New York Daily News
By Rafael E. Cestero
November 15, 2017
House Republicans’ tax reform plan has caused an uproar throughout the country — proving unpopular even among many in their own party. Among the proposed changes, the tax plan calls for the wholesale elimination of Private Activity Bonds (PABs), a critical source of funding for the creation and preservation of affordable housing.
While early reports suggest that the Senate is unlikely to move forward with the elimination of PABs, we cannot, under any circumstance, entertain Congress’ willingness to play political games with critical funding sources necessary for ensuring that lower-income Americans can keep a roof over their heads.
Through the first 10 months of the Trump administration, we’ve already seen proposals to slash $6.2 billion from the U.S. Department of Housing and Urban Development’s budget — which, if combined with the elimination of PABs, would threaten to drastically reshape the market in ways that will be disastrous to the long-term future of affordable housing and community development. The stability of our communities and hundreds of thousands, if not millions of hardworking low-, moderate- and middle-income Americans lies in the balance.
Rather than using the nation’s budget deficit and partisan political ideology as an excuse to bludgeon affordable housing programs, Congress should seize this rare opportunity to reform the tax code. By embracing and leveraging innovations like “bond recycling,” which provided significant benefit when it was introduced nine years ago, we can make our resources more effective and efficient.
As the rental population grows and demand outstrips supply, market forces are pushing rents ever-higher, affecting those who can least afford it: low-income renters. Make Room, an organization dedicated to advocating on behalf of renters, has found that roughly one out of every three renters now struggles to make rent.
Large cities, where 63% of Americans live, face the brunt of these rental challenges. In New York City, 56% of renters are rent-burdened, paying more than 30% of their annual income toward rent, while 30% are severely rent-burdened, spending more than half of their annual income toward rent.
This isn’t just a big city problem; it hits renters outside of urban centers as well. A study last year found that one out of every four renters in Ohio living outside the top three metro areas spent more than half their income on rent alone.
Though they’re not as well known to the public as many HUD programs, tax-exempt financing through PABs provide a powerful tool for the production and preservation of affordable rental housing in communities across the country. You don’t need to be a housing finance guru to understand the impact of these bonds have made, and how they’ve unlocked additional economic benefits.
Over a five-year period, an investment by the federal government of $10 billion in PABs has leveraged an amazing $27.6 billion to create more than 140,200 jobs, 169,800 people housed, 61,500 affordable apartments, and 6,400 new homeowners across New York State. This doesn’t even account for other new infrastructure and economic development that comes from adding new buildings, new jobs and billions of investment in communities that need it.
Just like any other resource, however, PABs are in limited supply. Every year New York and other large metros use their full allocation to create affordable housing. Unfortunately, this still doesn’t meet demand but there are ways to expand the resource. New York City, for one, helped to pioneer the revolutionary “bond recycling” program that was championed by Sen. Chuck Schumer and enacted under the Federal Housing and Economic Recovery Act of 2008 (HERA). This allows housing finance agencies to reuse the loan repayments it receives from PAB-financed projects to provide additional financing to new affordable housing projects.
Without needing to allocate more bonds, leveraging recycled PABs contributed nearly $2 billion more in financing for multifamily affordable rental housing in New York. Simply put, this tweak has taken a limited resource and made a lot more bang for the buck, at no additional cost to the government or taxpayers.
The NYU Furman Center is proposing a simple but innovative change to get even more benefit out of these bonds. According to Furman, “A simple tweak to the tax code could lessen the competition for the volume cap by allowing states and localities to use recycled bonds for any eligible purpose.”
HERA gave us the benefit of recycling, but limited its use to only multifamily rental projects. This meant that recycled bonds couldn’t be used for single-family affordable housing or other economic development activity, which currently use PABs and compete with multifamily housing projects for its availability.
The Furman Center estimates that this easy legislative fix could leverage roughly $245 million extra per year that could then be used for multifamily projects, while also “allowing for the funding of eligible economic development projects and single-family” housing using recycled bonds.
The bottom line is that PABs create more housing and more economic activity.
The GOP’s war against affordable housing programs, in addition to other damaging changes in their tax plan, is estimated to cost New York State $4.5 billion and 17,100 affordable homes per year.
How will that impact homelessness, healthcare, incarceration and economic growth? And what is the cost to cities and states for other social services and safety nets that aren’t needed when people have safe, stable and affordable homes? Let’s ask those questions now, because these are the most likely outcomes should the GOP plan to gut affordable housing programs come to fruition.
Eliminating these programs that help hardworking Americans, while further enriching the wealthiest people and largest corporations isn’t the American way. Congress can, and must, do better.
Cestero is president and CEO of Community Preservation Corporation.