Thursday, May 21, 2015

Facts on Low-Income Housing Tax Credits and how they relate to the planned Affordable Housing development slated for Apalachicola


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.