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Tax reform’s impact on affordable housing, local nonprofits

Republicans wave to President Donald Trump at an event to celebrate Congress passing the Tax Cuts and Jobs Act on the South Lawn of the White House on Dec. 20, 2017. Photo by Olivier Douliery/Abaca Press(Sipa via AP Images)

WASHINGTON, D.C. — After a final procedural vote in the House sent a sweeping set of tax reforms to President Donald Trump, Republicans celebrated a move they said would put more money in people’s pockets and save corporations billions, which they’d use to hire more people and raise wages.

But in Washington state, low-income housing advocates worry a provision in the bill will lead to thousands of fewer affordable housing units being built — at a time when the need couldn’t be greater.

Nonprofit groups, meanwhile, worry a doubling of the standard deduction for individuals will mean fewer people will file itemized returns. And without the incentive of writing off charitable donations, they say people could donate hundreds of millions of dollars less each year to nonprofits in the state.

“The poor served by the groups will likely suffer,” said Laura Pierce, executive director for Washington Nonprofits, an Olympia-based state association of nonprofits. “But there will also be less arts programs available, parks will suffer, as well as environmental conservation.”

What’s raising the concern of low-income housing developers is that the reforms lower the corporate tax rate from 35 percent to 21 percent. Currently, affordable housing developers sell a federal Low Income Housing Tax to investors, which allows them to lower their taxes and raise money for the projects.

By lowering corporate tax rates, it will make the credits less valuable, and decrease the amount that can be raised for low-income housing projects.

On Tuesday, Novogradac & Company, a national accounting firm specializing in low-income housing, said the decreased value of the credits will mean 235,000 fewer affordable rental units built nationally over the next decade. The company estimated to Crosscut that 9,500 fewer affordable housing units will be built in Washington state over that time.

Jill Fleming, senior vice president for Capitol Hill Housing, says she sees the need for affordable housing from her offices every day, as rents rise to $2,000 per-month or more in the neighborhood. The organization develops apartments for low-income individuals at rents half as much (or less) than market rate.

As of last week, the group had only one vacancy. “We just can’t create units fast enough,” she said.

Fleming agreed with Novogradac that lowering the corporate tax rate will decrease affordable housing funding, and while it’s too early to tell how their projects will be affected, she said the lower price could make some projects unfeasible or put pressure on the city and state to come up with more funding.

Casey Katims, a Washington, D.C.-based policy advisor to Democratic Gov. Jay Inslee, called the current bill, “a disaster for our state.”

“At a time when our region is fighting tooth and nail to reduce homelessness, the last thing we should be doing is cutting the development of new affordable housing units in Washington,” he said.

The bill’s impact on affordable housing could have been worse. The House’s version would have also eliminated a tax exempt bond that has funded 24,000 affordable housing units in King County, said Kim Herman, executive director of the Washington State Housing Finance Commission.

Ending the bond would have canceled the creation of 2,000 more units across the state next year, he said. The harmful provision, however, was eliminated from the bill in the conference committee between the House and Senate last week.

Republican Washington Congressman Dave Reichert said he fought to preserve the tax exempt bond.

But Washington’s Democratic political leaders continued to lambast the bill’s impact on low-income housing Wednesday.

“As communities across Puget Sound and Washington state work to curb skyrocketing housing costs and stop rising homelessness, it is shameful that President Trump and congressional Republicans have included provisions in their tax bill that severely weaken vital affordable housing and charitable giving programs,” Sen. Patty Murray said in a statement. Fellow Sen. Maria Cantwell, who has been a vocal critic of the bill’s impact on low-income housing, echoed those sentiments.

Reichert, in a statement to Crosscut, disputed claims the bill would hurt nonprofits. “Americans will have more take home pay and the opportunity to give even more out of the goodness of their hearts to the causes and organizations they care about most,” he said.

While Washington Nonprofits’ Pierce acknowledged that people give for reasons other than as a tax write off, she is concerned about the standard deduction. “People are encouraged to give more because of the deduction. Now they’re going to be a little more cautious,” she said.

Meredith Higashi, Philanthropy Northwest’s senior manager of public policy and advocacy, pointed to an Independent Tax Policy Center estimate that the percentage of people who file itemized returns will drop from one-third of tax filers to just 5 percent.

The Democratic staff of the Joint Economic Committee, made up of both the House and Senate, estimated the decrease in itemized returns would reduce charitable giving nationally by $11 billion annually. The partisan joint committee study estimated that charitable giving would decline in the six Northwestern states by $541 million annually, and $285 million a year in Washington state alone.

The Indiana University Lilly Family School of Philanthropy put the national decrease at $13 billion.

United Way chapters are expected to lose $256 to $455 million nationally, the group said in opposing the bill. No estimates were available for the United Way of King County.

Still, United Way of King County spokesperson Sabrina Register said the group is worried. “The people who are going to lose the most are the most vulnerable,” she said.

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