Senate Financial Services & General Government Appropriations Subcommittee Marks-Up FY 2014 Bill with $230 Million for CDFI Fund

The Senate’s Appropriations Subcommittee on Financial Services and General Government met this morning to mark-up the FY 2014 Financial Services and General Government Appropriations Bill. The bill approved by the Subcommittee includes $230 million for the CDFI Fund, which is $5.4 million more than requested by the President and $9.4 million above the CDFI Fund’s FY 2013 pre-sequester funding level. Of the $230 million provided for the CDFI Fund, the Subcommittee sets aside $15 million for CDFI Native Initiatives, $18 million for Bank Enterprise Awards, $25 million for Healthy Foods Financing, $23.6 million for administrative expenses, and provides $148.4 million for CDFI financial and technical assistance grants. The Subcommittee also included the CDFI Bond Guarantee language requested by the President which grants Treasury the authority to guarantee $1 billion in CDFI bonds in FY 2014. The Senate Appropriations Committee will consider the Subcommittee’s FY 2014 FSGG Bill on Thursday.

Still Time to Ask Your Senators to Weigh In on Tax Reform and Support the NMTC, LIHTC, and HTC

Earlier this month, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), the Chairman and Ranking Member of the Senate Finance Committee, wrote to their Senate colleagues asking for comments and feedback on tax reform. In the letter, Senators Baucus and Hatch describe the “blank slate” approach they will take in reforming the tax code and the only provisions, credits, or deductions that will be continued after tax reform are those that meet: “(1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.” Senators have been asked to submit their comments or recommendation letters to the Finance Committee by Friday, July 26th and the submissions will not be made public by the Finance Committee. It is important that Senators hear from CDFI about the tax provisions that are critical to the community development and economic revitalization efforts in their home states – particularly the impact of the New Markets Tax Credit, the Low Income Housing Tax Credit, and the Historic Tax Credit. In an effort to encourage Senators to comment on the these tax provisions that help fuel the work of CDFI – the Coalition has drafted language on the New Markets Tax Credit, the Low Income Housing Tax Credit, and the Historic Tax Credit that CDFIs can encourage their Senator(s) to include or reference in comments they submit to the Finance Committee. Suggested Language for Senators Drafting Tax Reform Comment Letters:

NEW MARKETS TAX CREDIT

The New Markets Tax Credit (NMTC) is an established program that has made significant contributions to local economies in low income urban and rural communities across the country and any tax reform legislation developed by the Senate Finance Committee should include the provisions included in the New Markets Tax Credit Extension Act of 2013 (S. 1133): 1. a permanent, or indefinite authorization of the NMTC; 2. an increase in NMTC credit authority indexed to inflation; and 3. an exemption for NMTC investments from the Alternative Minimum Tax. Between 2003 and 2011, NMTC investments directly created some 350,000 jobs at a cost to the federal government of $19,500 per job and leveraged $55 billion in capital investment to credit starved businesses in communities with high poverty and unemployment rates. Of the $55 billion in capital investment made in NMTC qualified businesses between 2003 and 2011, $27 billion was direct NMTC investments and $28 billion from other sources. During the same period, the program cost the federal government $7 billion, translating into a return on investment to the federal government is 8 to 1. The impact of the NMTC goes beyond direct job creation. NMTC investments promote investment and economic growth in underserved communities. A 2012 report issued by the NMTC Coalition found that the income taxes paid by NMTC financed businesses and generated by the direct and indirect jobs created offset the cost of NMTC to the federal government. The principal policy objective of NMTC is to increase the flow of private sector capital to communities long overlooked by market forces. The program was authorized in 2000 as part of the Community Renewal Tax Relief Act (P.L. 106-554) and while today’s economy differs significantly from the 2000 economy, the challenge of attracting investment capital to underserved areas persists. This lack of capital stifles entrepreneurs and impedes economic growth leading to urban decay and stagnation in small towns and farming communities, despite opportunities for investment. There is substantial evidence that the NMTC has effectively encouraged private sector investment in underserved low income areas. A 2007 report published by the U.S. Government Accountability Office (GAO) indicated that 88% of investors surveyed would not have made the investment in the low income community without the Credit. Exempting NMTC investments from the Alternative Minimum Tax will further expand the NMTC investor market bringing in more corporations and smaller regional banks. The importance of the NMTC is underscored by trends in federal community development spending. According to Congressional Budget Office (CBO), federal community development spending measured as a share of GDP has fallen by 75% since 1980. In many rural and urban communities, NMTC is one of the few financing sources available for community revitalization. Data from the CDFI Fund, along with the NMTC Coalition’s annual surveys of NMTC activity, shows that 100% of NMTC investments go to economically distressed communities and more than 70% go to communities in extreme distress. The program is reaching communities that far exceed the statutory requirements for poverty and economic distress. Furthermore, the NMTC accomplishes this at a relatively low cost to the federal government. While the nominal rate on NMTC investments is 39%, there is, in effect, an exit tax for investors at the end of the 7-year compliance period. This tax reduces the cost of NMTC to federal government to 26%.

 

LOW INCOME HOUSING TAX CREDIT

The Low-Income Housing Tax Credit (the Housing Credit) is the single most important federal resource available to support the development and rehabilitation of affordable housing. The Housing Credit currently finances approximately 90 percent of all new affordable housing developed in the country. Therefore any tax reform legislation developed by the Senate Finance Committee should: 1. Maintain the LIHTC as a permanent authorization; 2. Make the LIHTC’s fixed-rate 9 and 4 percent floors permanent; and 3. Congress should consider the findings of the Bipartisan Policy Center’s Housing Commission, which called for an expansion of the Housing Credit by 50 percent over current allocation levels; Private-public partnerships have used the Housing Credit to generate billions of dollars of investment to develop affordable housing in underserved inner-city and rural communities across the country. Since its inception, the Housing Credit has spurred the development of more than 2.6 million quality homes for working families, seniors, disabled veterans, and people at risk of homelessness. The housing units financed with the Housing Credit tend to be occupied by very low-income families, with 42 percent of the units occupied by families making less than 30 percent of the area median income (AMI); and 80 percent of the units occupied by families making less than 50 percent of AMI. Each year, the Housing Credit finances about 100,000 units of affordable housing and creates approximately 95,000 jobs in the construction and property management industries. Housing Credit properties outperform market-rate housing properties, with occupancy rates topping 96 percent and a cumulative foreclosure rate of just 0.62 percent. The Housing Credit provides low-income families with a safe and decent place to live and, by lessening their rent burdens and freeing up additional income that can be spent on other necessities or put into savings for education or homeownership. The Housing Credit is a vital community and economic development tool, creating jobs and catalyzing redevelopment in struggling communities.

 

HISTORIC TAX CREDIT

The Federal Historic Tax Credit (HTC) encourages the preservation and adaptive reuse of the nation’s built environment by offering federal tax credits to the owners of certified historic properties. In addition to preserving and rehabilitating historic buildings, the HTC works to promote the economic revitalization of older communities in the nation’s cities and towns, along Main Streets, and in rural areas. The HTC is the largest and most effective Federal program specifically supporting historic preservation and should be retained as a permanent part of the Internal Revenue Code as the Finance Committee considers tax reform. Since its inception in 1978, the credit has encouraged the rehabilitation of more than 38,000 historic structures and generated $106 billion in private investment. The HTC has been a key economic development tool encouraging investment and creating more than 2.3 million jobs. The HTC has proven itself to be an efficient use of federal dollars. The cumulative cost of the HTC has been $20.5 billion over the life of the program. However, according to a study done by Rutgers University for the National Park Service, the HTC has generated nearly $26 billion in direct federal tax revenue primarily from income taxes on wages paid to workers at construction sites, materials manufacturers and in the retail and service sectors as historic rehab expenditures ripple through the economy. According to National Park Service statistics some 77 percent of all certified tax credit projects are located in Qualified Low-Income Census Tracts with incomes at or below 80% of median. Fifty percent of all transactions support the development of either market rate or low-income housing. The HTC clearly grows the economy. It also ensures that rehabilitation projects are on a level footing with new construction, making the tax code fairer. Without this credit almost all real estate development financing in this country would go to new construction, ignoring existing historic structures and neighborhoods. Finally, this credit is the single most important investment we make as a government in preservation, advancing a policy objective outside the tax code.