As the dust settles over the passage of the Trump administration's signature tax bill, winners are declaring victory including proponents of expanding affordable housing development supported by private activity bonds.
"The Housing Credit provisions in the Senate reconciliation bill will finance well over a million more affordable homes in the U.S. – a profound impact at a time of staggering need," said Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition.
The new law known as One Big Beautiful Bill passed without sacrificing tax-exempt municipal bonds, while rural hospitals remain under threat and states will be forced to tighten Medicaid eligibility.
Housing advocates are cheering the end of a long struggle to rejigger the rules governing how low-income housing tax credits are awarded.
LIHTCs exist as 4% and 9% tax credits issued by state housing finance authorities for the development and construction of affordable housing.
The new law makes a temporary 12% increase in the allocation of 9% LIHTCs permanent starting in 2026.
To qualify for 4% credits a project will now be required to be 25% financed by private activity bonds, a reduction from the old rate of 50%.
The federal government caps how many PABs can be issued each year with many states ending up oversubscribed.
Proponents of the changes maintain that dropping the percentage will boost PAB efficiency, spur private investment, and allow projects to carry less debt which results in more eligible projects.
According to analysis by S&P Global Ratings, "The permanent 12% increase in 9% low-income housing tax credit allocations, a lower private activity bonds 'threshold test,' allowing more 4% LIHTC projects to receive an allocation of tax-exempt bonds, and making permanent $5 billion in new markets tax credit allocation authority together improve the financial feasibility to develop affordable housing units."
The Tax Cuts and Jobs Act passed during the first Trump administration created Opportunity Zones, a designation for distressed geographic areas as nominated by state governors.
Qualified Opportunity Zones are eligible for additional tax benefits also aimed at spurring development.
According to the National Association of Bond Lawyers, "Tax-exempt bonds can be used to complement investments in QOZs."
"In addition to affordable housing, various entities that can borrow proceeds of industrial development bonds, sewage facility bonds, and/or solid waste disposal facility bonds have expressed interest in pursuing QOF investments."
The new legislation means OZs are here to stay in the world of public finance.
"I'm especially pleased to see Opportunity Zones made a permanent part of our tax code, providing much-needed continuity," said U.S. Department of Housing and Urban Development Secretary Scott Turner.
