H.R. 9906: Federal Investment Exception for Essential Rehabilitation Act

This bill would change federal tax rules for certain tax-exempt bonds used to finance or refinance some types of affordable housing projects. In simple terms, it would make it easier for state or local agencies to issue certain bonds for rehabilitating or preserving qualifying rental housing without those bonds counting against the normal federal limit, or volume cap, on tax-exempt private-activity bonds.

What the bill does

• Creates a new option for an issuing authority to elect an exemption from the volume cap for certain tax-exempt bonds.
• The exemption applies only to bonds used for projects where 95% or more of the net proceeds are used to preserve, improve, or replace certain rental housing.
• The covered housing includes:
  • Qualified low-income buildings whose regular compliance period has ended, but whose extended use period has not yet ended;
  • Federally assisted buildings; and
  • State-assisted buildings.
• For bonds that use this exemption, the bill changes another tax rule that normally limits acquisition of existing property, making that rule easier to satisfy for these projects.
• Once the issuing authority makes the election, it cannot be revoked.

Effect on low-income housing tax credits

The bill also changes how certain housing tax credit rules work. It says that, for these exempt bonds, a related requirement in the low-income housing tax credit program will be treated as met even though the bonds would otherwise have counted under the volume cap rules.

When it would apply

The changes would apply only to bonds issued after the bill is enacted.

Practical result

Overall, the bill is intended to give housing finance agencies and similar issuers more flexibility to fund the rehabilitation, improvement, replacement, or preservation of certain affordable rental housing projects using tax-exempt bonds, without using up the usual cap on those bonds.

Relevant Companies

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