Congress Acts to Increase Affordable Housing Supply
By: Sherrill R. Oman
Spring 2001
More than 400 new affordable rental housing units could be created in Minnesota every year as a result of the federal New Markets and Community Renewal Act of 2000, increasing bond and tax credit caps.
The new legislation increases the per-capita tax credit cap to $1.50 in 2001 and $1.75 in 2002, and indexes it for inflation thereafter. Before the change, the tax credit cap had been set at $1.25 per capita since its inception in 1986. Each state will receive a minimum of $2 million in 2001 and 2002, with inflation adjustments starting in 2003. The bill also gives developers who receive tax credits in the second half of a year six months to meet the 10% expenditure test for carryover allocations. (Previously, developers had to meet the 10% test by the end of the calendar year in which the credits were awarded, regardless of when the credits were actually awarded.)
Another bill, sponsored by Rep. Rick Lazio and enacted into law by Congress, opens up the use of tax credits by nonprofits for HUD Sec. 202 elderly housing and Sec. 811 housing for the disabled. Under this law, for-profit limited partnerships (which can use the tax credits) can use these HUD programs as long as the sole general partner is a nonprofit. In the past, the use of Sec. 202 and 811 HUD programs was limited to non-profits, which could not use the tax credits because they pay no taxes.
The bond cap, now the greater of $50 per capita or $150 million per state, will increase to $62.50 per capita or $187.5 million in 2001, and $75 per capita or $225 million, also indexed for inflation, beginning in 2003. Although the increase in bond volume cap applies to all tax-exempt private activity bonds, it is likely a substantial portion if the increase will be allocated to housing.