Lawmakers in the Senate yesterday voted 84 to 12 to approve a housing bill that would expand the private activity bond cap by $10 billion and allow state and local housing finance agencies to use the excess capacity to issue bonds to refinance and provide new mortgages, as well as finance multi-family housing developments.
The $10 billion of new mortgage revenue bonds would be exempt from the alternative minimum tax. The bill also would provide $4 billion of Community Development Block Grant program funds that could be used to purchase and refurbish foreclosed homes.
Prior to passing the bill, Senate members only approved one amendment, offered by Sen. John Ensign, R-Nev., and a number of co-sponsors. The amendment would extend the $1.2 billion clean renewable energy bond program through 2009 as well as provide an additional $400 million of CREBs that would be allocated in thirds to each of three groups: state, local, or tribal governments, public power providers, and electric cooperatives. CREBs are taxable bonds that provide holders with income tax credits in lieu of tax-exempt bond interest payments.
The Senate lawmakers rejected an amendment that would have extended the CREBs program by two years, instead of one.
The Senate vote came one day after the House Ways and Means Committee passed its own housing bill, sponsored by chairman Rep. Charlie Rangel, D-N.Y., That bill also contains the MRB provision, but would go further than the Senate by exempting housing bonds permanently from the alternative minimum tax.
On the same day Rangel's bill was approved by the committee, the Bush administration, in a letter to Speaker Rep. Nancy Pelosi, D-Calif., warned lawmakers against producing an overreaching bill that benefits speculators rather than struggling homebuyers.
On the bond front, the two administration economists who authored the letter said they "strongly opposed" providing funds for community development block grants, which localities hit hardest by foreclosures could use to purchase and refurbish foreclosed homes.
While the Senate bill would provide $4 billion in CDBG funds, a housing bill being put together by House Financial Services chairman Rep. Barney Frank, D-Mass., would provide $10 billion. CDBG provides grants to state and local governments to fund economic development projects and can be used in projects financed by municipal bonds.
The letter stated that the funds would be a "costly bailout" for speculators and lenders and would provide an incentive for more lenders to foreclose without aiding homeowners. But John Murphy, executive director of the National Association of Local Housing Finance Agencies, said the administration is misguided in thinking CDBGs would serve speculators.
"I think it's a philosophical difference with little basis in reality," he said, emphasizing that communities need help refurbishing and selling foreclosed homes to reinvigorate them, not speculators.
While supporting the cap expansion for MRBs, the administration said the bonds should only be used for mortgage refinancings. The letter also opposed several provisions not related to bonds.
Despite disagreements between the administration and lawmakers on some aspects of the bills, Barbara Thompson, executive director of the National Council of State Housing Agencies, said the fact that the MRB expansion was never really opposed by anyone and serves as a "strong affirmation" for what could be "a very effective tool in responding to today's housing crisis."
Housing sources anticipate that the Ways and Means Committee bill will be considered alongside the Frank bill if they move to the floor for a vote by the full House. But the House Financial Services Committee is not expected to vote on Frank's bill until April 23 at the earliest.
If like their Senate counterparts, House member pass their own housing bill, it is expected that a conference committee would be named to resolve the differences between the two bills. The cost of the bills, and whether or not they would be paid for with revenue-raising proposals, could be a key stumbling block.
The House bill would offset its costs with revenue raisers, while the Senate measure would not. Since Democrats have taken control of Congress, they have attempted to adhere to strict pay-go rules with legislation. Some members have suggested that the housing provisions do not need to be offset because they are meant to stimulate the economy, which would drive up federal revenues.
If cost becomes a concern for the lawmakers, Rangel's permanent AMT exemption for all housing bonds could appear on the chopping block because it is one of the costliest provisions that does not have the support of both sides of Congress. The Joint Taxation Committee estimates that exempting all housing bonds from the AMT would cost $1.8 billion over 10 years.
