Is costly housing tax credit untouchable because of industry’s clout?
By Virginia Young, St. Louis Post-Dispatch | |
McClatchy-Tribune Information Services |
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Yet bills scaling back the program have died in
The political fight showcases a complex subsidy that has stymied most other economic development legislation.
Its defenders point to the thousands of affordable homes that have been built, which they say provide stability for working-class families and help elderly people stay out of nursing homes. Critics say the costs are bloated, enriching a small circle of insiders.
This year is viewed as the last-gasp opportunity to tackle the program's shortcomings, given that few legislators understand the issue's intricacies and those pressing hardest for change -- Sens.
"We don't lead the way on many things, but we're No. 1 or No. 2 on low-income housing tax credits," Lamping said. "It doesn't look right, it's not right and it needs to be fixed. It doesn't pass the smell test."
HOW IT WORKS
Tax credits are basically vouchers that reduce the recipient's taxes, with
Under that formula,
Developers compete fiercely for the subsidies, which are awarded by a group of gubernatorial appointees and statewide elected officials who make up the 10-member
The projects are geared to those who make no more than 60 percent of the median income. That means that in
While every state uses federal low-income housing tax credits,
Many states use bonds, low-interest loans or direct line-items in the state budget to help fund affordable housing development. Only 14 run their own tax credit program, according to
When they're awarded the credits, developers usually sell them to middlemen who recruit investors, typically insurance companies, large corporations or wealthy individuals hoping to write down their tax bill.
State low-income housing credits generally fetch only 40-something cents on the dollar. This payback is far less than other popular state tax credits, like the one for historic preservation. And it's roughly half the payback of the federal low-income housing tax credit program.
Richardson Ridge will cost
In late 2012, the housing development commission awarded Richardson Ridge
Supporters say the social and economic benefits offset the costs. Far from the eyesore image associated with public housing, privately managed projects funded by tax credits are built to high standards and include features such as energy-efficient windows and community rooms.
For elderly tenants such as those at Richardson Ridge, the apartments also will come with services such as nurses to provide free health screenings and vans for transportation to doctors' appointments and the grocery store.
"It basically eliminates a lot of the problems that state agencies would have to fund or solve, and it does it at a much less expensive rate," said
INEFFICIENT CREDIT
So why is the state credit so inefficient? The reasons are many and complicated, say people who work with the credits.
There are far more customers for the federal credits because big companies know they'll have a tax bill to the
Another reason is what accountants call "the time value of money," the idea that a
"It's kind of like a mortgage in reverse," he said. "Investors are putting out all this money right now. They need to get some rate of return, because the benefit comes back over time."
That may be, said
"There's an enormous amount of -- in my opinion -- waste in this program,"
When he sat on the
The idea went nowhere.
"There is an enormous wall of resistance in
The stalemate centers on where to cap the program's costs. This year, a
The House leadership's bill would set a higher cap, gradually phasing the program down to
SYNDICATORS' ROLE
Ask senators why the tax credit bills have died five times in the last four years and they point to the political pull of an elite group of middlemen known as tax credit syndicators.
Because they benefit from the status quo, "the syndicators have no desire for resolution," Lager said. "There are literally three to five people keeping this from happening."
Unlike other credits, low-income housing credits aren't sold on the open market because federal rules require that the investors own part of the housing project. The syndicator puts together the deal and guarantees the credit stream.
The syndicators include
Shepard, who is married to U.S. Sen.
It's unclear how much of the remaining
Shepard, who has made millions in his decades in the affordable housing industry, declined through a spokesman to be interviewed. A lawyer for Sugar Creek said Shepard spends less than 25 percent of his time on tax credit syndication and most of the business is handled by others at the firm.
"Remember these are restricted-rent projects, so it's not like you're getting a lot of cash flow," said Holden, who owns
INDUSTRY'S LOBBY
Given the millions of dollars on the line, the affordable housing industry stays well-connected at the state Capitol.
Gardner, who owns
Tilley keeps in close touch with his former colleagues by raising money for their campaigns. In 2012 and 2013, his firm,
Other syndicators weigh in with legislators through an umbrella group, the
Meanwhile, the other
In December, Speaker Jones received at least eight
"I am not really paying any attention to it because it's the same old stuff all over again," Gallagher said. "To me it's got to the point where it's boring."
Jones and Diehl denied Lamping's and Lager's accusations that the House is too close to the housing industry.
"It's really just improper rhetoric levied by a couple people who don't understand how to create jobs in this state and how to resurrect blighted communities," Jones said.
Diehl, a real estate lawyer, sits on the advisory board of the
"I think I've had one conversation with him," Diehl said.
Nixon persuaded the housing development commission to delay releasing this year's credits --
So far, it doesn't look like the freeze has helped resolve the issue. Neither the House nor the
Program backer
"People hear cost cuts and it's code for killing the program," he said. "If we had people in a conversation about fixing this, and that conversation had goodwill about housing and community development, then there are ways to improve the program. But I don't think that's the case here."
Lamping's bill is SB740. The House tax credit bill is HB1501.
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