Keep a Tax Credit That Makes Sense : Killing the affordable housing provision would cost the nation more than it saves

Killing the federal affordable-housing tax credit during the current partisan wrangling over how to balance the budget would be shortsighted. Eliminating the tax write-off would save nearly $4 billion through 1997, and that’s not small change. But it could cost the nation 90,000 jobs, $2.8 billion in wages and $1.3 billion a year in new local, state and federal taxes. All of that is worth saving.

The 1986 Tax Reform Act created the low-income housing tax credit, which allows businesses and individuals to put up money for construction or rehabilitation of low-rent or moderate-income rental housing in exchange for a credit on their federal income tax bills. Since the first year it took effect, investors have put up $2.34 billion, which has been leveraged to create more than 737,000 decent and affordable places to live.

The investment pool is distributed to all 50 states. California’s share for 1994, the last year for which final figures are available, was $68.9 million. That resulted in 56,413 new apartments for senior citizens, the working poor, disabled tenants, welfare recipients and people who had been homeless. The new tenants include some families who had been spending as much as $500 a month to rent unimproved garages in the San Fernando Valley. Other examples include new rental housing in Pico-Union, East Los Angeles, South-Central Los Angeles, Skid Row and other pockets of urban blight.

Although such housing is in pitifully short supply throughout this region, few investors would bother with such projects without a decent incentive. Any uncertainty in the status of the tax write-off could discourage investors. Such was the case in recent years when the tax credit was set to expire before Congress extended it; investment slowed during the period when the tax credit appeared headed for extinction.

President Clinton made the tax credit permanent in his first budget and continues to support it. But in spite of strong bipartisan support in Congress, including many conservative House GOP freshmen, a proposal by current House Ways and Means Chairman Bill Archer (R-Tex.) would phase out the tax credit. Why? Is this a grudge match because his predecessor zeroed in on Archer’s favorite tax credit, one for corporate research and development?

Republicans have long advocated private solutions to public problems. The low-income housing tax credit encourages private investment that results in quality housing, decent jobs and increased tax revenues in urban communities and rural areas throughout the nation. This sound public policy must not get lost in Washington’s nasty budget battle.