As the Trump administration prepares to tackle tax reform, many bankers hope that a new tax policy will respect the important role of tax-assisted community development programs in encouraging business investment in distressed neighborhoods. Preserving and expanding these high-impact programs can provide a pathway to broader economic growth.
Across the country, financial institutions are working closely with local partners, who are actively engaged in transforming communities to create jobs, build affordable housing and revitalize neighborhoods. Collectively, these public-private partnerships provide billions of dollars in loans and investments to low-income neighborhoods that benefit residents and local businesses while providing stable, consistent returns to lenders.
Despite the success of these programs, the changing political landscape has raised concerns that they could land on the wrong side of potential tax reforms and budget cuts.
Specifically, the three federal “pillars” of community development financing that some fear may be in jeopardy are: the Low-Income Housing Tax Credit (LIHTC), which generates equity to fund real estate costs that cannot be supported by rental cash flow or property values; Section 8 rental subsidies, which enables landlords to house tenants who can only pay a portion of their rent; and the New Markets Tax Credit (NMTC) program, a relatively new program offering tax incentives to equity investors for real estate or businesses in low-income, highly distressed communities.
Each of these federal community development financing pillars has proven to be effective in channeling private investment to enact positive change. The LIHTC has resulted in approximately 107,000 apartments and created numerous jobs every year since 1986, according to the Department of Housing and Urban Development. Section 8 serves over 3.3 million low-income households annually, of which over two-thirds are extremely low-income and about 90% are households with children, veterans or elderly or disabled people.
Meanwhile, NMTC allocations of $42 billion in the last 16 years have leveraged $8 of private investment for every $1 of public funds and created 164.5 million square feet of manufacturing, office and retail space, according to the Treasury’s CDFI Fund report.
The challenge we now face is how to preserve the existing benefits while promoting new investment to help local residents get meaningful jobs and high-quality housing.
There are plenty of projects across the country embodying the benefits of these tax-assisted programs, including several in the Boston area. They utilize these “pillar” financing programs with infrastructure to convert unproductive, vacant land into affordable residential, retail and office space.
Tax reform and budget changes can have an enormous impact on existing portfolios of loans and tax-sheltered investments, directly affecting low-income households, communities and underlying public-private financial partnerships. Protecting these existing financing vehicles from disruption will ensure they continue to grow and provide essential affordable housing options and community business development in some of our country’s neediest neighborhoods.