The purpose of this
post is to share accurate and relevant information concerning Low-Income
Housing Tax Credits (LIHTC) and how they relate to the construction of the
planned $9.2 million rental apartment complex slated for Apalachicola and the
potential impact the development could have on the local economy.
The LIHTC program was
implemented under the “Tax Reform Act of 1986”, and signed into law by
President Ronald Reagan that same year, and made permanent in 1993 by President
Bill Clinton. From the onset, the law was passed to address a nationwide need for affordable housing for low-income
working families and to provide a funding mechanism for their construction.
LIHTC are used as a financial
incentive to encourage developers and investors to use private sector capital
to construct, manage, and keep rental housing for low-income households affordable.
In exchange for their investment, investors are allowed to use the tax credits to
reduce their federal income tax liability. The investors are usually made up of
a syndicate of banks, insurance companies and corporations. By design of the law this is
how capital is raised to fund, build and keep affordable housing affordable.
Therefore, by using LIHTC to construct affordable housing eliminates the need for government subsidies and Section 8 vouchers for
low-income renters. Simply put, private investors fund the project, guarantee project
will remain affordable; use tax credits to reduce federal tax liability. The program is similar to the practice of itemizing deductions on a personal federal income tax return, which in turn also
help reduce the filer’s tax liability.
All of which are allowable and taken advantage of under our federal tax
codes.
However, once construction is
complete and the development placed into service all tenants are required to pay
rent based upon verifiable income. With
the planned Apalachicola development, units will be offered for rent to individuals and
households with incomes at 60% of the Area Median Income (AMI) and below. For
one person the income eligibility is calculated to be $21,600, for two persons $24,720, for
three persons $27,780 and for four persons $30,840, and rent will range from $350 to $664 per month. In Franklin County, wages
have historically been stagnant even among degreed professionals, which contribute to
the county’s $50,500 AMI for 2015.
In addition, the
owners of the development will be required to pay their fair share of local sales and ad
valorem taxes just as any other private-for-profit business entity within the
community. National reports indicate
that each year, developments constructed using the tax credits have helped generate
about $9.1 billion in local income and $3.5 billion in federal, state and local
tax revenues.
Regardless, there
are still known risks involved for both developer and investors. In order to claim and keep the tax credits
they first have to build, lease and maintain the units as affordable
throughout a 50-year compliance period. If they can’t find anyone eligible to
rent or if the properties fall out of compliance, credits can be recaptured,
meaning the developer and private investors, not the taxpayers will bear the
financial risk, which serves as a pretty good motivator to first determine
whether there’s a need for affordable housing in an area and to manage the property accordingly.
Since the start of
the program, LIHTC has leveraged nearly $100 billion in private sector dollars to
finance 2.6 million quality affordable apartments, producing or preserving
90,000 to 95,000 apartments each year in America, according to the National
Council of State Housing Agencies’ 2012 Factbook.
Although provided by
the federal government, the tax credits are administered by the states, in doing so
the states have so far reduced federal costs substantially as they are more able
to target the tax credits towards specific local needs, such as the planned development slated for Apalachicola.
In Florida, the
program is overseen by the Florida Housing Finance Corporation (FHFC), and with
state oversight, between 1987 and 2012 a total of 165,462 homes have been developed
or rehabbed throughout the state using the tax credits.
LIHTC has become the
nation’s most successful affordable housing production program, its America’s
main tool for creating and preserving affordable housing for households
that need them most, which include hardworking families, veterans, and
people with special needs, and seniors and others that are income eligible.
In addition, the
program has served as a proven jobs creator. For every 1,000 affordable apartments
developed using tax credits, supports 1,130 jobs for a year, according to an
economic impact model from the National Association of Home Builders (NAHB). This amounts to nearly 96,000 jobs supported
by the tax program annually.
When developing
affordable rental housing with support from the LIHTC program, architects,
plumbers, electricians, carpenters and other construction workers benefit.
Property managers, maintenance workers, landscaper’s, service providers and
others benefit when the housing is completed and placed into service.
In Florida, developments
using the tax credits have supported 186,972 jobs alone, exactly the sort of
economic boost the City of Apalachicola so desperately need, a jobs creating
development with a $9.2 million influx of private sector cash.
“For every $1 dollar we
spend on construction will impact the local economy by $5 dollars”, said
Jonathan Wolf, principal with Wendover Housing Partners during a recent
meeting with city staff.
When multiplied that’s
a whopping estimated $50 million short-run boost to the fiscal wellbeing of
Apalachicola. Very important, especially given the fact that Apalachicola is still awakening from an
economic nightmare, which saw unprecedented bank foreclosures, repossessions,
property tax certificate sales, layoffs, salary freezes, a fishery failure and
three local banks fail and close that had been a part of the community for
generations.
Lastly, it would be extremely
difficult for any community in such dire economic need to turn down an opportunity for fiscal improvement, especially after seeking and receiving help from both state and federal governments.
For Apalachicola to do so, would be like
the boy who cried wolf.
