Article courtesy of MIRS for SBAM’s Lansing Watchdog newsletter
The Michigan State Housing Development Authority (MSHDA) will be able to award $100 million in nonrefundable tax credits a year to developers constructing affordable housing, under bills the Senate Housing and Human Services Committee approved Tuesday morning.
The Senate panel passed Chair Jeff Irwin (D-Ann Arbor)’s SB 966, SB 967 and SB 968, which were all opposed by Sen. Jonathan Lindsey (R-Coldwater), the committee’s minority vice chair.
Irwin’s legislation received testimony on May 19. During that time, Irwin explained the bills would create Michigan’s own version of the Low Income Housing Tax Credit (LIHTC), mirroring the federal subsidy created in 1986.
Credits aim to give investors behind construction and rehabilitation projects a dollar-for-dollar reduction in their federal tax liability. In exchange, developers must enter formal agreements to keep unit costs below market rates. Federally, the projects are obligated to remain eligible for at least 30 years after construction is finished.
Irwin explained that SB 966, SB 967 and SB 968 are designed to work in concert with the federal LIHTC program.
“All the administrative elements of the federal program were mirrored as much as we could in the state program, just so that it would reduce bureaucracy and costs,” Irwin said. “The problem that we’re trying to fix is the insufficiency of affordable housing in our state. We know that these federal credits work. We know that all the states around us use state-based credit to punctuate and turbocharge the programs that they have in their states to build affordable housing.”
Testifying on the bills last month was Jennifer Bowman, MSHDA’s director of federal and strategic initiatives. She kicked off by saying that Michigan remains more than 100,000 units short of “what we need in this state to move forward.”
She said that Michigan is the only state in the Midwest without its own state LIHTC credit.
Although a real impact wasn’t seen right out of the gate as other Midwestern states were developing credits, Bowman said that now larger and “more sophisticated” housing developers are looking at them to do more work because of the tool.
“We also think this credit could add thousands of units a year. It would partner with a program that we already have – a tool and a credit that we’ve had for decades at the federal level,” Bowman said.
Chad Benson, MSHDA’s rental development division director, explained that the federal program consists of 9% credit options and 4% options. When overseeing the 9% credits, Benson said that MSHDA does a qualified allocation plan every two years, composed of public and stakeholder input.
Meanwhile, some of the 4% credits are awarded as part of a pass-through program, paired with tax-exempt bonds that a project has received as a housing incentive. In order to receive a 4% credit in addition to a special bond, developers must compete on a first-come, first-served basis.
The 4% credits can also be paired with MSHDA’s direct lending and competitive gap funding assistance.
Meanwhile, last month, Lindsey raised concerns about the “core dangers” of giving a yearly $100 million program to a government entity and how much discretion that entity has.
“It just opens the door, asking people to come in and say, not just are we going to prioritize an urban or rural setting, but are our friends going to get the money and preferential treatment?” Lindsey said. “I think that’s a concern that has to be handled anytime we look at (it) or we need to think about it seriously to do everything we can to prevent any sort of corruption that could show up in the future.”
Another supporting testifier was Chris Potterpin, vice president of East Lansing-based PK Companies LLC. His company started acquiring and rehabilitating affordable housing properties in 1990 and established a construction company nine years later.
Potterpin claimed that a $100 million yearly tax credit program would support more than 2,500 jobs annually. He spoke to the committee in his capacity as chair of the Michigan Housing Council.
Potterpin said that the need for a state credit has increased because return values on the federal credit have gone down.
“Over the years, we’ve seen returns on those credits or pricing from the credits go from about a dollar per credit to approximately 90 cents to 85 cents, and last week I signed a deal at 74 cents per credit. And there are a lot of factors that contribute to that,” Potterpin said. “Nationally, (there was) a flood of credits in the market…like the energy credits that were available in the market and several other credits, so it was tough to get investors with interest rates rising (and) the floor for what’s an acceptable return has risen.”
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