The Republicans federal tax cut proposal would have a "devastating" impact on California's affordable housing and homelessness crisis if passed as is, experts say.
GOP members of the U.S. House of Representatives released an initial proposal Thursday that would drop the corporate tax rate from 35 percent to 20 percent, and enact a host of other changes. Also in the plan: the complete elimination of a set of programs that currently fund about 40 percent of affordable housing construction in the country, along with financing for community centers and health clinics.
The largest of these proposed cuts calls for the elimination of tax-exempt private activity bonds, which developers use to finance construction for developments benefiting low-income people. Without the tax-exempt bonds, California stands to lose about $2.2 billion in funding for affordable housing construction each year, said Matt Schwartz, CEO of California Housing Partnership Corp.
"We're going to lose over 20,000 affordable homes annually if this bill becomes law," Schwartz said. "That's over two-thirds of our production that would be wiped out. And that would be just a devastating blow at a time when we were just hoping to start making progress again."
The California Legislature recently passed a housing package aimed at making a dent in the state's affordable housing shortfall. The bills include a real estate transaction fee to raise an estimated $250 million annually for affordable housing. The Legislature also voted to put a $3 billion bond measure on the November 2018 ballot to finance low-income housing construction.
In Los Angeles, voters last year passed Proposition HHH, a 10-year, $1 billion bond to house the homeless and low-income people. The L.A. County Board of Supervisors committed another $45 million to construct housing for the poor over the next three years.
All those plans, however, were predicated on the idea that tax-based federal financing mechanisms for affordable housing would remain in place. With Proposition HHH, the city of L.A. had calculated it could build about 10,000 units of low-income housing and housing for the homeless, using the private activity bond program to leverage large amounts of private investment.
Now, Schwartz said, that's in jeopardy.
"It might knock that number in half, potentially," he said.
Dora Gallo, CEO of A Community of Friends, was one of six low-income housing developers to receive funds from Proposition HHH this year. Gallo said she planned to apply for private activity bonds to help finance the Sun Valley project in spring, with a plan to break ground in June.
"Depending on how quickly tax reform moves, and if this program is indeed cut, all those projects in the first round, including ours could be in jeopardy," Gallo said. Though she expects the city would not roll back on its 10,000 unit goal, the process of construction could be much slower, she said.
In an email, Rushmore Cervantes, head of the Los Angeles Housing and Community Investment Department, said the "elimination of the tax-exemption for private activity bonds will have a devastating impact on the City's efforts to address the affordable housing and homeless crisis."
Some experts also said the city's existing stock of housing for the poor could take a hit under the tax proposal.
One example: the renovation of Jordan Downs, a public housing project in Watts.
As funding for public housing construction and maintenance has been cut over the past couple of decades, the city of L.A.'s Housing Authority has struggled to maintain the aging projects, which were built in the 1950s. So the city recently turned to a private nonprofit developer, Bridge Housing, to demolish the projects and construct 1,400 units of affordable housing and 200,000 square feet of retail.
Each component of that new development, however, depends on tax-related financing that's now proposed for elimination, said Bridge Housing President and CEO Cynthia Parker.
The first phase, under construction currently, has already been financed utilizing private activity bonds. But roughly 1,000 of the units could be in jeopardy should the tax cut proposal not change, she said. In addition, the retail component of the project was set to be financed with the New Market Tax Credit, another program that's proposed for elimination under the GOP plan.
"It would just completely throw a monkey wrench into what could be the best thing that's happened in that community in 50 years," Parker said.
Schwartz said that's another irony of the tax bill. "As Congress has starved public housing into a really poor condition, and pushed local governments to form partnerships with private developers, that now that tool is going to be taken away," he said.
Another, smaller program that funds some affordable housing is also proposed for elimination. The Historic Tax Credit has financed renovations like the conversion of the Rosslyn Hotel in downtown Los Angeles into 264 units of housing for homeless veterans and lower-income individuals.