House Financial Services chairman Barney Frank and Ways and Means chairman Charles Rangel have asked Treasury Department officials to issue guidance on how states should implement a stimulus law provision that would allow them to exchange up to 40% of their low-income housing tax credits for cash.
Meanwhile, the San Francisco-based law firm Novogradac & Co. that is representing the Low-Income Housing Tax Credit Working Group, made up of equity investors, developers, and state credit allocation agencies, also has asked the Treasury for guidance, particularly on how and when the $2.25 billion of low-income housing tax credit grants will be issued to states.
In their letter to Treasury Secretary Timothy Geithner, the lawmakers said: "Congress provided such authority to respond to an environment of significant dislocations in the housing tax credit market, including significant reductions in prices received for tax credit investments and difficulties in even placing these credits. ... The purpose of provisions like this one ... was to provide timely financial assistance to shovel-ready projects that can result in quick project starts and job creation. It is in keeping with this goal that guidance should be issued on an expedited basis for implementation of this important provision."
States are moving forward with their process for competitive applications for 2009 tax credits, the lawmakers said, adding that projects from prior years that have not been funded are stalled, but are ready to be developed "once the exchange program is finalized."
Jim Miller, a partner at Winston and Strawn LLP and legislative counsel to the Affordable Housing Tax Credit Coalition, said that he is expecting that guidance from the Treasury "any day now."
"They say it's in the works," Miller said. "We're waiting for it on a daily basis."
Housing groups have lauded the low-income housing tax credit "exchange" provision, which will allow state housing credit-allocating agencies to trade in up to 40% of their 2009 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 developments.
Housing advocates have said that exchange provision could generate an additional $3 billion for state housing credit agencies' projects.
Demand for the low-income housing tax credits, or LIHTCs, has fallen along with corporate profits and their tax burdens, pushing down the prices for the credits. Developers typically sell the credits to increase equity in the development, which reduces the amount of bonds needed, and therefore the rents and the cost of debt service.
While the Department of Housing and Urban Development in February allocated $2.25 billion of LIHTC grants in lieu of the credits to state housing credit allocation agencies, many of those agencies have put the allocations on hold until the Treasury offers more guidance, said Michael Morrison, a partner with Novogradac and co-author of the letter the firm sent to Treasury.
"The indications were that the [Internal Revenue Service] was sort of only going to issue guidance on a limited number of issues that the legislation had raised," Morrison said. "A lot of it they were going to leave up to the states to decide. The problem is things aren't always that black and white. We need some guidance."
Morrison said that state agencies can choose to receive a grant in lieu of the LIHTC, but that Treasury "does not specify how and when the grant will be issue to the states."
"Since the grant will fund projects in lieu of equity, it is important that this money get to the state credit allocating agencies as soon as possible after an election is made so that they can quickly make awards to projects to begin construction," Morrison wrote in the letter.
The letter also is seeking clarification on whether the grant is taxable for federal income purposes. "Making the grants taxable would lower the effectiveness of the program," it read. "We believe it was the intent of Congress to make the grants non-taxable, and we request that you confirm this position."
