Senate tax action helps American Indian housing program

WASHINGTON - The recent Senate vote halving President Bush's proposed tax cut is good news for American Indian housing, because it lessens the threat to a program increasingly used in Indian country.

Affordable housing experts have said that the president's bid to cut taxes on corporate dividends could cause a decline of 35 percent in units produced through the Low Income Housing Tax Credit program (LIHTC).

That's because corporations are the biggest investors in the LIHTC, but with tax relief on dividends they would have to choose between the two options.

The net effect won't be a reduction in the dollar amount of tax credits (that's set by law) or the number of developers wanting to build projects (LIHTC money is always oversubscribed), according to officials of the National Housing & Rehabilitation Association (NH&RA), which discussed the situation at length at its recent annual conference in St. John, USVI. What will happen, they say, is that the price the tax credits will fetch in the open market for them will fall, reducing the dollar amount realized on the deals and therefore cutting the number of units financed.

The Senate's action in cutting the Bush tax proposal makes it more likely the dividend cut will be shelved, which would aid the LIHTC.

The tax credit, which is used to finance construction of affordable rental housing, last year produced 110,000 units. One feature of the program, a potential conversion to home ownership units after 15 years, is particularly useful in Indian country, where populations have often stayed in place for extended periods.

Glenn Petherick, communications director of NH&RA, recently wrote an article about the tax credit for the trade group's publication Tax Credit Advisor, calling LIHTC use in Indian country a "small but growing" phenomenon.

The article indicates some three dozen tax credit projects done on reservations in the last seven or eight years, with the Red Lake Band of Chippewa Indians in Minnesota being the leader, with eight projects to date. (The Standing Rock Sioux Tribe of North and South Dakota and the Confederated Salish and Kootenai Tribes of Montana have also done multiple projects.)

The Ak-Chin Indian Community of Arizona recently used tax credits to develop seven new homes and rehabilitate 30 more.

In December Indian Country Today described how the tribe was awarded $265,000 in tax credits. Ak-Chin sold the credits to investors at 77 cents on the dollar, raising some $200,000. Along with a $350,000 state HOME grant which financed 11 homes, the tribe was able to build many times its average number of units.

Other Arizona tribes besides Ak-Chin that have used the LIHTC to develop housing include Salt River, the White Mountain Apache, and the Yavapai.

Indian country LIHTC projects only started to happen since 1995 even though the program was started in the 1980s, according to the Tax Credit Advisor article. That timeframe coincides with the 1996 passage of the Native American Housing Assistance and Self Determination Act. NAHASDA mandates that tribes stretch their federal housing assistance dollars by partnering with the private sector, and the LIHTC has proven an excellent vehicle for doing this.

David Bland, head of the Montana-based firm Travois Inc., told Petherick that his company, the largest packager of tax credit deals in Indian country, typically does small deals of 20-25 housing units apiece, with outside investors contributing $2 million to $2.5 million per project. (The most recent Red Lake project is a larger deal, at 48 units.)

The tax credits, though a federal program, are administered by the states, and the amount set aside for them yearly is $1.75 per capita per state (a minimum amount applies to the smallest states and territories). Usually the credits don't finance an entire project in Indian country, but are supplemented by NAHASDA money, other federal money, or funds from the tribe.

Investors buy the credit to get a dollar for dollar offset from their federal income tax. On Indian deals, since tribes don't pay federal taxes, the credit is useless to them and is sold to companies that do pay taxes. These firms benefit twice, because they buy the credits at a discount. Investors include companies like Fannie Mae, Bank of America, and Wells Fargo Bank.

The Tax Credit Advisor article notes that Raymond James Tax Credit Funds of St. Petersburg, Fla. has been the largest syndicator of tax credits in Indian country (the syndicator sells the tax credits to third parties). It has started two funds to invest in these projects, for a total of $33 million, and may set up a third.

Petherick noted some LIHTC features that are unique to Native land. "Unusual issues include tribal trust land, tribal sovereignty, guarantees and unique financing alternatives."

He noted that at least one tribe has refused to waive sovereign immunity on a deal - something that can make potential investors nervous. And the trust status of reservation land has required leases be used, instead of clear titles.

Still, he quoted Travois' Bland as saying "It's arguable that the greatest need in the country (for tax credit projects) is on Indian reservations. They have absolutely the worst housing conditions of any minority group in the country - without question."