Yesterday, HUD announced that it intends to amend its 2015 regulations on affirmatively furthering fair housing, or AFFH. HUD is giving the public 60 days from publication of its advance notice of proposed rulemaking to provide comments on the current AFFH rule.  HUD seeks comments that will help it revise the rule to:

  • “Minimize regulatory burden” while more effectively fulfilling the AFFH requirements
  • Focus on “positive results” rather than “analysis of community characteristics”
  • Allow “greater local control and innovation”
  • Increase housing choice, including greater supply
  • “More efficiently use HUD resources”

This announcement comes after HUD first extended the deadlines for, then withdrew, its AFFH Local Government Assessment Tool, which had been the subject of some controversy related to the reporting burden associated with the tool and other criticisms.  The Local Government Assessment Tool is to be used by cities and other entities that receive Community Development Block Grants, HOME Investment Partnerships Program, Emergency Solutions Grants, or Housing Opportunities for Persons With AIDS formula funding from HUD.  HUD’s announcement also comes while HUD is being sued by advocacy groups related to these actions regarding the assessment tool.

The 2015 AFFH rule contemplated that public housing authorities, states and insular areas would also use a different tool to conduct assessments of fair housing, but those tools have not yet been finalized.

These actions by HUD do not eliminate the Fair Housing Act’s requirements for recipients of HUD funds to affirmatively further fair housing. Indeed, most recipients certify that they further fair housing in connection with various applications for HUD funds and other HUD submissions. Instead, HUD’s actions return most entities to the requirements in effect prior to the 2015 rule, in which they must conduct an analysis of impediments rather than use an assessment tool.

We are working on comments on the AFFH rule, and encourage any entities impacted by the AFFH rule to consider commenting on it.

Ballard Spahr lawyers, Molly Bryson, Doug Fox, Wendi Kotzen and Linda Schakel, recently offered a  presentation regarding the Opportunity Zones established as part of the Tax Cuts and Jobs Act .  As a new program established to encourage capital investment in the over 8,700 Opportunity Zones selected by each of the states, District of Columbia, and U.S. possessions, this new program has the potential to provide investors in Opportunity Funds with deferral of tax on gains rolled over into an Opportunity Fund and potential elimination of tax on the appreciation recognized on the investment in the Opportunity Fund. Opportunity Funds and their investors will be looking to make investments in businesses and property located in Opportunity Zones. Investments in Opportunity Zones could be used in conjunction with the low-income housing tax credit and help bolster affordable housing and community development projects in these neighborhoods.

The linked materials and the session recording provide steps you can take to benefit from this new federal tax program, including:

·        Establishing and qualifying an Opportunity Fund

·        Investing gains into Opportunity Funds

·        Obtaining the maximum benefit of investing in Opportunity Funds

·        Structuring Opportunity Fund investments

·        Locating designated Opportunity Zones

·        Positioning your business or property to qualify as eligible for investment capital from an Opportunity Fund

·        Combining the benefits of an Opportunity Zone with other federal tax programs, such as Low Income Housing Tax Credits (LIHTC), Historic Tax Credits, and New Markets Tax Credits.

Should you have a project that you think could benefit from Opportunity Zones investments or are seeking ways to facilitate investments, please reach out to members of the Ballard Spahr team for guidance and help brainstorming around issues and questions.

Today, HUD issued an advanced notice of proposed rulemaking requesting public comments to its 2013 Final Rule which implemented the Fair Housing Act’s disparate impact standard. HUD indicates this rulemaking is in light of the Supreme Court’s  2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which held that disparate impact claims are cognizable under the Fair Housing Act. HUD is reexamining its rule to determine if any changes may be necessary.

HUD is specifically requesting public comments to the following six questions:

  1. Does the Disparate Impact Rule’s burden of proof standard for each of the three steps of its burden-shifting framework clearly assign burdens of production and burdens of persuasion, and are such burdens appropriately assigned?
  2. Are the second and third steps of the Disparate Impact Rule’s burden-shifting framework sufficient to ensure that only challenged practices that are artificial, arbitrary, and unnecessary barriers result in disparate impact liability?
  3. Does the Disparate Impacts Rule’s definition of “discriminatory effect” in 24 CFR 100.500(a) in conjunction with the burden of proof for stating a prima facie case in 24 CFR 100.500(c) strike the proper balance in encouraging legal action for legitimate disparate impact cases while avoiding unmeritorious claims?
  4. Should the Disparate Impact Rule be amended to clarify the causality standard for stating a prima facie case under Inclusive Communities and other Supreme Court rulings?
  5. Should the Disparate Impact Rule provide defenses or safe harbors to claims of disparate impact liability (such as, for example, when another federal statute substantially limits a defendant’s discretion or another federal statute requires adherence to state statutes)?
  6. Are there revisions to the Disparate Impact Rule that could add to the clarity, reduce uncertainty, decrease regulatory burden, or otherwise assist the regulated entities and other members of the public in determining what is lawful?

The 60 day comment period ends on August 20, 2018. Interested persons can submit comments to HUD electronically through http://www.regulations.gov or by mail.

 Ballard has been closely monitoring potential changes to the Rule and will continue to do so. We will also continue to work with clients on issues pertaining to the Rule.

On March 23, the President signed the Consolidated Appropriations Act, 2018 (H.R. 1625), a $1.3 trillion dollar spending bill that funds the federal government through September 30, 2018. In addition to preventing a government shutdown, this omnibus spending bill incorporated the following key provisions that help to strengthen and expand the Low Income Housing Tax Credit (LIHTC):

  • A 12.5% increase in the annual per capita LIHTC allocation ceiling (after any increases due to the applicable cost of living adjustment) for calendar years 2018 to 2021.
  • An expansion of the definition of the minimum set-aside test by incorporating a third optional test, the income-averaging test. Pursuant to the Code, a project meets the 40-60 minimum set aside test when 40% of the units in the project are both rent restricted and income restricted at 60% of the area median income. Under the new law, the income test is also met if the average of all the apartments within the property, rather than every individual tax credit unit, equals 60% of the area median income. Notwithstanding, the maximum income to qualify for any tax credit unit is limited to 80% of area median income.

This legislation is a great win for affordable housing advocates who have been pushing for LIHTC improvements through the Affordable Housing Credit Improvement Act, introduced in both the Senate (S. 548 sponsored by Senators Cantwell and Hatch) and the House (H.R. 1661 now sponsored by Congressmen Curbelo and Neal) in 2017, as discussed previously in a prior blog post.

We will continue to provide updates on legislation related to Tax Reform. Just in case you missed it, last month Ballard Spahr hosted a webinar on the impact of Tax Reform on the Low Income Housing Tax Credit with our colleagues from RubinBrown LLP, Enterprise Community Partners, Inc. and Red Stone Equity Partners. Presentation slides and a recording of the webinar are available on our event page.

This week, the National Fair Housing Alliance (NFHA) announced a settlement of a lawsuit against Travelers Indemnity Company in which it alleged that Travelers engaged in discriminatory conduct in violation of the Fair Housing Act (FHA).  NFHA accused Travelers of refusing to provide habitational insurance policies to District of Columbia landlords that rent to tenants who use Housing Choice Vouchers.  NFHA claimed that this policy had a disparate impact on African-Americans and women and served no legitimate business purpose. It was also alleged that the practice violated local fair housing law.

Among other provisions of the settlement, Travelers has agreed not to ask about the source of income of residents at D.C. properties that it considers insuring.  We would note that source of income discrimination is prohibited in the District of Columbia, but is not a federally protected class.

Our friends at the Ballard Consumer Finance Monitor have posted additional information about the lawsuit and the settlement.

On February 12, 2018, the White House released its “Legislative Outline for Rebuilding Infrastructure in America” proposing a legislative framework for the nation’s infrastructure needs. Key components of the proposed infrastructure plan include (i) developing a new federal Incentives Program intended to spur State, local and private investment for innovate projects; (ii) streamlining permitting and approval processes for infrastructure projects; (iii) delegating increased responsibility to States and local governments; (iv) developing a Rural Infrastructure Program; and (v) improved workforce training.

As noted in the transmittal, the infrastructure framework is intentionally broad, and seeks to address traditional infrastructure systems like transportation, as well as a wider range of public needs such as drinking and wastewater systems, energy production, veterans’ hospitals, and public land use. For more detailed analysis, see Ballard Spahr’s summaries of the proposed infrastructure plan’s funding mechanisms, and the plan’s treatment of private activity bonds.

We note that the White House’s FY 2018 budget proposed significant cuts in HUD funding, including a zeroing out of public housing capital funds. There had been hope among many that the infrastructure proposal would include affordable housing, but aside from modifications to private activity bonds, it did not directly do so. It does not appear that the Administrations intends for its proposed HUD funding cuts to be addressed through infrastructure spending.

 

Yesterday, the Trump administration released its proposed budget for the 2019 fiscal year. Overall, the budget proposes an $8.8 billion (18.3%) reduction in the HUD budget from the 2017 enacted level, a more drastic cut than the $6 billon HUD budget reduction the Administration proposed for fiscal year 2018. Significant proposals in the budget include:

  • Elimination of several programs including the Community Development Block Grant (CDBG), HOME Investment Partnership Program, Public Housing Capital Fund and Choice Neighborhoods
  • $17.5 billion in Section 8 annual contribution contract renewals (an $800+ million decrease from 2017 enacted level)
  • $10.866 billion in project-based rental assistance (a $50 million increase from the 2017 enacted level)
  • $110 million decrease in Housing Choice Voucher administrative fees
  • $100 million request for the Rental Assistance Demonstration (RAD) program to cover the incremental subsidy for public housing properties that would otherwise be unable to covert to Section 8 assistance
  • Proposed elimination of the unit cap for RAD conversions and September 30, 2020 deadline for RAD application submissions
  • In addition to the elimination of the Capital Fund, $1.7 billion in reductions to the Public Housing Operating Fund
  • $75 million request for the Family Self-Sufficiency program (same as 2017 enacted level)
  • $10 million request for the Jobs Plus Initiative (a $5 million decrease from the 2018 Senate recommendation)
  • Maintained funding levels for lead-based paint mitigation efforts
  • Unspecified funding request to evaluate and improve the EnVision Centers recently launched by Secretary Carson
  • $20 million increase to the Federal Housing Administration (FHA) operations (although a new fee would be imposed on FHA lenders)
  • Requirement that non-disabled persons receiving HUD assistance contribute more than 30% of their adjusted income to their housing costs

Other housing and community development components of this budget include an elimination of the Community Development Financial Institutions (CDFI) Fund grant and direct loan program, $1.8 billion request for veteran’s homelessness programs, and a funding increase for the U.S. Department of Agriculture (USDA) single family housing guaranteed loan program. A full copy of the budget proposal and related materials are available at be www.whitehouse.gov/omb/budget.

Remember that Congress is responsible for passing the budget; this is just a proposal. It remains to be seen if Congress will adopt the President’s proposal. We will continue to provide updates the budget throughout the appropriations process.

 

As we know, the President has signed what was originally titled Tax Cuts and Jobs Act, the most significant overhaul to the U.S. Tax Code since 1986. The President signed the Act into law after the first of the year in order to avoid some automatic spending cuts.

In its final form, this Tax Code overhaul retains private activity bonds and the the low-income housing tax credit. However, according to A Call To Invest in Our Neighborhoods (ACTION) Campaign, the amendment of other critical provisions of the Tax Code, especially, the lowering of the corporate tax rate from 35 percent to 21 percent and the creation of a base erosion and anti-abuse tax, present concern for affordable housing, as these provisions can impact an investor’s tax credit appetite. In an analysis performed by Novogradac and Company, the final version of the bill “would reduce the future supply of affordable rental housing by nearly 235,000 homes over 10 years.” Further, it is anticipated that other changes to the Tax Code, such as those relating to bonus depreciation, depreciation, and interest expense limitations, will impact equity pricing.

The legislation also retains the new market tax credit, with no change to its expiration which is after the 2019 allocation. The 20% historic tax credit was also retained, but with significant modification, including claiming the credit ratably over 5 years.

Ballard Spahr’s Tax Group is also following the legislative developments of other provisions of the bill. Late yesterday, the Tax Group issued a thoughtful analysis of the final bill.

Please use our Tax Reform Alert Center as a resource to find more information on the bill and/or reach out to us directly.

 

 

Today, HUD issued a notice extending until after October 31, 2020, the deadline for cities and other participating jurisdictions to submit assessments of fair housing (AFH), the new reporting and assessment tool required by HUD’s 2015 affirmatively furthering fair housing (AFFH) rule. Some participating jurisdictions have already submitted AFHs, and the New York Times reports today that HUD says it will stop reviewing them.  Per a prior notice from HUD, AFHs for public housing authorities, states and insular areas have not yet been due.

Today’s notice reminds HUD recipients that they still must affirmatively further fair housing, but we cannot help but wonder if this is the Trump administration’s attempt to start rolling back the AFFH rule, which has been the subject of a fair amount of controversy since its publication.  The AFHs have also raised concerns for many, including PHAs concerned about the unfunded reporting burden and the potential for enforcement if goals outlined in the AFHs are not met.

Just in time for the end of the federal fiscal year (September 30), the HUD Office of Inspector General (OIG) issued a flurry of internal and external audit reports over the last few weeks on a wide variety of topics. They include: