Legislation Introduced to Permanently Freeze LIHTC Credit Floor

On May 22, Reps. Pat Tiberi, R-Ohio, and Richard Neal, D-Mass., introduced H.R. 4717, a bill that would establish a permanent floor for both the 9 percent and 4 percent Low-Income Housing Tax Credits. The bill would create a fixed 9 percent rate for new rental construction property and a fixed 4 percent rate for existing property. The bill has been referred to the House Committee on Ways and Means and includes 24 co-sponsors.

This bill was introduced shortly after the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, S. 2260, stalled in the Senate. On May 15, the Senate voted 53-40 on a motion to close debate on the substitute amendment carrying the EXPIRE Act, effectively blocking efforts to move the measure forward. Written to extend dozens of expiring and expired tax provisions, the bill needed 60 votes, including five Republican votes, to be approved. While there appeared to be broad bipartisan support for the measure, the bill stalled over a procedural move that effectively blocked Republicans' ability to amend the extenders package.

The unsuccessful cloture vote didn’t kill that bill entirely, but rather stalls it for the time being. Key highlights from the stalled legislation include:

9 percent credit rate freeze. The LIHTC program provides a tax credit over a period of 10 years after a housing facility occupied by low-income tenants is placed in service. The credit earned each year generally depends on three factors—the investment in the building, the portion of the building devoted to low-income units, and a credit rate (called the “applicable rate”). When the program was created, the applicable rate was 9 percent.

As interest rates have declined, so has the amount of tax credit that can be used to build an LIHTC project. In 2008, Congress adjusted the formula and set a minimum credit amount of 9 percent, which is based on the original credit rate when the program was created. The provision, originally scheduled to expire at the end of 2013, was extended once, and was effective for housing credit dollar amount allocations made before Jan. 1, 2014. This proposal would extend the expiration date by changing the deadline to allocations made before Jan. 1, 2016.

4 percent credit rate freeze. This establishes a 4 percent minimum credit rate under the LIHTC program for the acquisition of existing housing that isn’t federally subsidized. Any existing housing that’s also financed with tax-exempt bonds isn’t eligible for the 4 percent minimum credit rate. The minimum credit rate applies to buildings placed in service after the date of enactment with respect to which credit allocations are made before Jan. 1, 2016.

Treatment of military basic housing allowances. The bill extends a provision whereby any military basic housing allowance received by an active member of the military is not considered income for purposes of calculating whether an individual qualifies as a low-income tenant for the LIHTC program. The provision expired at the end of 2013. The proposal would continue this treatment for two additional years. A two-year extension of this provision is estimated to cost $49 million over 10 years.