Memorandum in Support S.3848
The New York Housing Conference (NYHC) and its Young Leadership Council are strongly supporting S.3848 which will change 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) in a very positive way. This bill sponsored by Senator Catharine Young would convert the state low income housing tax credit to a refundable tax credit to help stimulate low income housing investment in the state. An earlier version of the same bill (S.4758C-2012) passed the Senate in 2012.
Tax credit programs are widely seen as the primary financing 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 a fully refundable credit or bifurcated, which severely limits investor demand.
S.3848 would make the credit available to the tax credit investor(s) through the existing process as established in law and regulation, and the investor (s) would contribute equity in the same manner that they do now, but going forward, they would receive a full refund instead of a credit. This provision, to make the credit refundable, broadens the investor pool since the benefit would no longer be limited to investors with New York State tax liability. The resulting deeper demand pool for the state credit will improve its value and generate more equity from the private sector.
Based on research and conversations with experts in the field, including a review of state tax credits in other states (see Exhibit A), NYHC is confident the proposed change would create additional demand in the market for state tax credits. We believe 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 20% 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 allocation to be sold to private equity investors for $4.5 million, or 20% more. This additional investment will help finance more units, improve affordability levels, and create more jobs in NYS.
The goal of this proposal is to increase the demand for and leveraging ability of a program that has been in existence in NYS since 2000. 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.