3 percent over today’s level.
      • 2023: $2.98 per capita; $3,425,625 small state minimum
        • This is a continuation of the 12.5 percent allocation increase, plus inflation, for an allocation that is 6.0 percent over today’s level.
      • 2024: $3.04 per capita; $3,504,375 small state minimum
        • This is a continuation of the 12.5 percent allocation increase, plus inflation, for an allocation that is 8.2 percent over today’s level.
      • 2025: $3.86 per capita; $4,481,950 small state minimum
        • This is a continuation of the 12.5 percent allocation increase, plus inflation, plus an additional 25 percent increase, for an allocation that is 37.4 percent over today’s level.
      • Note that the current allocation for 2021 is $2.81 per capita and $3,245,625 for the small state minimum.

Basis Boost for Properties Serving Extremely Low-Income Households

  • Providing a permanent 50 percent basis boost for developments serving Extremely Low-Income (ELI) households, as well as requiring an 8 percent set-aside for ELI properties, effective for buildings placed in service after December 31, 2021.
    • Technical Change: The Senate bill clarifies that the proportion of a building that can receive the basis boost is determined by the fraction of the number of units that are ELI units compared to all units in the building, rather than the fraction of the floor space of the ELI units compared to the overall floor space in the building.
    • Technical Change: The Senate bill also clarifies language around Private Activity Bond (PAB) issuance, regarding the maximum amount of PAB authority that may be used for the basis boost, specifically stating that “the aggregate face amount of obligations designated… by such State in the calendar year during which such obligation is issued does not exceed 8 percent of the State ceiling.”
    • Set-Aside: Allocating agencies must allocate a minimum of 8 percent of the annual 9 percent Housing Credit allocation for developments serving ELI households. Note that the set-aside and following limitation did not originate in the AHCIA.
    • Limitation on Basis Boost: The 50 percent ELI basis boost is available for both the 9 percent and 4 percent Housing Credit, and is available for up to 13 percent of the state’s annual Housing Credit allocation and 8 percent of the state’s annual Private Activity Bond volume cap.
    • ELI Building Definition: Buildings serving ELI households are defined as buildings in which at least 20 percent of units are restricted for households whose aggregate household income does not exceed the greater of 30 percent of area median gross income or 100 percent of the federal poverty line.

Housing Credit Production Provisions with No Changes from House Bill

50 Percent Test Reduction to 25 Percent

  • Lowering the 50 percent bond financing threshold test to 25 percent for 5 years (2022 to 2026), for “any building some portion of which, or of the land on which the building is located, is financed by an obligation which is described in section 42(h)(4)(A) and which is part of an issue the issue date of which is after December 31, 2021.”

Basis Boost for Properties in Indian Areas

  • Providing a permanent 30 percent basis boost for developments in Indian areas, effective for buildings placed in service after December 31, 2021, by designating Indian areas as Difficult to Develop Areas.
    • Indian Area Definition: Indian Areas are defined in the Native American Housing Assistance and Self Determination Act of 1996. To qualify, buildings must be assisted or financed under the same Act, the project sponsor must be a qualifying Indian tribe or a tribally designated housing entity, or the building must be wholly owned or controlled by a qualifying Indian tribe or tribally designated housing entity.

Additional Housing Credit Provisions with No Changes from House Version

Modifications to Section 48 Investment Tax Credit

  • Allowing for the Sec. 48 Investment Tax Credit to be taken on a Housing Credit property without reducing the eligible basis for the Housing Credit property.
  • Providing an additional 20 percent credit for the Sec. 48 Investment Tax Credit if a solar facility is placed in service in connection with a qualifying low-income residential building project, or an additional 10 percent credit if a solar facility is located in a low-income community or on Indian land.

Modifications to Qualified Contracts

  • Curtailing the use of Qualified Contracts by repealing the option for buildings receiving allocations after January 1, 2022, and, for existing properties, changing the price for the low-income portion of a property to fair market value, determined by the allocating agency taking into account the rent restrictions required to continue to satisfy the minimum set aside requirements.

Modifications to Right of First Refusal

  • Making several modifications to the Right of First Refusal (ROFR) by (i) converting the right to a purchase option for agreements entered into after passage, (ii) allowing the inclusion of partnership assets related to the building in the definition of property; (iii) allowing the option holder to exercise the right of first refusal without requiring the approval of an investor or requiring a bona fide third party offer; and (iv) changing the purchase price to only debt and not debt plus exit taxes. The changes are not intended to change any express provision in an existing agreement.

AHTCC members have received a full analysis of additional key provisions in the Senate legislation, including revenue raisers, community development tax credits, and affordable housing spending programs. Learn more about AHTCC membership here.