Affordable Housing Institute : US

For any government, efficiency is a password to funding success.

 

The password is swordfish

 

Regardless of where money comes from — its own revenues, up-flows from cities and towns, or down-flows from the Federal government — it certainly behooves a state to make that money go its furthest. 

 

Just keep the money moving

 

Suppose one particular kind of money available to a state is 4-5x more valuable if used for housing than for any other state purpose.  You’d expect a wise state government to use that special kind of money predominantly for housing, wouldn’t you? 

 

Precisely that argument carried the day — at least, some of the day — in Massachusetts.  On March 21, in a development as welcome as it was unexpected, the Massachusetts Department of Administration and Finance (“A&F”) announced that it was boosting affordable housing’s share of Massachusetts’ bond volume cap (tax-exempt private activity bonds) by a quarter, to $225,000,000, to nearly 41% of the state’s total. 

 

This is particularly gratifying to me because my for-profit consultancy, Recap Advisors, did the financial analysis to provide its intellectual underpinning, the efficiency argument. 

 

At AHI and Recap, we use only sterilized computers

 

Volume cap used to finance affordable housing grants an as-of-right allocation of 4% Low Income Housing Tax Credits (“LIHTC”) to the property owner for the associated housing development.  Last summer, in Recap’s Web Update 57 (available free, as are all Web Updates), we demonstrated that while the rate advantage of tax exemption is worth something for any type of bonds, the LIHTC boost was worth several times as much:

 

Under Federal law, every state may issue a stipulated amount of bonds whose interest is exempt from Federal income tax.   Additionally, if these volume-cap bonds are used for affordable rental housing meeting the LIHTC tests, then as of right that property qualifies for the acquisition LIHTC. 

 

Relative to market financing, the value of tax-exempt bond financing equals:

 

·         The net debt service savings from the lower interest rate, plus

·         The net LIHTC equity raised when the property is used for affordable housing.

 

What are these worth? 

 

We then did some arithmetic that showed, per dollar of volume cap:

 

 

·         Debt service savings would be worth 17 cents, possibly less.

·         Soft equity raised from LIHTCs would be worth 43 cents.

 

   

Volume cap’s value when used for anything except housing

 

  

Volume cap’s value when used FOR HOUSING

 

In its press release, the Patrick Administration echoed arguments presented in public testimony by Recap’s Senior Vice President Maria Maffei.  Maria’s written testimony laid out the efficiency argument and strongly endorsed increasing the housing share of bond allocation:

 

You get more for the same money if you channel volume cap toward housing.

 

At the same time, a wise governor that shifts more volume cap to housing could quite logically shift a little of something else (e.g. taxable bond capacity, revenue sharing to cities and towns) away from housing, and the state’s overall financial resource ecosystem will benefit.

 

This represents overall benefit, Captain

 

Several knowledgeable observers credited Recap’s testimony with providing the critical quantitative intellectual underpinning for using volume cap for housing — an argument that should gain equal traction in other states where volume cap is in demand and affordable housing is scarce.

 

We’ll give your argument a pull

 

So logic triumphed, at least here.  Given that,

 

Why not take the argument to other states?

 

Nothing makes our argument unique or specific to Massachusetts.  It applies anywhere that volume cap is scarce.  [For further assistance in making the case for your state, email me by following this link.]  If, as I have joked, a state exists to extract as much money as possible from the Federal government —

 

Point this at the Federal government of your choice

 

— then the state should make best use of its extract.

 

Dab it on your housing projects

 

At the level of politics, social liberals and fiscal conservatives exist in every state. 

 

Some of us are liberal, sir; some conservative

 

Arguments focusing on the need for affordable housing tend to play effectively with social liberals, whereas cost-effectiveness calculations provide the business case that fiscal conservatives rightly expect from any public-policy intervention. 

 

Our joint success in Massachusetts demonstrates the value of combining appeals to the heart with solid analysis that convinces the mind.

 

If you want my support, you must appeal to my self interest`

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