Year after year, legislators in the Arizona House and Senate introduce bills advertised as jobs producers and the solution to affordable housing: tax credits for banks, investors, and insurance companies to finance development projects. Because bad ideas never die as long as there are lobbyists hired to push them, this year the Low Income Housing Tax Credit (LIHTC) bill is back again as HB2562 sponsored by Representative Regina Cobb and SB1327 sponsored by Senator David Gowan.
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. Banks sell these tax credits to investors who make up a pool to finance the project. This mechanism is supported by layers of middlemen who add to the cost of building these projects. As a result, the program is lucrative for investors, very costly for the taxpayers, and results in fewer units being produced.
The LIHTC program also lacks transparency and oversight making it fraught with fraud. In 2018, Wells Fargo made an over $2 Billion dollar settlement with the Department of Justice for purported nation-wide collusion to devalue these tax credits. Hundreds of millions of dollars have been siphoned from the program which led to a report by the Office of Government Accountability, noting poor oversight and wide variations in per-unit building costs.
There are many legitimate ways the legislature can address affordable housing that don’t include swampy D.C handouts to banks, investors, and insurance companies. Here are three:
- Housing Choice Vouchers (HCVs) which are tenant-based subsidies, not developer-based ones. Instead of incentivizing profiteers to supply housing – HCVs empower individuals and families to access housing in places they desire to live.
This approach allows low-income families to move to higher income places which often gives them access to better jobs and school districts and affords children of low-income families’ greater opportunities to succeed. Because the LIHTC programs provide greater incentives for building in designated areas of greater poverty, it has the direct effect of actually concentrating poverty and segregating poor people. - Direct appropriation of the Arizona Housing Trust Fund. The appropriation process forces lawmakers to set their priorities based upon available revenues and balance their decisions with the tradeoffs presented. The appropriations process is more transparent as it is revisited each year (unlike tax credit programs) and the body responds to environmental changes in the state and shifting priorities. Projects are chosen by representatives who know the needs within their districts instead of developers who decide based upon the potential for maximized profits. Additionally, development with public monies goes through an open bidding process, ensuring taxpayers get the best bang for their buck.
- Address the underlying tax and regulatory structure responsible for nearly a third of the cost of development. A study conducted by the National Association of Homebuilders concluded that 32 percent of the costs associated with building housing are attributable to regulations, mostly land-use and development hurdles by local governments. In Arizona, the state allows the cities to charge a residential rental tax and gives them broad authorities to regulate development. The fees, extensive permitting processes, and slow timelines add cost to development that is passed on to the consumer. No tax credit program can fix this problem.
The expansion of this 35-year-old failed D.C. program in Arizona would be a big mistake. The bills being peddled this year are 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 HB2562 and SB1327.
Recent Comments