They weren’t the only ones
fighting against this radical measure. Organizations and individuals from
around the state banded together to fight Prop 127 and the permanent economic
harm it would inflict on homeowners and business owners.
After learning about how Steyer’s
renewable energy plan would lead to skyrocketing utility bills, voters
Proposition 127 by a 2 to 1 margin (32-68 percent). The message was
clear: RATEPAYERS DO NOT WANT ENERGY MANDATES.
Fewer than 18 months later it
appears that both Steyer and APS have decided to ignore the will of the voters.
Late last month APS announced they are rolling out, with full
support of the environmental left and Tom Steyer, the “Arizona
Green New Deal”. Under their proposal, APS will shift to 100 percent carbon
free generation by 2050, regardless of cost, reliability or whether their
customers support the concept.
Just to explain how radical this
plan is, the Arizona Green New Deal is more extreme than the 25 percent
renewable energy mandate Steyer pitched to voters in 2018. Only this time
voters won’t get an opportunity to reject the deal since APS can implement it unilaterally
and their monopoly rate base has nowhere else to go.
APS will attempt to explain their
flip flop by saying that this is only “aspirational” and that it helps protect
and promote nuclear power in Arizona. This is utter nonsense. Make no
mistake: unless this plan is stopped it will be adopted by the Arizona
Corporation Commission and will become a mandate.
And if the Palo Verde Generating
Station is really under threat from the likes of Tom Steyer or other
anti-nuclear environmentalists, then the better approach is to pass and promote
laws to preserve the energy source. The fix should NEVER BE to saddle their
captive ratepayers with all the risk of their Green New Deal, especially given
track record of government selecting which
companies/industries in the renewable energy industry to support.
While ratepayers will be saddled
with no options and escalating utility bills, APS will be immune from the
negative impacts. As a regulated corporate utility, they are constitutionally
guaranteed a rate of return, which will be provided by the Arizona Corporation
Commission in generous profitable increments over the next 30 years.
If this is the path that existing
monopoly utility providers want to pursue, then ratepayers deserve the right to
opt out. For years there has been discussions on enacting utility
competition in Arizona and giving customers the option to
choose their own energy provider. Now is the time to press forward on this
issue. If APS wants to impose higher costs through their Green New Deal, then
they should be required to compete with other utilities offering alternative
Additionally, ratepayers need to
have legal protections to ensure that cheap, reliable energy takes precedent
over unpopular partisan politics. Since the current structure is not putting
ratepayers first, systemic reforms are necessary.
The Club urges both the
Corporation Commission and the Legislature to honor the will of the voters and
take action against the Arizona Green New Deal. Don’t let bullies like Tom
Steyer dictate energy policy in our state.
Last week the Arizona Free Enterprise Club
released our report detailing the poor performance of the Low Income Housing
Tax Credit Program (full report can be viewed HERE).
The information in the study should provide more than enough evidence for
lawmakers to reject HB 2732, legislation that would give away millions in subsidies
to investors and developers to fund a housing program rampant with fraud.
The reports author, Everett Stamm, has
followed up by writing an op-ed explaining why Arizona would be better served
to look at other solutions to address housing affordability rather than funding
a risky program with a track record of failure.
of Oversight and Spiraling Costs Hinder Low Income Housing Tax Credit Program
Americans are increasingly unable to cope
with the ever-increasing costs of housing. Rising costs in Arizona,
and across our nation,
should be of interest to policymakers. One program that’s being used is the
Low-Income Housing Tax Credit program. This program has been one of the largest
suppliers of affordable housing throughout the past 30 years, but has had
consistent struggles with increasing operational costs and questions over
accountability and transparency. I’ve published a
report with the Arizona Free Enterprise Club analyzing these concerns and
recommending solutions for policymakers to consider.
What is the Low-Income Housing Tax
The Low-Income Housing Tax Credit (LIHTC)
program operates by offering federal tax credits to developers who construct
new, rehabilitated, or refinanced rental housing that meets affordability
requirements set by the U.S. Department of Housing and Urban Development. This
program uses federal tax credits but is administered by the relevant State
Housing Finance Authority. In Arizona, this would be the Arizona Department
Each state is granted the larger of $3.1
million or $2.70 per capita to distribute in a competitive allocation process.
The competitive allocation process awards projects tax credits to new
construction at approximately 70% of the cost of the project. There is also a
non-competitive process for rehabilitation projects already being financed
through federal bonds, awarding tax credits at approximately 30% of the project
cost. Only the 70% tax credits come out of the amount allocated to the
Rising Construction Costs
Looking through national level data, we
found the LIHTC program had around a 10% year-over-year cost increase in the
amount of tax credits required to build one unit of affordable housing
(adjusted for inflation). Additionally, our report investigates compares LIHTC-financed
housing to equivalent privately financed housing in Arizona and Washington
state. We found housing construction financed with the LIHTC program correlates
with significant increases in cost per square foot in Washington and increases
in both cost per square foot and cost per unit in Arizona.
Lack of Oversight and Accountability
The LIHTC program provides a considerable
amount of discretion to State Housing Finance Authorities during the
competitive allocation process. The United States Government Accountability
Office (GAO) published a report
in 2018 summarizing these concerns. Their report criticized the lack of
standardization, and sometimes complete absence, of cost management measures
set by state HFAs and the high
risk of fraud due to lack of oversight. Notably, the report found only 2
out of 57 LIHTC allocating agencies had limits on the development cost per unit
and only 6 out of 57 LIHTC allocating agencies limited the amount of tax
credits that could be issued per unit in a project. Additionally, just last year
a group of lenders entered into a settlement with the US Department of Justice
after an investigation revealed market manipulation by investors and developers
utilizing the LIHTC program.
Our report discusses the concerns over cost
and accountability of the LIHTC program in much greater depth, including
suggestions on alternative ideas such as tenant-based
programs to address the issue of housing affordability. The full report can be viewed HERE
as well as other reports by the Arizona Free Enterprise Club at www.azfree.org.
Everett Stamm resides in Washington DC
and is author of the report ‘Analysis of the Low-Income Housing Tax Credit
Program in Washington and Arizona’
year HB2732, sponsored by Representative Ben Weninger, is being
sold as both. The Low-Income Housing Tax
program is a federal program by which qualified investors are incentivized
to build housing projects for low-income persons with generous income tax
How it works.
It is a
deal for banks, insurance companies and investors. The Arizona program allows for $8 Million a
year of tax credits that can be matched with the subsidies offered through the
federal program. The bills mirror the
federal LIHTC percentages and can be carried over for 5 years.
illustrate the business model, a $10 Million project qualifies for 9 percent
tax credits. That is $900,000 a year and
$9 Million over the course of the 10 year carry forward period. Banks sell these credits to other investors
who make up a pool to finance the project.
Some projects are even able to bridge financing gaps with other
government programs. But not only are almost the entire project costs
subsidized by the taxpayer, another $2.2 Million is generated through tax write
offs from real estate losses, depreciation and interest expenses.
mechanism is supported by many layers of middlemen who add to the cost of
building these projects. As a result,
the program is lucrative for investors, and very costly for the taxpayers.
How it actually doesn’t work.
several years now, this program has been sharply scrutinized by various parties
including the Office of Government Accountability (OGA), think tanks, and the
Much of the gamesmanship of
the program revolves around the submittal of construction costs which the OGA
determined varied drastically from state to state and project to project.
The average LIHTC project cost $218,000, yet
only $9,400 of it was the cost of the land; a ratio observably out of whack.
This is par for the course for a program which in the past has been scandalized
by construction kick-back schemes. The
program has been gamed in other ways.
Just last Fall, Wells Fargo made an over $2 Billion settlement with the Department of Justice for nation-wide collusion to devalue the tax credits. Hundreds of millions of dollars have been
siphoned from the program in these ways resulting in far fewer units being
built for the poor at a great cost to taxpayers.
at the state nor federal level, did necessary oversight exist to ferret out
inflated budget projections and fraud.
In fact, only seven of the 56 agencies around the country awarding these
credits has been audited in the program’s 30-year history.
And yet the feds continue to soak increasing dollars into the program each year, though the actual number of units being constructed dwindles. According to an investigation conducted by NPR, the $9 Billion LIHTC program is producing fewer units than it did 20 years ago yet taxpayers are paying 66 percent more in tax credits. Aside from the fraud, another factor likely being the many syndicators, consultants, and financiers that work in their margins into the complicated process.
What else this reveals.
The OGA’s report on the vast cost variations in building state to state, reveal another critically important truth. Jurisdictions with onerous and restrictive land use regulations drive the high costs to build there. These incentive programs in fact reward states that cause their own affordable housing crises and fleece taxpayers all at the same time. A report issued by the National Association of Homebuilders and the National Multifamily Housing Council estimated that 32 percent of multifamily costs were attributable to regulation.
In fact, studies of housing prices have shown costs have directly increased with land use regulations. As a result, federal housing affordability spending is almost two times higher in the most regulated states than the least regulated states.
There are better ways.
long-time policymakers address affordable housing for American families by
addressing the root of the problem and tailoring assistance programs that serve
those in poverty, not only those seeking a profit.
Under the new federal administration, director of Housing and
Urban Development (HUD) Ben Carson, has looked to do just that. Instead of continuing
to reward bad behavior by local governments, his agency has discussed attaching
HUD grants to regulatory reforms proven to lower housing costs. HUD’s position that they won’t continue to
aid in the affordable housing problem by subsidizing it – is also a signal to
states that they should look to curb their own contributions to the problem
instead of simply seeking more federal handouts. In Arizona, one of those factors is the
residential rental tax – which disproportionately impacts low-income
land regs is a long-term endeavor and won’t solve the immediate need for
low-income people in unaffordable housing markets.
there are better ways to structure programs than the convoluted LIHTC
program. One such proposal with
bipartisan support are “Housing Choice Vouchers (HCV).” Instead of
incentivizing profiteers to supply housing – HCVs empower individuals and
families to access housing in places they desire to live.
Arizona lawmakers should help poor people and
expansion of this 34-year-old failed federal program in Arizona would be a big
mistake. The bill being pedaled this year is not being backed by advocates for
the poor; but by those who stand to gain the most – insurance companies,
investors and banks. If lawmakers truly
care about the poor – and the taxpayer – they will resoundingly reject HB2732.
Today the Arizona Free
Enterprise Club released a new study evaluating the cost of Low-Income Housing
Tax Credits (LIHTC) in Arizona and Washington and how LIHTC have performed
compared to other government backed housing affordability programs. The review determined
that in both states, LIHTC have led to a significant increase in the cost of development
and construction when compared to similar market rate housing.
In his analysis, economist Everett
Stamm determined that a “lack of oversight and transparency, requirements to
pay higher wages and inadequate cost control measures all attribute to the
higher development costs” associated with LIHTC. Stamm concludes that even if proper reforms
were implemented with LIHTC, other tenant-based programs, such as the Housing
Choice Voucher Program, are better suited to provide housing for low income residents
Evidence that LIHTC drive up
construction costs and fail to keep housing affordable add to the list of
concerns that exist with the program. “There is ample evidence, both from
the Government Accountability Office and the US Department of Justice, that the
Low-Income Housing tax Credit Program has been rampant with fraud and other
criminal activity and lacks basic oversight to determine any tangible benefits,”
said Scot Mussi, President of the Arizona Free Enterprise Club.
“If the legislature is
serious about addressing housing affordability, they should look at options
that are tenant based and that drive down the cost of construction. Low income
housing tax credits accomplish exactly the opposite,” Mussi
In Arizona, there is
proposal to spend $8 Million to expand the LIHTC program, which is being
aggressively pushed by developers and investors that will financially benefit
from the tax credits.
The complete study by the Club on LIHTC can be viewed by clicking HERE.