Bills to allow affordable housing on the sites of abandoned strip malls. Bills to simplify the state’s housing funding system and finance affordable development across Los Angeles. Bills that would do basically anything to accelerate production of affordable housing. An insightful CalMatters story this summer highlights what much of this year’s remaining housing legislation, like so many other promising ideas over the last few sessions, has in common: “These proposals all promise to ease California’s ever-worsening housing crisis by adding or preserving the already-scarce supply,” the article notes. “They…also appear to be dead in the water.” CalMatters isn’t shy about the source of this ongoing political stalemate: An ongoing push by the Building Trades to add strict new hiring provisions to all new affordable housing legislation. But for the first time, the story also reveals growing concern in the Capitol about this approach, with members of the Assembly and Senate beginning to push back on efforts to artificially constrain the labor force—especially in the many communities facing shortages of construction workers. While affordable housing groups have offered a number of solutions that would grow the housing workforce, maintain high wages, and promote affordable development, legislative leaders have not yet reached a deal, says Bill Wong, a senior political advisor to Assembly Speaker Anthony Rendon, who expects this debate to “go all the way to the bitter end” of the session.

It is getting busy now!

In past updates I indicated there would come a time when the legislative activity in our nation’s capitol was fast and furious. Well, it is August, a month when activity in Washington typically comes to a halt as Senators and Members of Congress flee the beltway for home, vacations & “fact finding” trips. As of the writing of this update our elected friends have indeed largely fled Washington but not before the Senate passed 69-30 a $1.2 trillion bipartisan infrastructure bill followed by a totally partisan vote of 50-49 on a $3.5 trillion reconciliation framework. I am not going to rehash the particulars of the reconciliation framework as you have seen numerous descriptions including our Housing Advisory Group update. What I would like to provide now is an honest assessment of the road ahead.

Getting the reconciliation package passed in the House and Senate and to President Biden’s desk will not be easy and we should expect a fair number of bumps as we work toward the end of the year. Yes, I do believe we will be working on this and perhaps an omnibus budget up until the end of December, as has been the case so many times in the past. We also have the debt ceiling vote which is another three sticks of dynamite thrown into the mix. 

But let us focus on our housing agenda. We are all determined to see the reduction of the 50% test, increased 9% allocation, basis boosts, Middle-Income Housing Tax Credit, Neighborhood Homes Investment Act and other provisions of both the Affordable Housing Credit Improvement Act (AHCIA) and Decent Affordable Safe Housing Act (DASH) included in the final package. The facts are until we know exactly how big $$ the package is Chairmen Wyden (Finance) and Neal (Ways and Means) will not know how much room they have to include tax related programs in their portion of the bill. In addition, with the reconciliation rules, it is possible that provisions of the AHCIA & DASH that are included may be on a temporary basis, much like the current status of the 12.5% increase in the 9% LIHTC allocation. This competition for inclusion is why my colleagues in DC and I are encouraging you and your colleagues throughout the industry to strongly advocate for our agenda with your elected representatives now. It goes without saying that Speaker Pelosi will play an oversized role in the decision making so she (and Chairman Neal) needs to hear from you and the members of the CA delegation, especially Ways and Means members Sanchez, Chu, Panetta and Gomez, that affordable housing provisions must be included in the final package.

Now I am going to go out on a limb and discuss how they might pay for the package. Allow me to begin by stating that no decisions have been made on pay-fors as they still do not know how much revenue needs to be raised. Read what you want (this newsletter aside) with a grain of salt as anyone stating emphatically that this or that tax is going to be raised is doing so with more certainty than the folks that will be deciding on the menu of taxes that will be included in the package. Yes, there are some provisions that are very likely to be included like an increase in the corporate tax rate, the new minimum book tax on corporate profits, a rewrite of the BEAT tax and other taxes that target multi-national corporations, and an increase of the individual rate from 37% back to 39.6% (which is scheduled to occur in 2025 nonetheless thanks to the TCJA reconciliation from 2017). What is less certain are tax provisions that may not have the votes among Democrats to pass. This may include increasing capital gain’s rates, 1031 exchanges and Step up in Basis. President Biden and the reconciliation instructions state they do not want to raise taxes on individuals making less than $400,000 or on small businesses or family farms so changes to these tax provisions/rates may prove difficult to achieve. In the end the tax writing committees will be given an amount of revenue they must raise and they in turn will provide options and recommendations to their Senate and House colleagues. At that point we will know what taxes will be increased and programs altered.