The disastrous conflagration that was 2017 ended with a major gut punch to social advocates across the country. The Republican tax bill, with its massive handouts to corporations and the wealthy, squeaked through Congress and into law. But private activity bonds, a key instrument for the funding of affordable housing, were saved at the last minute.
The fundamental realities of the tax bill are still grim. It will add over $1.5 trillion in a decade to the national debt and is likely to hamstring numerous social programs in the coming years—perhaps by design.
While the impact that this bill will have for families depending on affordable housing isn’t entirely clear yet, it’s almost certain to be negative. In a climate where the Trump Administration already tried to cut $6 billion from HUD as a money saving move, officials are likely to identify less money coming in as another point for their argument.
Furthermore, the Low-Income Housing Tax Credit (LIHTC), which builds most of the affordable housing in the US, has a funding model that varies significantly based on the corporate tax rate. When that rate falls, less funding exists for the credit. Cutting the corporate rate from 35 percent to 21 percent, as Republicans just did, is projected to result in 200,000 fewer affordable homes being built in the coming decade.
But the rest of LIHTC funding comes from private activity bonds. This form of funding depends on its tax-exempt status to keep projects affordable. The House version of the tax bill would have eliminated these bonds, leading to an almost unimaginable 800,000 fewer affordable homes over the next decade.
Locally, the prospect was dire enough—about 9,000 affordable homes have been produced in DC through private activity bonds since 2010—that District officials quickly crafted a plan to at least preserve most of the affordable homes already in DC’s pipeline. The Mayor, citing “DC values,” announced early last month that DC’s Housing Finance Agency would issue $500 million worth of its own tax-exempt bonds before the tool disappeared completely.
Thankfully, that move has proven unnecessary. Advocates won big in ensuring that private activity bonds were untouched in the bill’s final version. Now those same advocates go back to work, pushing for local budgets to cover the federal government’s affordable housing hole.
Hopefully DC values will once again lead the way.