Congress has approved the tax reform bill and it is anticipated that it will be signed into law by the end of the week, finishing a month of nail biting uncertainty regarding a number of fiscal issues, including several important affordable housing programs. The production and preservation of affordable housing is part of the country’s social safety net for low-income and extremely low-income families and individuals. While thankfully some key affordable housing programs were spared in the final version of the bill, the tax bill presents a worrisome outcome, especially for advocates of those living in poverty and in stemming income inequality in this country.
Impact on Housing & Community Development
We housers can at least breathe a big sigh of relief that several critical affordable housing and community development programs were spared the axe. The original House bill would have eliminated private activity bonds (PABs) that generate 4% housing tax credits along with historic tax credits and new market credits. As I described in “Preserving Affordable Housing in Massachusetts with Private Activity Bonds and 4% Tax Credits”, a 2015 CEDAC paper. PABs and 4% credits are linked funding programs that are used to produce or preserve roughly 3,000 affordable apartments each year in Massachusetts. Historic tax credits and new markets tax credits are also used for financing affordable housing but are more associated with community development projects, particularly in the urban core neighborhoods. We are in debt to a whole host of housing advocates who did a tremendous amount of outreach to their elected federal legislators in support of these three tax credit programs.
Wealth Inequality & Vulnerable Populations
So affordable housing dodged a bullet but looking more broadly this is a concerning piece of legislation, especially for vulnerable populations – many of which our borrowers and community partners serve. While there are many winners and losers in the 429 pages of bill text, the biggest impacts will be to wealth inequality and the safety net. The bill will reduce federal tax revenue by $1.5 trillion over 10 years and by far the biggest beneficiaries are corporations and the wealthiest individuals. One study estimates that the richest 1% of earners will receive 64% of the bill’s benefits. Today the top 1% receives a whopping 20% of the nation’s income which has doubled from just over 10% in the 1970’s. This inequality will likely skew further in the coming years and could bring increased social problems.
Another result is even more likely – attacks on the safety net for low-income people. By starving the federal government of revenue, annual budget deficits are all but certain to increase fairly substantially. There are those on the federal level who will likely use concerns about the deficits to cut much-needed programs that help the poor. Further cuts to the social safety net will impact many of the populations that are served by non-profit affordable housing developers – including formerly homeless families, veterans struggling with PTSD, disabled men and women, seniors, children, and others.
Affordable housing production has been threatened on the national level before. Massachusetts is fortunate in that state officials in the executive and legislative branches have made a long-term commitment to preserving and producing affordable housing units. The Baker/Polito Administration, for instance, has included resources for affordable housing in their five year capital plan and within the legislature; the pending Housing Bond Bill will also provide capital financing for many worthwhile developments. The federal programs that many of our partners utilize for their projects were protected, but we can anticipate that advocates will need to continue to make their voices heard at every level of government to ensure that truly vulnerable populations will still have adequate housing and needed services.
Despite the uncertainty, here at CEDAC we remain committed to our mission of strengthening Massachusetts’ communities.
