On November 5, 2014, the Philadelphia office of Ballard Spahr LLP hosted a lively and informative discussion of Tax Credit Hot Topics. The panel, moderated by Ballard Spahr partner Monique DeLapenha, included representatives of all aspects of a tax credit transaction, providing each unique perspective on a variety of important areas in the tax credit arena.
Attendees were provided with a timely review of the impact that the midterm 2014 election will have on tax credits. The Senate has passed the “tax credit extender” legislation, which would extend the life of approximately 100 tax credit provisions that have expired or are near expiration, including the 9% floor for Low Income Housing Tax Credits (LIHTCs) and the New Markets Tax Credit (NMTC) program. The House has been working on individual bills, which are not likely to all get passed in the next two weeks before the end of the congressional session. With the GOP controlling both the Senate and House in 2015, comprehensive tax reform is likely to take place, as it is a top priority of Republicans, which would impact all forms of tax credits. There is also the potential for legislative action on the Rental Assistance Demonstration (RAD) program. Currently, HUD has been authorized to convert 60,000 units from public housing to Section 8 housing, in order to bring capital investment to address the physical needs of the aging public housing stock. The program’s demand is exceeding the authorization, however, because there are over 100,000 units on a waitlist for RAD conversion. Public housing authorities and developers are advocating for the cap to be lifted or extended, however some in Congress waiting to see how the current demonstration plays out before authorizing additional units and HUD and the affordable housing industry are working to provide data from the demonstration.
Another “hot topic” in tax credits is the subject of fair housing, and specifically those in the industry are watching the outcome of a case which the U.S. Supreme Court is slated to hear in the next term. The outcome of the case could cement the standard that courts must use when fair housing claims are brought. Under the Fair Housing Act, a claim may be brought by showing that there was intentional discrimination in a housing practice or policy, or by showing that a housing practice or policy has a disparate impact on a protected class. In a recent case in Texas, Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, a trial court held that the Department of Housing and Community Affairs in Texas violated the Fair Housing Act when it awarded LIHTCs to projects that would be developed in low-income neighborhoods, because it had a disparate impact on a protected class. The Supreme Court will review whether the disparate impact theory is a viable basis for fair housing claims. It is a case being watched carefully by every participant in the housing tax credit world, from the state agencies that award LIHTCs to the equity investors to the affordable housing developers. The panel also provided detailed insights into how developers can make strong presentations to certified development entities for a NMTC allocation, how an affordable housing developers structure a RAD deal, and how the Historic Broadway Hall case provided more certainty for equity investors in structuring partnerships to be certain they do not have issues with the IRS in the event of an audit.