With the fate of the private activity bond tax exemption in flux, the District of Columbia Housing Finance Agency is planning its largest-ever offering by the end of the year.

The DCHFA announced this week it is planning to sell up to $500 million of PABs in December to finance affordable housing projects in response to concerns about the final GOP tax bill will hamper future such borrowing. The agency said the deal, which will be either a private placement or public offering, will proceed no matter what is in the final legislation that gets sent to President Trump.

“Regardless of the outcome of this pending legislation, we will continue to build and preserve housing that meets the needs of our residents,” says Washington D.C. Mayor Muriel Bowser.
“Regardless of the outcome of this pending legislation, we will continue to build and preserve housing that meets the needs of our residents,” says Washington D.C. Mayor Muriel Bowser. Bloomberg News

The House of Representatives passed a tax bill that eliminates the PAB exemption while the Senate version preserves the tax-exempt financing tool. Todd A. Lee, the DCHFA’s executive director and CEO, also announced plans for a new strategy to preserve the District’s bond cap and maximize the production of its housing units through a Convertible Option Bond. Lee said in a recent Bond Buyer podcast that without PABs, around half of the nation’s affordable housing projects would not get off the ground.

“Given the sudden and unexpected introduction of proposed federal legislation to eliminate tax-exempt Private Activity Bonds, DCHFA is working aggressively and proactively to maximize its ability to carry out its mission of creating and preserving affordable housing in the District of Columbia,” Lee said in a statement Monday.

DCHFA officials said ending tax-exempt PABs would also eliminate the agency’s ability to leverage the 4% Low Income Housing Tax Credits program for qualified multifamily rental housing. The planned bond issuance would preserve the agency’s ability leverage tax-exempt bonds and four percent LIHTCs for affordable housing development through calendar year 2020, according to city officials.

“Regardless of the outcome of this pending legislation, we will continue to build and preserve housing that meets the needs of our residents,” Washington D.C. Mayor Muriel Bowser said in a statement. “That is why we are announcing this first step toward investing $500 million in affordable housing.”

Mayor Bowser noted that that the DCHFA has issued $1.3 billion in PABs since the 2010 fiscal year. The PAB-enabled funding has resulted in more than 9,000 units of affordable housing units in the nation’s capital, she said.

This month's large PAB deal follows the DCHFA selling $34.4 million of Federal Housing Administration-insured pass-through revenue refunding bonds in August in the agency’s first transaction under its newly established Multifamily Development Program Parity Indenture. The new borrowing framework allows bonds to be backed by the agency’s debt service reserve fund if there is insufficient revenue to pay debt service in a timely manner.

The DCHFA was founded in 1979 with the goal of expanding home ownership and rental housing opportunities in Washington, D.C., by offering below market rate mortgage loans. The agency issues mortgage revenue bonds to lower the developers’ costs of acquiring, constructing and rehabilitating rental housing through its Multifamily Lending and Neighborhood Investment and Capital Markets divisions.

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