Federal Affordable Housing Assistance Outlook Virginia Housing Coalition September 3, 2014

1. Federal Affordable Housing Assistance OutlookVirginia Housing CoalitionSeptember 3, 2014 Robert Rozen Washington Council Ernst & Young

2. Spending Issues

3. Long Term Trends in Federal Spending • Budget Control Act of 2011 • 10 year budget caps for appropriated spending, 2% growth • Fast-track process for additional $1.92 trillion deficit reduction through “Supercommittee” • Triggered annual “sequestration” of appropriated spending if Supercommittee fails to reach agreement • FY 2013 Budget – Sequestration goes into effect with across the board spending cuts • Bipartisan Budget Act of 2013– Agreement to eliminate sequester for FY 2014, and partially ameliorate FY 2015 cuts • FYs 2016-2021 – Appropriated accounts, including HUD, will be cut an additional 5% to 7% annually

4. Major Categories of HUD SpendingWhere Will Future Sequestration Cuts Come From Share of HUD Budget • Section 8 vouchers 45% • Project based Section 8 23% • Public Housing 15% • CDBG 7% • Homeless Assistance 5% • HOME 2%

5. Major Categories of HUD SpendingWhere Will Future Sequestration Cuts Come From Percentage Change Since 2010 • Section 8 vouchers + 5% • Project based Section 8 +16% • Public Housing -14% • CDBG-30% • Homeless Assistance +13% • HOME -55%

6. Potential New Source of Federal Funding for Affordable Housing • Housing Trust Fund • Established in 2008 • 90% for rental housing; at least 75% for ELI households and no money for households greater than VLI • Funded from mortgage volume of Fannie and Freddie • Funding delayed by conservatorship • Potential New Source of Funding: GSE Reform • Warner-Corker, Johnson-Crapo Committee bill • New fee on guaranteed mortgages

7. Agenda Tax Issues

8. Challenges Ahead for LIHTC Program • Reinstatement of minimum 9% tax credits • Enactment of minimum 4% tax credits • Continued erosion of gap financing • TAX REFORM

9. Minimum Tax Credits • Minimum 9% tax credits expired for 2014 allocations • Likely extension during December lame-duck session • But likely expiration again for 2016 allocations • Possibility of extending minimum credit to 4% acquisition credits

10. House Ways and Means Tax Reform Act of 2014 – Affordable Housing highlights • Preserves Low-Income Housing Tax Credit but with a number of modifications, including: • Extension of credit period from 10 years to 15 years • Elimination of tax-exempt multifamily housing bonds • Elimination of 4% credit for acquisition for existing property • Repeal of 130% basis boost for “high-cost and difficult development areas” • Lengthens residential real estate depreciation period from 27.5 years to 40 years. • Full impact of House Ways and Means tax reform draft could erode the capacity of LIHTC program by 35 to 55%

11. Potential Opportunities for LIHTC Obama Administration Budget Proposals • Permit States to trade-in private activity bond authority for up to a 23% increase in LIHTC cap • Permit projects to receive 4% bond credits without using bonds • Permit states to provide that up to 40% of units can be targeted to residents up to 80% of AMI with higher rents used to subsidize units for residents at 40% of AMI • Housing Commission of Bipartisan Policy Center • 50% Increase in Allocation Authority • $1 billion increase in HOME for gap financing