Missouri Capitol in Jefferson City (Creative Commons photo by Lee Harkness/Flikr).
The plan to speed up redemption of low income housing tax credits to increase their value to investors will be the subject of two public hearings Thursday by the Missouri Housing Development Commission.
The hearings, to be conducted online, will be the last chance to comment on the plan before it goes before the commission for a vote late in August. The commission approved the draft unanimously on July 15 and the final version will govern the distribution of tax credits later this year.
Under the proposal, half of the state tax credits issued will be in the accelerated redemption program and half will be issued in the traditional format of equal amounts over 10 years.
State Treasurer Scott Fitzpatrick, who has promoted the plan as a way to put more money into developments, said he doesn’t think he will hear anything that would change his mind.
The first pilot program, covering 20 percent of the credits issued, was included with the 2020 plan and increased the average market value of the credits included by 16 percent, a report from a subcommittee led by Fitzpatrick concluded.
“So far, none of the comments have been negative,” Fitzpatrick said Monday. “I would have to view any comments that were negative on face value but with skepticism of why now instead of some time over the last year.”
So far, the only significant questions being raised by the plan are from lawmakers who question the commission’s authority to alter the redemption schedule.
“We never empowered the MHDC to take these kinds of liberties with the program,” said Sen. Bill Eigel, R-Weldon Spring.
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The 10-member commission includes four statewide officials, the governor, lieutenant governor, state treasurer and attorney general, and six members of the public appointed by the governor.
The commission subsidizes construction of apartments for low-income senior citizens, families and the homeless by issuing tax credits that can be sold to investors looking to cut their state tax bill.
They are issued in conjunction with federal tax credits and the amount of state credits, by law, can equal the state’s federal allocation for the year. Because of political controversy over the cost and the low market value of state credits, the commission did not issue any credits in 2017, 2018 or 2019 and only 70 percent of the allowed amount in 2020.
When the commission met in December, it had $173 million in federal credits and $121.1 million in state credits available and awarded credits to 36 projects to build or renovate 2,234 low-income units throughout the state.
The credits for each project are redeemable over 10 years and the project must remain as low-income housing for 30 years.
Prior to the introduction of the pilot program last year to accelerate redemptions, the credits matured in equal amounts each year for 10 years after the project was filled with renters. Because that meant investors had to wait up to 12 years for a return, they demanded steep discounts over face value.
A state auditor’s report from 2014 found that investors pay an average of 42 cents for each $1 worth of credits. Fitzpatrick’s committee reported that credits issued earlier in 2017 brought, on average, 57 cents on the dollar.
The projects with accelerated redemptions, which allow about 71 percent of the credits issued to be redeemed in the first five years, found investors willing to pay an average of 67.5 cents for each $1 worth of credits.
The commission needs another year to make sure those gains in value are because of the early redemption program and not some other factor, Fitzpatrick said. That is why only half of this year’s credits will be issued with accelerated redemption schedules.
“The proof is in the pudding, as they say,” Fitzpatrick said. “We will just have to see what happens.”
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If the program continues to bring higher prices for the credits, that is a good result, Eigel said.
“I am a reform guy,” Eigel said. “I think they are probably identifying things we actually should be looking at.”
Lawmakers can give the program a more robust analysis and put the commission on firmer legal footing by revising laws governing it, Eigel said.
“The changes are going to have an impact on the cash flow of the state, that does have a fiscal impact,” he said. “I would much rather those changes coming from the legislature, who are ultimately the ones to determine state finances.”
In recent years, credit redemptions have cost the state as much as $169 million. Final figures are not available for the fiscal year that ended June 30, but through March 31, $88.9 million had been redeemed, the lowest amount by that point in the year for at least five years.
The hearings Thursday will be led by commission staff and will go as late as necessary to hear all comments, Brian Vollenweider, spokesman for the commission, wrote in an email.
No date has been set for the commission vote, but Fitzpatrick said he expects a meeting to be scheduled for late August.
Anyone who wishes to comment in writing must do so by Friday by sending an email [email protected] or writing to MHDC Rental Production Department, 920 Main Street, Suite 1400, Kansas City, MO 64105.
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