Housing advocates are urging lawmakers to draft legislation that would permit low-income housing tax credits for disaster areas to be exchanged for federal cash grants after Treasury Department officials nixed the idea.
Their efforts appear to be paying off. Sens. Evan Bayh, D-Ind., and Richard Shelby, R-Ala., are planning to introduce legislation this week that would clarify that additional low-income housing tax credits authorized for disaster areas caused by flooding in the Midwest and by hurricanes Katrina and Rita in the Gulf can be monetized under a program authorized under the stimulus law, according to housing sources. Both senators are members of the Banking Committee, and Shelby is the top Republican. Their staffs could not be reached for comment.
In addition, companion legislation in the House is expected to be sponsored by Reps. Artur Davis, D-Ala., and Charles Boustany, R-La,, both of whom sit on the Ways and Means Committee, which would have jurisdiction over the bill. The Senate version would have to go through the Finance Committee.
The bills could be included in the so-called extenders legislation, which is expected to be introduced in the fall to extend several expiring tax provisions, housing sources said.
Since the American Recovery and Reinvestment Act was enacted in February, housing groups and several lawmakers representing affected areas have pressed the Treasury to clarify that the disaster credits could be "monetized" under the stimulus provision, which was included in the law to alleviate the lack of investors in the tax-credit market due to the credit crisis.
The provision allows state housing credit-allocating agencies to trade in up to 40% of their 2009 low-income housing tax credit authority and up to 100% of any unused or returned 2008 credits, for 85 cents on the dollar to fill funding gaps in otherwise ready-to-go projects.
However, it was unclear whether the ARRA provision covered special disaster low-income housing tax credits. Housing advocates argued the disaster credits should be eligible for monetization because they address pressing needs in hard-hit areas.
"Allowing those credits to be exchanged would permit the credits to serve the originally intended purpose of affordable housing development in areas distressed as a result of the 2005 hurricanes," Rep. Spencer Bachus, R-Ala., the ranking minority member of the House Financial Services Committee, wrote in a April 9 letter to the Treasury. "Moreover, allowing the exchange would go toward the goal of the ARRA to provide for construction and growth during this time of economic concern."
However, Treasury officials told Bachus that the only credits that qualify for monetizing are those under section 42 of the tax code, which generally defines low-income housing tax credits.
The section of the tax code outlining the additional tax credits granted to disaster areas is 1400N(c), so those credits cannot be included in the program, they wrote.
Several groups, including the National Association of Realtors and the National Council of State Housing Agencies, have asked the Treasury to reconsider their interpretation but at the same are seeking a legislative solution.
Jeff DeGraff, the public information director for the Louisiana Housing Finance Agency, said that although they are pursuing "a two-pronged solution" with Congress and Treasury, they still are hoping the Obama administration will reconsider its position because that is a quicker fix than turning a bill into a law, and Gulf Opportunity Zone benefits expire in Dec. 2010.
"The legislative fix would solve the problem, but not in the most timely of ways," he said Friday. "We're now looking at a ticking clock."
