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Monday, March 25, 2019  Spokane, Washington  Est. May 19, 1883
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News >  Spokane

As new affordable housing complex opens, advocates see threat from future tax overhaul

UPDATED: Fri., Oct. 20, 2017, 9:17 p.m.

Alex Grant left, and Ted Whip with KOP Construction work on finishing touches in the parking lot of the Community Frameworks new affordable housing complex on East Sprague, Tues. Oct. 10, 2017. (Colin Mulvany / The Spokesman-Review)
Alex Grant left, and Ted Whip with KOP Construction work on finishing touches in the parking lot of the Community Frameworks new affordable housing complex on East Sprague, Tues. Oct. 10, 2017. (Colin Mulvany / The Spokesman-Review)

As the rain came down outside, the new affordable housing complex on East Sprague Avenue offered shelter for the first time, but definitely not the last.

At the open house for 1 S. Madelia St. Wednesday afternoon, city leaders, local business owners and potential tenants kept out of the elements and viewed a few untouched and vacant units of all sizes.

New units, new washers and new dryers, new fridges. New everything. This isn’t your grandparents’ affordable housing, the tenement warehouses that represented the urban decay and neglect of the last century.

In the last couple of years, affordable housing developers in Spokane have created 250 residential units for people transitioning out of homelessness, or whose paychecks are far below the regional norm. Nearly all of the development was funded by a program unknown to most people.

Called the Low Income Housing Tax Credit, it’s the federal government’s primary vehicle for encouraging private development of affordable housing. And it’s in jeopardy.

Across Washington state each year, the program doles out about $17 million to developers of low income housing. Since the tax credit program’s creation in 1986, developers in the state have built more than 1,000 properties funded by the program, creating more than 78,000 units for more than 158,000 people.

After 30 years of what many say is nearly unqualified success, the program is in danger of being hobbled, and affordable housing developers and advocates say the culprit is tax reform in Washington, D.C.

“It’s the worse thing that you hope will never happen,” said Deb Elzinga, president of Community Frameworks, of the tax credit program’s potential demise. “It’s such a basic tool of affordable housing.”

Threat from future tax policy

The Republican tax plan to slash corporate taxes has already been criticized by nonpartisan watchdog organizations for benefiting the nation’s wealthiest citizens over those in need. But the plan promoted by President Trump may harm the society’s most vulnerable in another way, by effectively killing the affordable housing tax credit program, which is supported by banks and investors and has funded nearly all affordable housing projects in the last three decades.

The concern centers on Trump’s proposal to reduce the corporate tax rate from 35 to 15 percent. Currently, corporations and wealthy individuals receive a dollar-for-dollar reduction in federal income tax payments for years if they donate to affordable housing development projects. If corporate tax rates are cut, the fear is there will be little incentive to seek out tax credit savings.

“It’s the primary system used to fund affordable housing in Spokane,” said Jonathan Mallahan, director of the city of Spokane’s Community and Neighborhood Services department. “You’ve got Section 8 to help with rent, but as far as new residential housing goes, 90-plus percent of the projects are funded with the tax credit. And the value of the tax credit is declining based on the thought that corporations will have less tax liability.”

“That’s really the only way to build affordable housing nowadays,” said Rob McCann, president of Catholic Charities. “This is a win-win. And that’s rare when you talk about helping the poor.”

McCann said the program is aimed at “high net worth individuals and big institutional banks who make so much money every year and who are desperate for tax breaks for the government.” A dollar for dollar tax credit “becomes a lot less attractive to them if the president gives them a 15 percent tax break by the stroke of the pen.”

Fueling local projects

In the last 17 years, McCann said Catholic Charities has built nine affordable housing projects, at an estimated cost of more than $100 million, much of which supported by the tax credit.

In the last three years, McCann’s Catholic Charities has used the tax credit to help build Father Bach Haven II, which received $930,000 for a complex of 50 affordable housing units, including 38 for the homeless; Father Bach Haven III, which received more than $1 million toward 50 low-income units; and Holy Names Homeless Families, which got $1.4 million for 75 affordable units, 57 for families transitioning out of homelessness.

Catholic Charities isn’t the only Spokane area organization using the funds to build affordable housing. Since 2011, developers in Spokane County have received nearly $20 million in funding through the tax credit program to build housing for the poor and elderly.

Kim Herman, executive director of the Washington State Housing Finance Commission, said the threat to the tax credit is “definitely on our radar.” He said another danger to funding affordable housing is in the change to certain municipal bond exemptions in Republican tax reform plans.

Herman said D.C. Republicans haven’t said they’ll keep tax exemptions for a type of municipal bond called a private activity bond, which is used to build multifamily housing. If the tax exemption goes away, so does the “desirability” of investing in such bonds.

“The issue is about 40 to 45 percent of affordable housing … is through private activity bond programs,” he said.

Despite the threat, Herman said he was hopeful that the corporate tax rate wouldn’t drop so low as to make the tax credit program undesirable to investors, and pointed to U.S. Sen. Maria Cantwell’s advocacy for the program.

“She has said that should the tax rate go so low that it has a significant impact on the credit, she will try and introduce legislation that will make some changes to the program that will make it more valuable” to investors, he said. One of those changes could shorten the time period that investors are responsible for repaying the tax credit if something goes wrong.

A legacy of success

Currently, investors give to a “syndicator” that pools money together and finds projects to fund. Once invested, the dollar-for-dollar tax break lasts for 15 years, as long as the development remains dedicated to low-income individuals. The developer must keep the property affordable for up to 40 years. After that the owners no longer are required to maintain the project as affordable housing.

Herman said the program is partly designed to keep affordable housing in good shape, with the idea that it could be converted into a moneymaking endeavor after the tax break disappears.

“These properties can go into private market after some years,” he said. “They’re built to last.”

He noted that the tax credit program is also a matter of necessity since the federal government has retreated from funding such development. “The federal government has consistently, since the Reagan administration, been cutting back on budget appropriations for affordable housing.”

It was also during the presidency of Ronald Reagan that the tax credit program was created, in 1986 – the last time federal lawmakers did a major overhaul of the tax system.

Washington state was the sixth state to put the tax credit program to use, Herman said.

“The tax credit program has been very successful in Washington state,” he said. “We’ve used all of the available dollars every year since then.”

That amounts to about $17 million a year. According to data from the state housing finance commission, the amount of funding requested annually sometimes doubles what can be allocated, as was the case this year when $30 million was requested but only $15 million was available.

Pam Tietz, executive director of the Spokane Housing Authority, said about 250 units have been built in Spokane in the last couple of years using the credit. She said she was “absolutely” concerned about its future, and estimated that another 300 to 400 units are needed immediately to house the region’s homeless.

“It is the primary source of equity to build affordable housing. Spokane has been very successful using the tax credit to build affordable housing,” Tietz said, pointing to Catholic Charities, Transitions and Volunteers of America as the region’s top developers of low income housing.

“One of the nice things about Spokane is everybody is already at the table. That’s really unique to Spokane,” she said. “The community is really working to create permanent supportive housing for homeless families, as well as for homeless individuals.”

Costs still exceed resources

Tietz said the tax credit program was integral to keeping people off the streets.

“Having that affordable place to live is transformative, the foundation that supports all the other opportunities in the life,” she said. “It’s critical that we keep the tax credit program.”

But even before tax reform has received a single vote, the tax credit has lost value. Mallahan said the tax credits are now worth about 80 or 90 cents.

A year ago, Community Frameworks sold its tax credits for $1 for every dollar in credit. This year, Transitions’ Home Yard Cottages, a project for homeless families in the Audubon-Downriver Neighborhood, got only 89 cents on the dollar for the credits. And they had to accept an agreement that the amount would be even lower if the corporate tax rate falls below 25 percent.

Elzinga, with Community Frameworks, worried more of that was to come despite the tax credit being the most important “tool” in funding affordable housing.

“You can’t necessarily depend on other types of (funding) tools. There aren’t a lot of tools. That’s the problem,” she said. “It’s one of our most tried and true methods of making these projects work. The cost of doing these projects exceeds our resources. You need the tax credit to make the end result affordable for people. It would be a major blow if the corporate tax rate did have that impact on affordable housing.”

Editor’s note: This story was changed on Oct. 20, 2017 to correct an error related to the length of time developers who use the Low Income Housing Tax Credit are required to maintain their affordable housing project as affordable housing.

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