Since Democrats won control of the Senate in January 2021, the big question dominating Washington was whether Democrats would be able to unite their different factions behind President Biden's aggressive domestic spending plans. Congressional Democrats succeeded in enacting the American Rescue Plan Act and a bipartisan infrastructure bill, but with a razor thin majority in both chambers, President Biden's historically ambitious Build Back Better agenda remained a very large loose end and political albatross.

Late last year, the Build Back Better agenda passed the House of Representatives, but ran into a wall in the Senate, where it couldn't attract the 50 votes needed to move forward. Senator Joe Manchin (D-WV) effectively declared Build Back Better dead when he announced that he couldn't support the bill. Instead, he suggested that Democrats start from scratch to write a much narrower bill aimed at reining in costs for health care and prescription drugs, reducing the deficit through tax reform, and tackling climate change.

Even this narrower package looked very unlikely just a month ago, when Senator Manchin appeared to quash any bill that included climate change policy and tax reform. A few weeks later, however, Senator Manchin and Senate Majority Leader Chuck Schumer made a surprise announcement that they had reached a deal after all. Despite some drama and politics, Democrats got their package through the Senate this past weekend. The bill, known as the Inflation Reduction Act, will spend an additional $433 billion, divided between climate change and energy provisions and additional health care subsidies, while reducing the deficit by $300 billion. The bill is financed by implementing a 15% corporate minimum tax, prescription drug pricing reform, beefed up tax enforcement, and other provisions. It is poised to pass the House later this week.

With Senator Manchin demanding a much narrower package than the original $1.7 trillion Build Back Better proposal, Democrats were forced to cut many priorities from the scope of the original package. Unfortunately, this meant that the previously proposed expansion of the Low-Income Housing Tax Credit, enactment of the Neighborhood Homes Credit, and $150 billion in additional affordable housing investments were left out of the final bill. There were some provisions in the Inflation Reduction Act that affect affordable housing, including items that support the compatibility of the Housing Credit with expanded energy tax credits and funding for HUD to improve energy and water efficiency of affordable housing.

Although major affordable housing provisions were not included in this measure, our Congressional champions will continue looking for opportunities to enact support for affordable housing the rest of this year. The most likely vehicle will be the year-end tax extension bill, which is the typical vehicle for extending expired or expiring tax provisions, including the Housing Credit's 12.5% allocation increase that expired at the end of last year and other popular tax provisions. Although the Housing Credit, New Markets Tax Credit, and the potential Neighborhood Homes credit remain broadly supported on both sides of the aisle, sustained advocacy by our industry will be necessary for any additional support to be included in a year-end tax bill.

The Community Reinvestment Act (CRA) - landmark law enacted by Congress in 1977 in response to redlining - remains an indispensable driver of banks' support for impactful affordable housing and community development projects benefitting low- and moderate-income (LMI) communities. The vast majority of investors in the Low-Income Housing Tax Credit, New Markets Tax Credit, and Community Development Financial Institutions (CDFIs) are driven by CRA.

Last week, Cinnaire submitted comments on a proposed rulemaking by the three main federal banking agencies to strengthen and modernize CRA rules. The proposed rule provides some long-overdue updates to the rules of the road for CRA investment, which have not been changed since 1995. In the proposed rule, the regulators aim to create more standard evaluations of banks' performance, update where activities will count for credit, and provide more clarity on what activities count. Of note for our work, the regulators made clear that the Housing Credit and CDFI activities will be eligible.

At the same time, some elements of the proposed rule have caused concern in the affordable housing and community development industries, especially the elimination of the current separate investment test in favor of a combined Community Development financing test for banks. In our letter, we recommend that regulators retain a separate investment test or provide strong mitigating factors to ensure a robust level of investment in tax credit programs and CDFI lending. We also endorsed an even weighting for the proposed Retail and Community Development tests, called for regulators to address abuses in the Housing Credit program, and recommended other improvements.

If you have any questions on the proposed rule or our letter, please reach out to Chris Neary.

Responding to advocacy from Housing Finance Agencies (HFAs), Members of Congress, and industry groups, the Treasury Department recently published new guidance that will make it much easier for states and local governments to use funding from the State and Local Fiscal Recovery Fund (SLFRF) for affordable housing developments. The SLFRF, created by Congress under the American Rescue Plan Act, provided $350 billion to state and local governments to help them respond to the COVID-19 pandemic and its impacts.

Although affordable housing is an eligible use under SLFRF regulations, the program has proved very difficult to use in conjunction with Housing Credit properties. The new guidance will allow states and local governments to make long-term loans to affordable housing developments subject to certain conditions, as outlined by the National Council of State Housing Agencies, including a waiver of Qualified Contract rights.

To encourage state and local governments to utilize them, Treasury and the Department of Housing and Urban Development jointly published a How-To-Guide providing examples of how these flexibilities can help facilitate affordable housing development using multiple sources of federal funding.

Recently, the key tax-writing committees in the House and Senate held hearings focused on the affordable housing crisis. Both featured positive comments and bipartisan support for key programs like the Housing Credit and potential Neighborhood Homes Credit.

During the Senate Finance Committee's hearing, Senator Todd Young (R-IN), the lead Republican sponsor of the Affordable Housing Credit Improvement Act (AHCIA), asked the witnesses if they supported passage of the AHCIA. All five witnesses raised their hands. He also discussed his support for the Neighborhood Homes Investment Act.

At the hearing, Senator Tom Carper (D-DE) discussed the critical importance of affordable housing, mentioning Cinnaire's work in Delaware as well as the work of our partners, NCALL and Habitat for Humanity.

Cinnaire mourns the tragic passing of Rep. Jackie Walorski (R-IN) and two of her staff members in a car accident last week. Rep. Walorski was an energetic and enthusiastic presence in Washington, demonstrating an ability to work across the aisle to help her Hoosier constituents. Her work in Washington supporting affordable housing, including as a champion for the Housing Credit program, will leave behind a lasting impact for her constituents and the communities we serve in Indiana. Her funeral will be held today.