Tax credit programs are widely seen as the primary mechanism for successfully producing and preserving affordable rental housing. As a result of the recent financial crisis, state and federal tax credit programs have been disrupted and the same is true in New York. However, the problem has been further exacerbated in New York where the state tax credit is not bifurcated which severely limits investor demand.
The New York Housing Conference (NYHC) and its Young Leadership Council are proposing a change (see Exhibit A for draft bill language) to the State of New York low income housing tax credit program (established in 2000 pursuant to Article 2-A of the Public Housing Law), which would allow for bifurcation of the state tax credits from the federal tax credits. This would permit separate investors to purchase the state and federal tax credits. However, the proposed change would not preclude a single investor from purchasing both the state and federal tax credits if they so desire. Based on research and conversations with experts in the field, including a review of state tax credits in other states (see Exhibit B), NYHC is confident the proposed change would create additional demand in the market for state tax credits (see Exhibit C for a sample list of banks, corporations, and insurance companies who would be potential new investors). This demand would drive up pricing among investors as competition is increased, thereby translating into a greater private investment in affordable housing without any material cost to the state. We estimate the pricing increase to be in the range of 10% above the current market.
For example, a project is awarded a $7.5 million allocation of state low income housing tax credits over a 10-year period. As the program is currently structured, this allocation translates into a private equity investment of approximately $3.75 million. We anticipate that this change would allow the same $7.5 million allocation to be sold to private equity investors for $4.125 million, or 10% more. This additional investment will help finance more units, increase affordability levels, and create more jobs in New York State.
The goal of this proposal is to increase the demand for and leveraging ability of a program that has been in existence in New York State since 2000, while not requiring any increase in funding. We believe that the proposed change will result in a substantial increase in total equity raised from the state tax credit program and will greatly enhance its effectiveness in creating and fostering investment in affordable housing throughout the State of New York.
Founded in 1973, the New York Housing Conference (NYHC) advocates for the housing needs of all New Yorkers through education and positive change in public policy. Through our broad-based coalition we promote adequate resources, workable regulations and public awareness of the need for and benefits of affordable housing. Our programs and educational activities include our “all things housing” website (www.thenyhc.org), the Young Leadership Council, Affordable Housing Policy Symposiums and our Speaking out for Affordable Housing News Alerts.
Exhibit A: Sample Language:
Section 25 (3) is hereby added to the Public Housing Law to read as follows:
3. As of [June 1, 2011], the credits allowed to a partnership, limited liability company taxed as a partnership or multiple owners of property shall be passed through to the persons designated, members or owners pursuant to an executed agreement among the persons designated as partners, members or owners documenting an alternative distribution method without regard to their sharing of other tax or economic attributes of the entity, including but not limited to how the federal low-income housing tax credit with respect to project is allocated to the partners, members or owners.