Business & Economy

How Trump's tax plan could hurt housing for LA's homeless

A new project meant as a model for homeless housing in L.A. breaks ground April 20, 2017.
A new project meant as a model for homeless housing in L.A. breaks ground April 20, 2017.
Rina Palta, KPCC

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President Donald Trump's proposal Wednesday to cut the corporate tax rate by 20 percent could wreak collateral damage on efforts to house L.A.'s growing homeless population.

In November, voters in the City of Los Angeles passed Proposition HHH, which provides the city with $1.2 billion in bond money to build permanent supportive housing for currently homeless individuals. The money, it was calculated at the time, could help fund 10,000 new units of housing.

But that calculation may change, experts say, should corporate tax reform go through. 

Developers who build affordable housing rely on a patchwork of funding sources, and one of the biggest is private investment fueled by the federal Low-Income Housing Tax Credit program. Essentially, the program provides federal tax credits in exchange for cash used to finance affordable housing developments, like ones that house the homeless. 

"If corporate tax rates decrease, the value of this program to tax credit investors also decreases," said Sarah Letts, executive director of Hollywood Community Housing Corporation, a nonprofit housing developer.

That could lead to less money for homeless housing.

"That means local resources would be strained," said Jacqueline Waggoner, Enterprise Community Partners, Inc., an organization that connects tax credit investors with projects. 

The value of low-income housing tax credits has already fallen since the November election, based on the market's speculation that corporate tax reform would be high on the new president's agenda, said Alan Greenlee, executive director of the Southern California Association of Nonprofit Housing.

From November 9 through the end of the year, there was "a period of extreme instability," he said, and then the market settled, but on a lower value for the credit.

"We've lost about 15 percent of the total amount that would come in on a typical year," Greenlee said, which in California is about $360 million. 

California Housing Partnership estimates that last year, Los Angeles County received more than $500 million of the tax credits allocated by the state. That would translate to a loss of about $75 million a year if markets remain where they are today.* However, Matt Schwartz, CEO of CHP, said the market may rebound and make up that value "after Congress makes its intentions clearer with respect to corporate tax reform later this year."

That could have some real impact on how far the bond can be stretched. 

"I would anticipate we'd build fewer units than we originally hoped we could," Letts said. Because with less tax credit money on the table, each new unit could require a higher public investment than originally expected. 

Ben Winter, housing policy lead for Mayor Eric Garcetti's office, said while the tax credit is important, the city is in good shape even if the market remains the same.

"If in the end that tax credit leverages less funding, then the city will step up to the plate with its own local resources," Winter said. 

One potential solution: a developer linkage fee introduced in the L.A. City Council last month. The Mayor's Office estimates the fee could generate $100 million annually.

The city could also look to cut costs in developments by speeding up the approval process for developments. 

Greenlee said another bright spot is new dollars that are expected to start coming from the state this year to build housing for the mentally ill through a program called No Place Like Home. 

But instead of going above and beyond what the city was doing in the past, L.A.'s new investments may do more to mitigate a loss in federal dollars.

"Thank goodness that we've had local leaders who have really put their political currency on the line to make sure we address this homelessness question," Greenlee said. "I'm confident we'll do everything we can to meet the 10,000 unit call that was in Proposition HHH. But certainly Washington's not making it any easier."

Waggoner said her organization is raising the issue in Congress, which has historically shown bipartisan support for the tax credit program, to see if anything could be done to make up for the loss in affordable housing dollars should tax reform go through. 

*Correction: KPCC originally reported a higher amount of potential loss to L.A. County, based on an estimate by SCANPH. SCANPH agrees this lower estimate is more accurate. The story has been changed to reflect the correct amount.