A lot of the things I s
pend my day doing don’t appear in my blog. They are simply too boring to write about. Even the most devoted reader doesn’t want to hear about my conversations with bankers and accountants. But once in awhile something that starts out looking boring is really a big deal, and worth thinking about even if it takes a little extra work. The “Exchange Provision” of the American Recovery and Reinvestment Act (“ARRA”) is one of those things. You remember ARRA, it’s that enormous bill Congress passed and President Obama signed back at the beginning of February. ARRA was supposed to start the economy working again.
One part of the economy that hasn’t been working is the affordable housing market. Most affordable housing is funded by federal tax credits, which the federal government passes out to the states and the states in turn pass them out to affordable housing developers. Affordable housing developers then “sell” them to corporations that want tax breaks (“sell” is in quotes because the transaction is more complicated than a simple sale, but that’s the effect). The money the affordable housing developers get from selling the tax credits provides enough equity to make the project work.
For example, to build CityWalk@Akard, we got a little more than $12 million in tax credits and we sold those tax credits for a little more than $11 million. That gave us a big enough down payment to borrow the rest of the money that we couldn’t raise and begin construction.
But right now you can barely give tax credits away. Hardly any corporation is making a profit; so they don’t pay taxes; so they don’t need our tax credits. New deals aren’t happening and hardly any of the deals awarded tax credits last year are working out.
So, back to ARRA, Congress provided a remedy. States are allowed to trade in tax credits for $.85 on the dollar in real money. That would make a big difference to many of us. Central Dallas CDC has $3.9 million worth of tax credits that we are going to get about $1.9 million in cash for. We sold them for $.50 on the dollar, as opposed to the $.92 we got last year, and even at that price we are the envy of everyone in the business for how good that deal is. If the State of Texas would send those credits back to the federal government for money, then we would get an additional $1.4 million for our project. That money would mean we could offer some additional first rate services to our tenants—mental health care, job training, etc. Or build more housing with the money.
But the State of Texas has taken the position that it can’t trade in those tax credits for money because a couple of years ago when the legislature wrote the rules for tax credits, it didn’t put in any provisions for trading the tax credits for money. I don’t how the Texas legislature was supposed to prepare for a law that didn’t exist yet, but that’s the logic.
That looks like dubious legal thinking to me, but anyway the Texas legislature is in session and could pass whatever laws we need right now! Every other state is going to trade its tax credits for real money. Texans pay federal taxes. Let’s get the same benefit as everyone else; put people to work; make jobs; build affordable housing; get the economy moving!
A friend of mine said this is like trying to save money by going out to eat with a group and ordering a salad while everyone else has steak and drinks wine—and then agreeing to split the bill equally.
We have to pay our share. We should demand equal benefits for Texans!
pend my day doing don’t appear in my blog. They are simply too boring to write about. Even the most devoted reader doesn’t want to hear about my conversations with bankers and accountants. But once in awhile something that starts out looking boring is really a big deal, and worth thinking about even if it takes a little extra work. The “Exchange Provision” of the American Recovery and Reinvestment Act (“ARRA”) is one of those things. You remember ARRA, it’s that enormous bill Congress passed and President Obama signed back at the beginning of February. ARRA was supposed to start the economy working again.One part of the economy that hasn’t been working is the affordable housing market. Most affordable housing is funded by federal tax credits, which the federal government passes out to the states and the states in turn pass them out to affordable housing developers. Affordable housing developers then “sell” them to corporations that want tax breaks (“sell” is in quotes because the transaction is more complicated than a simple sale, but that’s the effect). The money the affordable housing developers get from selling the tax credits provides enough equity to make the project work.
For example, to build CityWalk@Akard, we got a little more than $12 million in tax credits and we sold those tax credits for a little more than $11 million. That gave us a big enough down payment to borrow the rest of the money that we couldn’t raise and begin construction.
But right now you can barely give tax credits away. Hardly any corporation is making a profit; so they don’t pay taxes; so they don’t need our tax credits. New deals aren’t happening and hardly any of the deals awarded tax credits last year are working out.
So, back to ARRA, Congress provided a remedy. States are allowed to trade in tax credits for $.85 on the dollar in real money. That would make a big difference to many of us. Central Dallas CDC has $3.9 million worth of tax credits that we are going to get about $1.9 million in cash for. We sold them for $.50 on the dollar, as opposed to the $.92 we got last year, and even at that price we are the envy of everyone in the business for how good that deal is. If the State of Texas would send those credits back to the federal government for money, then we would get an additional $1.4 million for our project. That money would mean we could offer some additional first rate services to our tenants—mental health care, job training, etc. Or build more housing with the money.
But the State of Texas has taken the position that it can’t trade in those tax credits for money because a couple of years ago when the legislature wrote the rules for tax credits, it didn’t put in any provisions for trading the tax credits for money. I don’t how the Texas legislature was supposed to prepare for a law that didn’t exist yet, but that’s the logic.
That looks like dubious legal thinking to me, but anyway the Texas legislature is in session and could pass whatever laws we need right now! Every other state is going to trade its tax credits for real money. Texans pay federal taxes. Let’s get the same benefit as everyone else; put people to work; make jobs; build affordable housing; get the economy moving!
A friend of mine said this is like trying to save money by going out to eat with a group and ordering a salad while everyone else has steak and drinks wine—and then agreeing to split the bill equally.
We have to pay our share. We should demand equal benefits for Texans!
No comments:
Post a Comment