WASHINGTON -- Termination of private activity bonds would destroy about 40% of the nation's multifamily housing rehabilitation and construction, said directors of state housing agencies meeting in Washington this week.

Agency directors from six states told The Bond Buyer at a roundtable on Tuesday that it's essential to the multifamily housing sector for Congress to maintain PABs in the final tax reform bill.

“You have such a struggle to try to house people throughout the country,” said Gerald Hunter, president and executive director of the Idaho Housing and Finance Association. “With that resource removed from the tax code it will have a catastrophic impact, from my point of view.”

Edwin King, executive director and  CEO of the Kentucky Housing Corporation
Edwin King, executive director and CEO of the Kentucky Housing Corporation Brian Tumulty, The Bond Buyer

Many states use PABs to offer low-rate mortgages and down payment assistance to first-time home buyers.

Rep. Kevin Brady of Texas and Sen. Orrin Hatch of Utah, the Republicans who chair the tax policy committees in their respective chambers, acknowledged Tuesday they are aware of the role PABs play in multifamily housing.

Hatch told The Bond Buyer that PABs “are pretty crucial” to multifamily housing.

But he wouldn’t predict whether multifamily bonds will survive in conference negotiations. “I don’t know,” he said. “We’ll have to see.”

Brady said he’s hearing “a lot of predictions from special interests on all these tax provisions, some of which are accurate and some of which aren’t,”

“So we are listening about the role this plays in low income housing, infrastructure, on ports and those areas going forward,” Brady in response to a question from The Bond Buyer. “And again, I think we can find a good path forward working with the Senate.”

Brady repeated his comment last week that he thinks PABs have drifted from their original purpose. “They should be focused on infrastructure projects that build, enhance the national infrastructure because they are receiving national subsidies from every taxpayer in America,” he said.

The Kentucky Housing Corporation helped about 3,500 first-time home buyers in the fiscal year that ended June 30.

Kentucky Gov. Matt Bevin “is attracting jobs in the Appalachian regions of the state and single family is going to be component in that regard,” said Edwin King, executive director and CEO of the Kentucky Housing Corporation. “We provide the liquidity in that market to help first-time homebuyers get the resources they need to own a home.”

Rhode Island Housing served about 1,600 families and claims about 10% of the single-family housing market in the state, said Barbara Fields, the executive director. Her agency provides up to $7,500 in down payment assistance for homebuyers, many of who are millennials burdened by student loans who are unable to save for a home.

Barbara Fields, executive director of Rhode Island Housing
Barbara Fields, executive director of Rhode Island Housing Brian Tumulty, The Bond Buyer

The fate of PABs will be decided by House and Senate negotiators who will reconcile the differences between the tax reform bills that passed each chamber.

The House bill would terminate PABs after Dec. 31 while the Senate bill would retain them.

Democratic lawmakers are expected to be barred from the negotiations. No Democrat in either chamber voted for the legislation.

Brady last week raised the possibility of limiting the use of PABs in the final tax bill, telling reporters he’s aware of their importance in public-private partnerships for infrastructure.

Multifamily bonds totaled $14 billion last year, according to the Council of Development Finance Agencies.

California led the nation with $4.66 billion in multifamily bonds followed by New York with $2.13 billion and Ohio with $1.12 billion.

Tia Boatman Patterson, executive director of the California Housing Finance Agency
Tia Boatman Patterson, executive director of the California Housing Finance Agency Brian Tumulty, The Bond Buyer

“We are in an all-out affordable housing crisis in California so we predict the loss probably to be 20,000 units created [or rehabilitated each] year because of private activity bonds,” said Tia Boatman Patterson, executive director of the California Housing Finance Agency.

State housing agency directors say they don’t have an alternative if Congress terminates PABs for multifamily housing.

“There is no other housing tool,” Patterson said. “And [the Department of Housing and Urban Development's] funding for housing has decreased every year. I think in the last 10 years there’s been over a 30% decline in federal funding for housing.”

Sean Thomas, the executive director of the Ohio Housing Finance Agency, said the rental housing rehabilitated or built through bond financing serves families with incomes no more than 60% of area median gross income. That’s $23,000 in in the city of Columbus.

Local housing authorities in Ohio can parlay other programs to provide rental housing to households with incomes as low as $10,000 or $5,000.

The housing crisis isn’t confined to large states, said the directors of state housing agencies in Mississippi and Rhode Island.

Mississippi has 30-year old multifamily housing originally financed by the federal government that’s in dire need of rehabilitation.

“There is no new housing stock in a lot of these small towns and that becomes a problem,” said Scott Spivey, executive director of the Mississippi Home Corporation. “It’s a burden on the town. If you have an older HUD deal that’s falling into disrepair, it affects property values.”

The Vicksburg Housing Authority in Mississippi has wrapped nine to 12 of their housing developments into one PAB package that it hopes to close by year-end to rehabilitate about 500 housing units.

“It’s significant and without the bonds and it doesn’t happen,” Spivey said. “There is no plan B.”

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