Last month, working families in Princeton, homeless seniors in Minneapolis and Minnesota residents across the state got hope for a better future when the Minnesota Housing Finance Agency (MHFA) announced its latest round of funding to create and preserve more than 1,800 affordable housing opportunities throughout the state.
Now, nearly 800 of those homes are at risk — because of a tax reform bill that could cripple the development of affordable housing in Minnesota and across the nation.
Over the past 10 years alone, nearly $2 billion in private activity bonds have supported the construction of more than 15,000 affordable rental units across the state. But the tax reform bill introduced in the U.S. House of Representative last week eliminates that vital tool. If signed into law, the bill could effectively kill projects like West Birch Estates in Princeton and Minnehaha Commons in Minneapolis, leaving hundreds of families out in the cold and millions of dollars of economic development untapped.
Alliance Housing has been working for more than five years to secure a site and financing for Minnehaha Commons to house the growing number of very low income seniors who are homeless. “The federal tax bill would delay this project further, while need continues to increase and the cost of NOT housing them does, as well,” says Barbara Jeanetta, Executive Director of Alliance Housing.
In Princeton, West Birch Estates would also be forced back to the drawing board rather than moving toward breaking ground. “The impact of removing the 4% tax credit program would be detrimental to all communities, especially rural communities that do not have a lot of other resources,” says Deanna Hemmesch, Executive Director of Central MN Housing Partnership. “We need to keep the 4% tax credit program as a way for communities to help address their growing housing need.”
Just a few weeks ago, MHP celebrated the groundbreaking of Mysa House in Mora, a project that will provide homes for two dozen seniors — many of whom have been on housing waiting lists for years. If passed in its current form, tax reform would make future developments like Mysa House virtually impossible.
“Mysa House was funded with 4% tax credits and private activity bonds and would not have happened without these tools,” says Skip Duchesneau, President of D.W. Jones, the developer for Mysa House. “Without private activity bonds the current bill will hinder our economic development, and stop needed infrastructure investments of cities and towns in Minnesota as well as further plunge the United States into an affordable housing crisis.”
The proposed changes by Congress will also impact state investments in affordable housing. MHFA uses Housing Infrastructure Bonds (HIB) in place of or in addition to traditional tax-exempt bonds to provide eligibility for 4% credits. Under the proposed changes, HIBs will no longer make a project eligible for 4% credits. As a result, projects will need to find new sources of equity. Because equity sources are already extremely scarce, the proposed changes will make it nearly impossible to use HIB to preserve existing federally subsidized housing without other agency funding. Preserving existing federally subsidized housing is essential to maintaining our affordable housing stock and retaining existing federal investments in Minnesota.
Other provisions in the tax reform bill that would deepen the affordable housing crisis, include:
- Eliminating the Historic Tax Credit that has been used to renovate more than 40,000 structures and leveraged $117 billion in private investment over the past 25 years.
- Proposing sensible changes to the mortgage interest deduction — but directing the benefits to billionaires and corporations rather than redirect savings back into affordable housing.
- Reducing the corporate tax rate without modifications to the Housing Tax Credit, which will likely negatively impact the value of the 9% Low Income Housing Tax Credit (LIHTC). Novogradac & Co. estimates the net result will be $1.2 billion fewer dollars in equity annually.
- The proposed use of an alternative inflation measure that will decrease inflation adjustments in LIHTC allocations and, over 10 years, result in the loss of 8,200 affordable rental homes, according to Novogradac & Co. analysis.