Support Grows to Extend Minimum Credit Rates

On June 17, the ACTION Campaign submitted a letter to House Ways and Means Committee Chairman Dave Camp asking that he permanently extend minimum 9 and 4 percent Housing Credit rates as part of his current tax extenders effort. ACTION (A Call To Invest in Our Neighborhoods) is a national, grassroots campaign led by a broad, cross-industry coalition of over 650 national, state, and local organizations. The ACTION Campaign’s mission is to protect and preserve the LIHTC as a means of providing a wide variety of affordable rental housing options to low-income working families in communities across the nation.

Chairman Camp recently held two mark-ups to permanently extend around a dozen expired tax provisions, and he’s expected to hold additional mark-ups on expired provisions. The ACTION Campaign’s letter highlighted the impact of the floating rate on financing affordable housing. The letter urged that the committee take this opportunity to strengthen the LIHTC and create predictability by permanently extending minimum Housing Credit rates, citing the difficulty in financing affordable housing that results from the return to the floating rate.

The letter emphasized the inability to allocate more tax credits to a particular site because the floating rate translates into a loss of project equity, and consequently, more difficult tradeoffs for the affordable housing community. The letter stated that with less equity available, developers may need to borrow more to cover the equity shortfall. And this additional borrowing adds additional monthly interest costs to the final equation, which developers must find a way to afford.

This results in serving less needy families at higher rents in order to pay debt service on higher debt financing. These developers may also have to cut back on physical amenities like community rooms that improve the quality of life for low-income residents, such as veterans, or limit social services, like workforce training, career counseling, or after-school programs.

The letter further noted that the decrease in equity that results from the floating rate isn’t actually associated with taxpayer savings, since the amount of tax credits that states are able to allocate doesn’t change under the floating rate. This means that implementing minimum credit rates has minimal costs and the Joint Committee on Taxation has estimated that the cost of extending the minimum 9 percent rate for allocations made through 2015 is only $4 million over 10 years.