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House and Senate Tax Bills Will Decimate Affordable Housing in Vermont

Posted December 1, 2017

MONTPELIER, VT — The Vermont Affordable Housing Coalition (VAHC), a state leader in housing policy, research and advocacy, today issued the following statement on the tax bill recently passed by the U.S. House of Representatives and under consideration in the Senate:

At a time when Vermont already has a shortage of 10,866 affordable homes for extremely low income renters and the 5th highest affordability gap for renters in the country, the pending tax proposals would eliminate tax credits and financing tools that have helped create thousands of affordable apartments  in our state and made homeownership more affordable for thousands of Vermonters.

“Vermont already has an affordable housing crisis, but these bills would make it a catastrophe.  Without the tax credits and bonds that the House bill eliminates, thousands of affordable homes will not be built, and more Vermonters will be left homeless or stuck in homes they cannot afford,” said Ted Wimpey, VAHC Steering Committee Chair and Director of CVOEO’s Fair Housing Project.  “The Senate proposal is more favorable but would still substantially reduce affordable rental housing production at a time when the need is so acute.  If either of these tax bills becomes law, it will put families out on the streets and irreparably harm Vermont communities.”

Overall, Vermont could lose an estimated $15 million in housing investments every year – losses that not only directly affect Coalition members’ ability to create affordable housing for low-income and vulnerable Vermonters, but also the amount of construction and real estate activity that the state relies on to help stimulate economic development, create good-paying jobs, and improve our communities.

“We are thankful that our entire congressional delegation strongly opposes these unbelievably harmful bills and hope that they do not become law, especially those provisions that are so damaging to affordable housing,” noted VAHC Coordinator Erhard Mahnke.  “We need real tax reform that helps address our housing crisis and protects struggling low- and moderate-income people.”

THE TAX BILL PASSED BY THE HOUSE:

  • Significantly weakens the Low Income Housing Tax Credit, the nation’s largest affordable rental housing development resource. The Housing Credit is a successful public-private partnership that has become the foundation for affordable housing development across Vermont and New England. While the credit itself is retained, it would be significantly weakened due to the proposed reduction in the corporate tax. With the value of depreciation expense and interest deductions reduced, the value of the Housing Credit would drop, greatly reducing private investment in low income housing. The tax proposal contains no changes to the credit that would help address this impact.
    • The Vermont Housing Finance Agency (VHFA) estimates the state would lose $5-6 million in private investments annually as a result. Last year the Housing Credit generated $30 million in private, up-front equity for construction, acquisition and renovation of affordable housing across the state.  In recent years, the credit has helped fund an annual average of 300 rental homes.
  • Eliminates the tax exemption on Private Activity Bonds, including multifamily and homeownership housing bonds. This tax exemption allows bond-financed multifamily projects to access ‘4% Housing Credits,’ which have helped produce or preserve tens of thousands of affordable homes in New England. Developments financed with 4% Credits often serve households with extremely low incomes, and have also been used on mixed-income developments that meet demand for market rate housing.
    • 4% Housing Credits are used with tax-exempt bond financing to fund approximately 1,200 affordable rentals over the last seven years. If this provision becomes law, Vermont could lose another $6-7 million in housing investments every year and see the annual number of rental homes financed potentially cut in half.
    • Tax-exempt Mortgage Revenue Bonds finance almost half of VHFA’s safe, low-cost mortgages to first-time homebuyers and would be eliminated under the House bill.
    • Mortgage Credit Certificates would no longer be available to assist eligible home buyers.
  • Eliminates the Historic Rehabilitation Tax Credit, which is a vital tool in the creation and preservation of affordable housing in historic buildings. Historic Tax Credits (HTCs) have had an enormous impact on our communities, attracting developers to invest in vacant, deteriorated, and underutilized structures.  In Vermont, HTCs are primarily used to help fund affordable housing, whether in large old mixed-use buildings in downtowns, or multiple buildings in scattered site developments.  Without them, many new projects would never take place because they wouldn’t be financially feasible.  If HTC’s are eliminated, it will have a devastating impact on our ability to develop affordable housing in the places where it makes the most sense – our downtowns, where low and moderate income Vermonters are close to goods, services and supports and can spend less on transportation.
    • In 2017, $1.8 million in HTCs leveraged $11.8 million in total investments to help fund 65 homes in redeveloped buildings in Bennington, Brattleboro, Burlington, Fair Haven, Montpelier and Stowe.
    • From 2012 – 2017, $24 million in HTCs helped fund 643 homes in 68 projects, serving 25 Vermont communities and generating $145 million in total private investment.
  • Eliminates the New Markets Tax Credit, a key resource for community revitalization efforts in economically distressed areas. Housing and community development investments work together in revitalizing neighborhoods and improving local economies.  Neither investment can do it alone.
    • Housing Vermont’s tax credit program has used over $123 million in financing for 15 projects that invest in the economic, environmental, and social well-being of Vermont communities.
    • The many projects financed include the Enosburg Health Center, the Brooks House and Commonwealth Dairy in Brattleboro, Barre’s City Place, and Burlington’s King Street Youth Center.
  • Reforms the Mortgage Interest Deduction, which has been a long-standing priority for housing advocates and would ordinarily be a major step in the right direction. Unfortunately, instead of using the savings from this reform to better target spending on housing solutions for those with the greatest needs, the House bill funnels these and other savings to pay for highly regressive tax cuts for the richest households and corporations.
  • Increases the federal debt by $1.5 trillion over a decade, a move likely to lead to deep spending cuts to affordable housing and community development, not to mention Medicare, Medicaid, and Social Security. Unfunded tax cuts will only add pressure on Congress to enact massive budget cuts at the expense of millions of families who benefit from federal investments that help them meet basic needs.
  • Threatens to dramatically reduce charitable giving, which will have an enormous impact on all nonprofits, including Coalition members who develop affordable housing and provide a broad array of services to low-income Vermonters and those with special needs. According to Urban Institute estimates, Vermonters’ pro-rata loss in charitable gift deductions could be as much as $136 million.  Community organizations like the Committee on Temporary Shelter (COTS), which rely heavily on individual and business contributions, could immediately feel the impact of a tax bill that no longer incentivizes middle income Americans to contribute locally.

THE SENATE TAX PROPOSAL:

  • Is more favorable to affordable housing than the House bill, because it preserves Private Activity Bonds, retains both the New Market and Historic Preservation Tax Credits, and adds a number of no-cost enhancements to the Low Income Housing Tax Credit. Nonetheless, its impact on the equity raised by the Housing Credit is the same as the House bill, so it would still severely reduce affordable rental housing production at a time when Vermont and most of the nation continue to be gripped by an acute affordable housing crisis.  National tax experts Novogradac & Co. estimate that, over ten years, the Senate tax bill – which is still undergoing changes – would reduce the future supply of affordable rental housing by nearly 300,000 homes nationally and that Vermont could lose:
    • 650 rental homes,
    • 740 jobs,
    • $62,089,000 in business income, and
    • $23,881,000 million in federal, state and local taxes. 

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The Vermont Affordable Housing Coalition is a statewide membership organization dedicated to ensuring that all Vermonters have decent, safe and affordable housing, particularly the state’s low and moderate-income residents, elders, people living with homelessness, and people with disabilities.
For more information, visit www.vtaffordablehousing.org.