One of Donald Trump's signature campaign promises — one he hasn't even delivered on yet — may already be complicating efforts to create more low-income housing in New Orleans.
The president has pledged to slash the corporate tax rate. And developers say that's taking some of the attractiveness out of federal tax credits they had been relying upon to help finance new affordable housing units.
The tax credit program works like this: The federal government, through various state agencies, awards tax credits to firms that agree to build affordable housing. The developers sell those credits to investors to raise more money for their projects, and the investors in turn get a break on their federal tax bills for 10 years.
For example, an investor might buy the credits from a developer for $400,000 and save $500,000 in taxes over 10 years.
But now that Trump and Republicans in Congress are in a position to follow through on the idea of slashing corporate taxes, many investors seem to be taking a wait-and-see approach to buying credits, unsure at this point what their future tax bills are going to be.
That’s a problem for projects like the Bastion Community of Resilience, a planned housing complex for veterans in Gentilly that won’t happen unless more funding materializes.
“The Bastion's phase 2 really cannot withstand lower credit pricing,” said David Miller of the Renaissance Property Group, Bastion’s developer.
He said financing for the project fell apart last year because of "the investor world rethinking the value of tax credit investments.”
Other projects also have felt the pinch. The financing deal for the former Sacred Heart Church on St. Bernard Avenue, which will be turned into apartments mainly for low-income tenants, had to be rushed through in December because its main investor would have paid less if negotiations continued into 2017, said Michelle Whetten of Enterprise Community Partners, which helped broker the deal.
She cited the Trump factor as the reason.
The president has said he wants to cut the federal corporate tax rate from 35 percent to 15 percent. Paul Ryan, the House speaker, would cut it to 20 percent. Either way, corporations may ultimately have less incentive to buy credits that will lighten their tax burdens.
The national accounting and consulting firm Novogradac & Co. estimates that tax credits now valued at $1 would drop to as low as 81 cents under the Trump plan. Several other estimates show a slightly less severe impact under Ryan's plan, but still a reduction.
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There’s also some concern that lowering taxes in any way would require cuts to the Low-Income Housing Tax Credit program itself, the formal name for the tax credits that make most new affordable housing in the U.S. possible. Both Trump and other Republicans want to pay for their proposed cuts in tax rates in part by scaling back other tax breaks.
The credits have for years had strong bipartisan support and are unlikely to be ended entirely. Still, "we are concerned that these programs could be substantially reduced,” said Ali Solis, the president and CEO of Make Room, a Washington, D.C.-based affordable housing advocacy group.
For New Orleans, which by one housing advocacy group's estimate needs 16,600 additional homes for low- and moderate-income families within the next decade, any threat to those credits is a challenge.
Tax credits are used not only for big complexes like Bastion but also for single- and double-family homes, like those planned under the New Orleans Redevelopment Authority’s Lower 9th Ward Initiative, which hopes to build more than 300 housing units in that neighborhood over the next five years.
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The Louisiana Housing Corp., a state agency that runs the Low-Income Housing Tax Credit program in the state, says it’s working to try to offset the impact of changes to federal policy, but specifics have been lacking so far.
“We are aware there are certain challenges in the market that have affected some of the developments funded by the LHC,” Executive Director Keith Cunningham Jr. said in a statement. “We’ve already begun the process to work with the development community and the board to properly use the resources that are available to assist as needed.”
Some developers say the problem could be solved through a change in state rules. They want the agency to essentially allow projects to receive the maximum tax credit award possible. So the dropping value of tax credits would be offset by giving developers more of them.
The empty Louisiana Housing Trust Fund, which was created in 2003 by the Legislature to help pay for affordable housing, could also be replenished and used as a fix, others say, though it's unclear where that money would come from, given the state's dire budget situation.
Miller, the Bastion developer, said he needs help in some form and soon.
He's in an especially tight spot, he said, because the 40 units in the second phase of his project would be a mix of market-rate and affordable rentals. Banks like projects that consist entirely of affordable units because those projects help them comply with a federal law that requires bankers to invest in the communities where they do business.
A project made up largely of market-rate units, like Bastion, which doesn’t come with as many tax credits, is also a gamble, Miller said, because there’s no guarantee Bastion will find tenants for those units and turn a profit.
Many affordable housing projects are set up in the same way.
The one-two punch has pushed Bastion’s second phase behind schedule. “We do not have the luxury of being able to wait much longer,” Miller said.