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House tax bill is causing uncertainty in L.A.'s homeless housing program

House tax bill is causing uncertainty in L.A.'s homeless housing program
John Lee Norman, who is homeless, leans on his shopping cart along 4th Street in Los Angeles' skid row. (Genaro Molina / Los Angeles Times)

Los Angeles homeless advocates are raising alarms over a provision of the House tax bill that they say would deal a crippling blow to plans to add 1,000 new housing units annually.

The House bill, passed this month, seeks to generate new revenue by eliminating tax-free bonds that provide low-interest funds for projects such as hospitals, schools and museums.

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The tax-free bonds also help lower costs for affordable housing. But more important, if the bill becomes law, it would cut affordable housing developers' access to a tax credit program that pays for about a third of some projects.

Arcane language in the tax code requires developers who receive the tax credits to finance at least 50% of the project's cost with tax-free bonds. If there are no tax-free bonds, the tax credits would also be out of reach.

That would eclipse a major portion of the funds that were anticipated to supplement Proposition HHH, the city's $1.2-billion homeless housing bond.

Sean Spear, assistant general manager of the city's Housing and Community Investment Department, told members of the Proposition HHH citizen oversight committee the day after the House passed its bill that the goal of building 10,000 units over a decade depended on accessing $1.43 billion in tax credits.

"Losing these resources will essentially blow a hole in our goals that we've set for HHH," Spear said.

Committee chairman Miguel Santana asked if that meant that "we may still spend $1.2 billion but our ability to reach the 10,000 would be much more limited as the result of the drying up of other resources beyond our control?"

"That's correct," Spear said.

Spear said Mayor Eric Garcetti has sent a letter to Congress joining a nationwide lobbying campaign by affordable housing advocates to prevent the House version from becoming law.

The current Senate version of the bill does not eliminate the tax-free bonds. If the Senate passes its version, there could either be a conference committee, or the House could accede to the Senate.

Nationally, according to an analysis by the accounting firm Novogradac & Co., the loss of the tax-exempt bonds would result in nearly a million fewer units of affordable housing over ten years.

Matt Schwartz, president and chief executive of the California Housing Partnership, estimated that 20,000 units of affordable housing annually are at risk in the state.

Even if the tax-free bonds are ultimately preserved, the uncertainty is causing a reaction in the financial markets, Spear said.

"At this point, many lenders are trying to make a decision on whether or not they are going to draw down all their bonds on projects," he said.

One project caught up in the uncertainty is the 122-unit Metro Villas Phase II to be built by PATH Ventures next to the headquarters of the nonprofit, People Assisting the Homeless, in East Hollywood.

Amy Anderson, executive director of PATH Ventures, said the project's lenders were preparing to draw down the project's entire $36-million tax-free bond before the end of the year even though the money would then have to be deposited in a bank, at a net loss of interest, until it is needed later in the construction.

"At this moment we are anticipating we will have to draw down all the bonds by the end of the year," Anderson said.

That would raise the cost of the project, even if the House bill never becomes law. But that would be a minor setback compared with the cost if the bill does become law and the agency cannot access tax credits. It would lose more than a third of the project's $53-million cost.

Schwartz of the California Housing Partnership said he remained optimistic that a fix would be found because he didn't think the House members even realized they were cutting off the tax credit program.

The House ended the tax-free bonds to bring in nearly $40 billion in tax revenue over a decade but didn't understand the consequences the move would have on affordable housing, he said.

"But the drain on human capital in our field is already tremendous, as well as the anxiety about the uncertainty," he said.

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