From our friends at NCSHA:
The IRS has been on our minds a lot lately and not just because it’s tax filing season.
Last week, NCSHA commended the Service for clearing the way for states to serve more homeless veterans and other special populations in housing financed with Housing Bonds and Housing Credits. IRS and Treasury staff’s responsiveness to calls from members of Congress, state HFAs, and other stakeholders to clean up an inconsistency in the tax code rules will ensure the optimal uses of $600 million in voter-approved housing funding in California and enable much-needed developments to proceed in Texas, Nevada, Hawaii, and other states.
Regrettably, IRS’s recent action on a related front goes in the opposite direction, imposing a massive new regulatory burden on states that will hurt affordable housing.
The Service’s newly amended final rules governing states’ responsibilities for monitoring Housing Credit properties substantially increase the number of site visits and tenant file reviews states must conduct every year. Preliminary feedback from Housing Credit agencies suggests the negative impacts will be far-reaching and include:
- Large increases in units subject to site visits, ranging from 29 percent to 150 percent across several states and exceeding more than 1,000 additional units in a single year in one state.
- Significantly higher costs to add staff and hire additional contractors in all regions of the country; one state projects it will need to hire 11 new full-time employees.
- Hardships for developers and owners who will bear the brunt of high monitoring fees states will be forced to charge, and fewer resources for other housing programs in states that have to divert funds to meet IRS’ new monitoring mandate.
While the IRS rules modestly lower the state monitoring burden for larger properties, the much higher requirements for all other properties swamp any administrative savings.
And, since the new rules impose the relatively heaviest burden on smaller properties, rural states, which generally have smaller and more geographically dispersed Housing Credit portfolios, will be hardest hit. In some rural states, 90 percent or more of the entire Housing Credit stock will be subject to the more costly new requirements.
We have communicated our concerns to the Service on this issue and will continue to do so. The fact that the new rules give states until the end of 2020 to reflect the new monitoring requirements in their Housing Credit allocation plans affords an opportunity to develop a better approach.
NCSHA and the IRS have worked together constructively for decades to advance our shared goal of ensuring sound administration of the Housing Credit. This history of collaboration can — and must — be the basis for fixing a costly new mandate on states at a time when their affordable housing efforts can least afford it.