1. Refinance, Recapitalize and Redevelop: Innovative Bond Structures in Affordable Housing
for Housing Association of Nonprofit Developers (HAND)
Peter Lawrence
Director of Public Policy and Government Relations
Novogradac Consulting LLP
@NovocoPolicy
March 28, 2018

2. Agenda
Tax Reform? Key Changes to Impact the Low-Income Housing Tax Credit Impact on New Markets and Historic Tax Credits Opportunity Zones LIHTC Legislation FY 2018 Omnibus – LIHTC Expansion and Income Averaging
March 28, 2018

3. Low-Income Housing Tax Credit
Private activity bonds retained (over half of affordable housing production)
MORE THAN HALF
Low-Income Housing Tax Credit
March 28, 2018

4. Low-Income Housing Tax Credit
Inflation factor changed to:
“CHAINED CPI”
Low-Income Housing Tax Credit
Will reduce future 9% LIHTC and private activity bond volume cap per-capita/small state minimum amounts.
March 28, 2018

5. Low-Income Housing Tax Credit
Lower Corporate Rate
Interest Expense Limitation
Most LIHTC partnerships expected to elect out and shift to Alternative Depreciation System (ADS) for rental housing
100% Expensing through 2022 for:
Site improvements, and
Furniture, Fixtures & Equipment
Likely negative impact of the Base Erosion and Anti-abuse Tax (BEAT)
Low-Income Housing Tax Credit
March 28, 2018

6. 4 Percent Tax Exempt Bond Property
9 Percent Property
35%
21%
$0.95
$0.82
$1.00
$0.87
$1.05
$0.90
$1.10
Price per Credit
4 Percent Tax Exempt Bond Property
35%
21%
$0.95
$0.81
$1.00
$0.86
$1.05
$0.89
$1.10
$0.93
Price per Credit
MATCH the data from the blog post
Assumes 4.5% – 5.0% investor level yield in all scenarios
Results may differ based on a change in underlying assumptions. Property not eligible for 30% basis bonus
March 28, 2018

7. Effect of Tax Reform on LIHTC Equity Pricing
Affordable housing community had already lost investment and production in 2017
March 28, 2018

8. March 28, 2018

9.
March 28, 2018

10. March 28, 2018

11. New Markets Tax Credit No statutory changes to section 45D
2017, 2018 and 2019 rounds from the PATH Act in 2015 remain at $3.5 billion each
House bill had originally eliminated 2018 and 2019 rounds
Efforts to extend or make the NMTC an indefinite part of the internal revenue code likely included in a future extenders package
Corporate AMT repealed
Unlike LIHTC, lower corporate rate is a slight positive for NMTC because investors pay taxes on gains at exit
New Markets Tax Credit
March 28, 2018

12. Historic Rehabilitation Tax Credit
House would have dropped the HTC entirely; Senate bill prevailed
The 10 percent non-certified rehabilitation credit (for pre-1936 buildings) is repealed
20 percent historic rehab credit is claimed ratably over 5 years
Pricing may drop 7% to 15% due to changes
Historic Rehabilitation Tax Credit
March 28, 2018

13. Investing in Opportunity Act
Allows investors with capital gains from sale of assets to defer those gains
Similar in concept to Section 1031 “Like-Kind” exchanges
Creates new incentive to invest capital gains in low-income communities
Authorizes the designation of “opportunity zones”
Governors (and DC Mayor) responsible for designating these zones
Deadline to nominate or request a 30-day extension was March 21
Encourages investors to pool resources and risks in “Opportunity Funds” (O Funds). Investors can temporarily defer capital gains recognition if they reinvest in these zones
Incentivizes long-term investment by stepping up basis
10 percent step-up after 5-year hold, 15 percent step-up after 7-year hold
Provides shallower subsidies per investment than the NMTC, but can be used on a greater scale
March 28, 2018

14. More LIHTCs via Affordable Housing Credit Improvement Act
50 percent increase
Income-averaging
Minimum 4 percent rate
CANTWELL
HATCH
Rick Goldstein
RETIRED
NEAL
TIBERI
Curbelo, R-FL-26
March 28, 2018

15. More LIHTCs via Affordable Housing Credit Improvement Act
50 percent increase
Income-averaging
Minimum 4 percent rate
CANTWELL
HATCH
Rick Goldstein
RETIRED
NEAL
TIBERI
Curbelo, R-FL-26
March 28, 2018

16. More LIHTCs via Affordable Housing Credit Improvement Act
50 percent increase
Income-averaging
Minimum 4 percent rate
CANTWELL
HATCH
Rick Goldstein
RETIRED
NEAL
TIBERI
Curbelo, R-FL-26
March 28, 2018

17. More LIHTCs via Affordable Housing Credit Improvement Act
Note these assumptions:
Assumed that states will increase their tax-exempt bond issuance for multifamily by 25%
Assumed the absolute amount of soft subsidies going to tax exempt bond properties would remain unchanged
To the extent that there is less deferred developer fee, that is offset with more taxable bond financing
50 percent increase
Income-averaging
Minimum 4 percent rate
Approximately 131,000 more units over 10 years
CANTWELL
HATCH
Rick Goldstein
RETIRED
NEAL
TIBERI
Curbelo, R-FL-26
March 28, 2018

18. More LIHTCs via Affordable Housing Credit Improvement Act
Additional Resources
Give states discretion to provide 30% basis boost for bond-financed projects
Increase DDA designation from 20 to 30%
Repeal QCT population cap
Relocation costs included in eligible basis
No basis reduction for certain energy tax incentives
Indian areas generally treated as DDAs
Rick Goldstein
March 28, 2018

19. More LIHTCs via Affordable Housing Credit Improvement Act
Financial Feasibility
50% basis boost for ELI units
Modify student occupancy rules
Codify increased tenant income guidance
Modify 10-year rule (limits apply to acquisition basis)
Adopt uniform income eligibility for rural projects
Rick Goldstein
March 28, 2018

20. More LIHTCs via Affordable Housing Credit Improvement Act
Other
Modify voucher rent-setting rule in LIHTC
Clarify the community revitalization plan
Prohibit local approval or contribution requirements
Add selection criteria for Native American areas
Restriction of planned foreclosures
Clarify casualty loss rule
Convert ROFR to purchase option
Change the official name of the LIHTC to Affordable Housing Tax Credit
Rick Goldstein
March 28, 2018

21. Federal, State and Local Taxes
Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus
Rental Homes
Business Income
Federal, State and Local Taxes
Jobs
Current Law
1,493,400
1,687,500
$142,005,642,600
$54,617,554,900
Tax Reform Bill
Lower Corporate Rate of 21%
Chained CPI
Amount Lost
Percentage Lost
Post-Tax Reform Law -
212,400
19,900
232,300
-16%
1,261,100 -
240,000
22,500
262,500
-16%
1,425,000 -
$20,196,865,200
$1,892,267,500
$22,089,132,700
-16%
$119,916,509,900 -
$7,768,025,100
$727,795,200
$8,495,820,300
-16%
$46,121,734,600
FY18 Omnibus
12.5% allocation increase
Percentage gained
New Law +
28,400 2%
1,289,500
$2,700,522,500 2%
$122,617,032,400 +
$ 1,038,662,500 2%
$ $47,160,397,100 + +
32,100 2%
1,457,100
March 28, 2018

22. Federal, State and Local Taxes
Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus
Rental Homes
Business Income
Federal, State and Local Taxes
Jobs
Prior Law
1,493,400
1,687,500
$142,005,642,600
$54,617,554,900
Tax Reform Bill
Lower Corporate Rate of 21%
Chained CPI
Amount Lost
Percentage Lost
Post-Tax Reform Law -
212,400
19,900
232,300
-16%
1,261,100 -
240,000
22,500
262,500
-16%
1,425,000 -
$20,196,865,200
$1,892,267,500
$22,089,132,700
-16%
$119,916,509,900 -
$7,768,025,100
$727,795,200
$8,495,820,300
-16%
$46,121,734,600
+19%
FY18 Omnibus
12.5% allocation increase
Percentage gained
New Law +
28,400 2%
1,289,500
32,100 2%
1,457,100
$2,700,522,500 2%
$122,617,032,400 +
$ 1,038,662,500 2%
$ $47,160,397,100 + +
March 28, 2018

23. Approximate Impact on Virginia, Maryland and DC Rental Homes
Rental Homes Gained
Maryland
Virginia Washington, D.C.
524 rental homes
733 rental homes
100 rental homes
March 28, 2018

24. 9% LIHTC Allocations with FY18 Omnibus Increase
2028 $2.80
2018 $2.70
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
HERA
2022 $2.50
2009
$2.30
2008
$2.20
2017 $2.35
2007
$1.95
2002
$1.75
2010
$2.10
Per capita credit set at $1.25
ACTUAL
PROJECTED
March 28, 2018

25. LIHTC Income Averaging
Development types benefiting from this new option $
High housing cost areas
Rural areas with very low incomes
Low-income community revitalization projects promoting income diversity
Preservation projects (e.g., RAD) with some “over-income” residents
March 28, 2018

26. Upcoming Income Averaging Blog Post
March 28, 2018

27. President’s FY19 Request
HUD Budget
FY16 Enacted
FY17 Enacted
FY18 Enacted
President’s FY19 Request
% Change FY18 – FY17
% Change FY19 Req. – FY18
Housing Choice Vouchers
$19,628
$20,292
$22,015
$20,550
8.5%
-6.7%
Project-Based Section 8
$10,620
$10,816
$11,515
$11,047
6.5%
-3.2%
Public Housing Operating Fund
$4,500
$4,400
$4,550
$3,279
3.4%
-27.9%
Public Housing Capital Fund
$1,900
$1,942
$2,750 $0
41.6%
-100%
Section 202
$433
$502
$678
$601
35.0%
-11.4%
Section 811
$150
$146
$230
$140
57.0%
-39.0%
HOPWA
$335
$356
$375
$330
5.3%
-12.0%
CDBG
$3,000
$3,235
7.8%
HOME
$950
$1,362
43.4%
Homeless Assistance
$2,250
$2,383
$2,513
5.5%
-5.2%
Choice Neighborhood Initiative
$125
$138
-$137
9.1%
-191.3%
Overall (gross)
$46,978
$48,055
$52,748
$41,240
9.8%
-21.8%
Note: amounts in millions
March 28, 2018

28. March 28, 2018

29. March 28, 2018

30. Housing Trust Fund Update:
Top 20 Estimated State Allocations (plus MD and DC)
California
New York
Texas
Florida
Illinois
Pennsylvania
Ohio
New Jersey
Michigan
Massachusetts
Georgia
Washington
North Carolina
Virginia
Wisconsin
Indiana
Missouri
Arizona
Minnesota
Colorado
$34,319,000
$21,942,000
$11,683,000
$10,902,000
$9,823,000
$7,919,000
$7,463,000
$7,094,000
$6,364,000
$6,027,000
$5,367,000
$5,094,000
$5,018,000
$4,531,000
$4,122,000
$3,957,000
$3,899,000
$3,791,000
$3,720,000
$3,648,000
Maryland
$3,426,000
District of Columbia
$3,000,000
March 28, 2018

31. Refinance, Recapitalize and Redevelop: Innovative Bond Structures in Affordable Housing
for Housing Association of Nonprofit Developers (HAND)
Peter Lawrence
Director of Public Policy and Government Relations
Novogradac Consulting LLP
@NovocoPolicy
March 28, 2018