Summary
Statement of Brian Hudson, Sr., Executive Director and CEO, Pennsylvania Housing Finance Agency, on behalf of the National Council of State Housing Agencies, before the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means.
May 24, 2007
Mr. Chairman, Representative English, and members of the Subcommittee, thank you for the opportunity to testify on behalf of the National Council of State Housing Agencies (NCSHA) in support of proposals to modernize the Low Income Housing Tax Credit (Housing Credit) and tax-exempt private activity housing bond (Housing Bond) programs. I am Brian Hudson, executive director of the Pennsylvania Housing Finance Agency.
NCSHA is a national nonprofit organization that represents the housing finance agencies (HFAs) of the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. NCSHA’s member agencies allocate the Housing Credit and issue Housing Bonds in every state to produce affordable rental and ownership housing.
NCSHA is deeply grateful to Ways and Means Committee Chairman Rangel and you for your strong and consistent support of the Housing Credit and Bond programs. Many of you helped create these programs and extend them in their early years. You strengthened them and made them permanent. You restored their purchasing power and protected them against future inflation.
Just in the last few years, many of you have worked diligently to advance legislation to modernize them. Without your commitment and leadership, we would not be here today talking about how to make these extraordinary programs even better.
But, even you—some of the Housing Credit and Bond programs’ strongest supporters—probably did not imagine the remarkable results these programs would achieve. All across the country, the Housing Credit and Bonds are turning around neighborhoods and transforming communities. They are bringing affordable housing to our inner cities and rural towns. They are building new housing and saving old. They are housing working families and the very poor. They are providing housing hope to people with special needs, the elderly, and persons who are homeless.
Here are just a few examples of the impact the Housing Credit and Bonds are making in Pennsylvania.
Not long ago, once magnificent buildings sat abandoned and decaying in West Philadelphia, as they had for more than 30 years. Today, thanks to the Housing Credit, these august buildings stand tall once more, proudly providing affordable homes to 43 families and older residents of the Parkside Historic District.
In South Philadelphia, the Housing Credit and Bond programs worked together to produce Greater Grays Ferry Estates, a 40-acre mixed-income, mixed-use development that combines affordable single-family homes and apartments, a senior care center, and a community center on one site. This development stands where dilapidated public housing once did, drawing retail and restaurant development to the surrounding community.
A world away, in the small town of Edinboro, Pennsylvania, 29 new affordable single-family homes are nestled among older homes. A local nonprofit knew just what kind of housing fit this rural community, and the Housing Credit made it possible.
With many public and private hands, Pittsburgh reclaimed an aging federally assisted housing development and the neighborhood it plagued, preserving 266 affordable rental apartments at Second East Hills and driving out crime and vagrancy. Without the Housing Credit, this property and the federal government’s investment in it would have been forever lost.
I could tell you hundreds more stories like these, as could my state HFA colleagues. We invite you all to come out and see what you have made possible. We hope you will.
Together, state HFAs and our affordable housing partners have produced nearly 2 million affordable rental homes with equity provided by the Housing Credit. About one-quarter of these homes are Housing Bond-financed. We have financed almost another million affordable rental homes with Housing Bonds alone. With the Housing Credit and Bonds, we add another 150,000 homes to our country’s affordable rental housing inventory every year.
State HFAs have made homeownership a reality for 2.6 million working families with single-family Housing Bonds, probably known to you as Mortgage Revenue Bonds or MRBs. Another 100,000 families—teachers, firefighters, nurses, and service workers—join them each year with the help of MRB mortgages.
With the Housing Credit and Bonds, state HFAs and our partners are creating some of the highest quality, most innovative affordable housing ever produced with federal assistance. With your help, we can do even more.
Congress got it right when it created the Housing Credit and Bond programs. By unleashing the private sector, limiting federal directives, and entrusting administration to the states, you created in these programs an unprecedented public-private partnership for affordable housing.
You have the opportunity now to reinvest in the Housing Credit and Bond programs’ success. You can extend their reach to people and places they now struggle to serve by eliminating and rationalizing rules that have outlived their usefulness in these now mature and established programs.
When Congress created the Housing Credit, you took a bold new approach to affordable rental housing production. You let states and their local partners—not Washington—decide how best to respond to our unique and diverse housing needs with this new resource.
Recognizing the Housing Credit was an experiment, Congress built into it a number of safeguards. You limited, for example, the amount of Housing Credit states could allocate to developments financed with other federal subsidies to insure against oversubsidization. Later, acknowledging even the maximum Credit amount states could allocate would not be enough to make development feasible in areas where incomes were especially low or low relative to construction costs, you allowed states to allocate more Credit to developments in these areas. But, even then, you had Washington, not the states, designate and limit those areas.
Over the years, you have entrusted the states with even greater responsibility to oversee the Housing Credit, requiring us to direct it to our most pressing housing needs under statewide allocation plans we and our partners devise. In addition, you have called on states to allocate through rigorous financial review and underwriting only the amount of Housing Credit necessary to developments’ long-term viability as affordable housing.
The states have lived up to your trust. We have established a long record of vigilant Housing Credit allocation, underwriting, and compliance monitoring. We understand what a precious resource the Credit is and husband it carefully, squeezing every bit of affordable housing from it that we can.
In response, over time Congress has eased some rules that made sense at the program’s outset, but proved no longer necessary. You, for example, made exceptions to the federal subsidy rule for a number of federal programs, like HOME and CDBG, commonly used with the Housing Credit.
A number of outdated Credit constraints still remain, however, that make it difficult—sometimes even impossible—for states and our partners to develop Housing Credit properties for people and in places that need them most. It is time to:
- Eliminate the 4 percent Housing Credit limit on properties financed with other federal subsidies, allowing states to fully exercise the authority Congress gave us nearly two decades ago to determine appropriate Credit allocations;
- Permit states to determine when and where Credit amounts higher than the maximum the law now allows are necessary to achieve affordable housing goals we and our partners judge important in our states; and
- Eliminate the prohibition on the use of the Housing Credit in Section 8 Moderate Rehabilitation properties, as the Credit is necessary to their preservation and state underwriting will prevent their oversubsidization.
In addition, NCSHA urges you to fine tune the Housing Credit and multifamily Housing Bond statutes to eliminate other rules that made sense when Congress wrote them, but now add unnecessary steps and cost to the development process and throw up pointless barriers to the use of the Housing Credit and Bonds together. It is time, for example, to allow Housing Bonds to finance single-room occupancy housing, as the Housing Credit can, and to fix the student prohibition rules, which inadvertently discourage lower-income single parents from seeking more education.
We understand Chairman Rangel is also concerned that market rate rental housing is simply unaffordable in high-cost areas, like his own New York City district, to lower-income families that earn more than 60 percent of area median income and so cannot access Housing Credit developments. We share the Chairman’s concern and want to explore with him and the Subcommittee mixed-income and possibly other solutions to this problem.
We urge the Subcommittee to seize this opportunity to also make a few modest changes to the MRB program to give states more resources and flexibility to respond to the nation’s homeownership needs. Most notably, we ask you to finally repeal the MRB Ten-Year Rule, so states can recycle all payments on mortgages financed with MRBs into new loans for lower-income first-time homebuyers. We also ask you to allow states to use MRBs to help single-parent households and respond to natural disasters.
Finally, we understand Chairman Rangel and many of you are committed to the repeal of the Alternative Minimum Tax (AMT) on middle-income taxpayers. We urge you, as part of that effort or this housing program modernization effort, to exempt Housing Credit and Bond investments from the individual and corporate AMT, as it limits investor interest in the Housing Credit and Bonds, reduces the dollars they supply for affordable housing, and ultimately increases housing costs for the lower-income families they serve.
The changes I have just reviewed and others that would empower states and our partners to respond more effectively and efficiently to our affordable housing needs are described more fully in the attachment to our testimony. We ask that this attachment also be made part of the hearing record.
The changes we propose will allow us to do more with the Housing Credit and Bond resources we have. And, we must do more, as we do not begin to meet our states’ housing needs with these limited resources.
Demand for the Housing Credit across the country exceeds supply by an average of two to one. In Pennsylvania, we receive three times the number of qualified Credit applications we can fund. The tax-exempt private activity bond volume cap, from which states draw their Housing Bond authority, is also oversubscribed in Pennsylvania and virtually every state. Many of the Housing Credit and Bond changes we are proposing will increase pressure on these resources by increasing demand for them and, in some cases, reducing the amount of housing they produce.
We deeply appreciate the Housing Credit and private activity bond cap increases Congress enacted in 2000 and the annual increases you have permitted since to offset inflation. However, the cap increases were not enough at the time to restore fully the purchasing power the Housing Credit and Bonds had already lost to inflation since first capped, and the inflation adjustments since have been outpaced by construction cost increases.
Meanwhile, our nation’s affordable housing need only grows. The Housing Credit and Bond programs account for most affordable rental housing developed in this country each year. But, their combined production does not even replace the affordable housing we lose annually to rent increases, conversion, deterioration, and abandonment.
At the same time, one in three families in this country spends more than 30 percent of its income on housing, and one in seven spends more than half, according to Harvard University’s Joint Center for Housing Studies. Yet, only one in four families qualified for federal housing help receives it.
We want to work with you to find a way to increase the Housing Credit and Bond caps as soon as possible. We also want consider new ways to stretch the existing bond cap further, by exploring with you on the multifamily side recycling opportunities like we are seeking to expand on the single-family side with MRB Ten-Year Rule repeal.
Finally, we are heartened that Chairman Rangel and you have reached across jurisdictional lines to Financial Services Committee Chairman Frank to make sure this Housing Credit and Bond modernization effort includes a review of the HUD programs on which the Housing Credit and Bonds so heavily rely to reach lower-income families than they can serve on their own. We have provided Chairman Frank’s staff several suggestions for modifying HOME, voucher, and other HUD program rules to make these programs work more effectively with the Housing Credit and Bonds. We also urge you to work with Chairman Frank to make sure any new housing programs his Committee creates, such as the GSE affordable housing grant fund the House is considering and the trust fund his Committee will soon consider, can be effectively combined with the Housing Credit and Bonds.
In closing, I want to thank you again for all you have done and will do to create affordable housing opportunity in this country. State HFAs are honored to partner with you in this effort.
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