Bankers Join in Bid to Rescue Low-Income-Housing Credits

WASHINGTON - A coalition of lawmakers, bankers, and activists plans to launch a campaign today to save the tax credit for low-income housing.

The tax breaks, which provide banks with profits as well as assistance in meeting Community Reinvestment Act objectives, have been targeted by key Republicans in the effort to balance the budget.

But House and Senate banking committee leaders plan to announce their support this morning for the tax credit, which has helped finance 750,000 units of affordable housing since 1986.

"The tax credit does everything that we Republicans say we want to do with housing," said Rep. Rick Lazio, chairman of the House Banking Committee's housing subcommittee. "It puts private capital at risk. It leverages public dollars. It ensures income mix."

The New York Republican said in an interview Friday that supporters must rally for the program now, before Congress passes a budget that doesn't fund it.

BankAmerica Corp. and NationsBank Corp. will be among the industry's representatives at the rally today. Others expected to attend include Senate Banking Committee Chairman Alfonse M. D'Amato and Sen. John H. Chafee, R-R.I.

House Ways and Means Committee Chairman Bill Archer has eliminated the program's funding in the last several budget bills, including the one Republicans are expected to release this week. He has said the program is inefficient, citing an Internal Revenue Service audit that found it isn't serving low-income communities. He also has charged that the tax break's $3.3 billion price tag for the next seven years is too high.

Rep. Archer could not be reached for comment and his staff declined to comment.

Today's announcement is part of a three-month campaign by the Enterprise Foundation and the Local Initiatives Support Corp. to counter Rep. Archer's attack.

The groups claim the IRS withdrew its report after the agency's inspector general concluded that serious flaws produced inaccurate results. Also, they said the program is much less expensive than other federal housing efforts.

The possibility of losing the program has irked community activists, who see tax credits as the best way to provide affordable housing. "This just reveals the absolute lack of commitment by this Congress to housing the poor," said John Taylor, president of the National Community Reinvestment Coalition. "There is just no excuse for attacking this program."

In addition to BankAmerica and NationsBank, the activists have recruited dozens of banks to support their cause, including First Chicago Corp., Chemical Bank, and Wachovia Corp.

"We believe people should have safe, clean, and affordable housing," said Donald Mullane, executive vice president at Bank of America. "As a matter of social policy, it is a good thing. This program is a win for the community, a win for us, and it is a win for our shareholders."

The San Francisco-based giant announced a $100 million tax credit investment in early December, raising its total investment to $316 million.

The tax credits program is one of the government's most effective ever, said Richard J. Davis, executive vice president at Sanwa Bank California. "Well-structured deals can provide a good return, and you put something back in your community," he added.

Bankers also have used these programs to target particular groups. Jones Castro, senior vice president at Bank of California, said his institution has participated in housing projects for senior citizens, the mentally disabled, and those infected with HIV.

The banks and housing groups do have a strong ally. President Clinton cited the elimination of the program as one reason he vetoed the Republicans' last budget bill.

Low-income-housing tax credits sprung to life in the wake of the 1986 Tax Reform Act, which eliminated many of the incentives that spurred affordable housing development.

Lawmakers, scrambling to jump-start construction, latched onto the tax credits.

The program allocates to each state $1.25 a year per resident in tax credits. Developers apply to the state for the tax credits, which they then sell to investors, including banks. The tax credits provide the equity needed to get most projects off the ground, usually averaging about 40% of a development's costs. The builder usually borrows the rest.

The investors use the credits to reduce their tax bills, often averaging a 15% return on investment.

Demand for tax credits outstrips supply, leading to competition among developers to create innovative projects. The program requires the projects to be filled with people whose household income is no more than 60% of the median for the area. The government lifts that restriction after 15 years.

The program does involve risks. The investors lose the tax credit if the project isn't full or has tenants who make too much money. Also, investors could lose all their money if the developer never completes the project.

But bankers and housing activists said this program is much more efficient than the massive, government-created housing projects of the 1950s and 1960s. Those projects were expensive and never well maintained, leaving many buildings vacant.

They said the tax credit developments won't suffer a similar fate because the investors will lose use of the tax credits if tenants move out to protest poor conditions.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER