Statements on Introduced Bills and Joint Resolutions

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - June 29, 2006)

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By Mr. SCHUMER (for himself, Mr. Smith, Mr. Bond, Mr. Reed, Mrs. Murray, and Mr. Sarbanes):

S. 3616. A bill to amend the Internal Revenue Code of 1986 to provide an incentive to preserve affordable housing in multifamily housing units which are sold or exchanged; to the Committee on Finance.

Mr. SCHUMER. Mr. President, today I rise to introduce mine and Senator Gordon Smith's bill, The Affordable Housing Preservation Act of 2006. Our bill provides a solution to preserve federally assisted affordable multifamily housing.

I want to thank all of our colleagues-- Senators Bond, Reed, Murray, and Sarbanes--for realizing the importance of this issue and agreeing to cosponsor our legislation.

I have often said that few Federal programs have helped mothers and fathers keep their families together more than our low income and public housing programs. And while I always fight to make sure New York and the country at large gets all the money it can from Washington, frankly I am not the kind of elected official who believes that all government programs are equally good. But low income housing programs are some of the best things our government has ever done to help families, mothers, the elderly, and the disabled.

Unfortunately--the current housing climate has reached a crisis point and the good that we are doing just is not enough anymore. Consider that in 2001, 95 million people--a whopping one third of the nation--had housing problems: ranging from high cost burden, to overcrowding, to poor quality, or worse to homelessness.

In the same year, 41 million people, 14.6 percent of the U.S. population, were without health insurance and 12 percent of all people in the U.S.--33.6 million--lacked food security. These are all interrelated. If rent is too high--you go without health insurance. Maybe you trim down spending on groceries.

Sixty-five million Americans with housing problems are low income, and 87 percent of them face high housing cost burdens. In New York, the numbers are even worse. New York State ranks 47th out of the 50 States in renter affordability.

Across the board, housing problems are plaguing low income people who live in both renter and owner households, and by people in all age groups, including children and seniors.

The bottom line is that twice as many people who lack health insurance and three times more people who struggle on a regular basis to put food on their table have housing problems.

But for whatever reason, the housing issue does not attract the same level of public concern and political attention as other programs. And that's why housing programs have been cut back by more than just about any other program over the last decade.

Whenever I speak to New Yorkers--there is a common refrain: from gas prices to milk costs to rent hikes, the cost of living in New York keeps going up and up.

It is a demonstrated pattern and we have worked diligently to try to defend every penny. We have had some successes but it is a yearly battle and I unfortunately have no doubt that we will continue to fight to defend every penny of funding for housing programs.

But scraping our pockets for money is not enough. I served on the Housing Subcommittee for my entire 25 years in Congress and I'm tired of just playing defense and preventing things from happening.

If we want to actually get something done to improve the housing market and prospects for millions of low income families we've got to not just be satisfied with a good defense.

What we need right now is a good offense. As the newest member on the Senate Finance Committee in addition to my current post on the Banking, Housing and Urban Affairs Committee, I intend to use this position to help fight for housing and particularly new funding for housing for New York and America.

Today I am introducing legislation with my fellow Finance Committee member, Senator Gordon Smith--proposing that we bring this fight to a playing field many more are comfortable on. We should focus on housing tax incentives rather than just relying solely on new spending to expand the number of affordable housing units.

Since its inception the Tax Reform Act of 1986, the low-income housing tax credit, for example, has helped build and convert 1.6 million apartments with rents affordable to low income families, by providing investors in affordable housing developments with a dollar-for-dollar reduction in their Federal tax liability.

We anticipate that the Affordable Housing Preservation Act of 2006 will afford renters and developers similar benefits. Our legislation will work to ensure that we can preserve the current supply of affordable housing by providing tax relief to owners.

At the moment the inadequate present stock of affordable housing might shrink even further--much of it was built in the 60s and 70s and is aging and needs to be rehabilitated.

Under normal circumstances--developers who own this housing and have no interest in rehabilitating it themselves would sell it to another developer who would refinance and rehabilitate it for affordable housing.

But because a so called ``exit tax'' is placed on any developer who plans to sell their subsidized property--more and more are deciding not to sell and to just sit on the property until they die.

Let's say back in the 70s Developer Dan purchased a plot of land in Queens for $200,000 and built $800,000 worth of affordable housing on it--for a total investment of $1 million.

At the time, Developer Dan was able to secure tax benefits as part of the accelerated tax depreciation program and was able to deduct 70 cents on every dollar invested in affordable housing over a 15-year period.

So now in 2004 his accelerated depreciation has expired and Dan is getting on in his years and wants to sell the property--simply to break even and get out of the business.

But he can't do it very easily. If Dan sells the property for $1 million he must then pay an exit tax. The exit tax for Dan will be 25 percent applied to the building that was subsidized. So Dan must pay a $200,000 tax when he sells the building. That is not a very appealing situation for our friend Dan.

So Dan entertains two other options--instead of keeping the units as affordable housing he sells his property into the traditional housing market where he can garner a greater price which includes the amount of the exit tax but removes the units from the affordable housing market.

Or even more likely, Dan holds onto the property and neglects its upkeep at a detriment to his tenants and waits until he dies because then the tax consequence is erased. The property is likely sold in the traditional market and lost to the affordable housing community.

The Local Initiatives Support Coalition estimates that there are 1 million housing units held in this manner because owners are unwilling to sell and take on the new tax burden.

That is 1 million housing units--many of which are rapidly deteriorating and not providing good homes for the people who are living in them and one million units that will eventually be removed from the affordable market if we don't do something to make it easier and more attractive for affordable housing owners to sell their properties to other affordable housing developers.

So today, we are proposing a plan to waive exit taxes for owners who sell their properties to buyers who agree to keep the properties affordable for no less than 30 years. It is a simple fix--and one that could save us 1 million affordable housing units.

While we await a full scoring of our proposal from the CBO, our back of the envelope estimate shows that waiving the exit taxes to preserve this supply of affordable housing represents a $422 million incentive program over a 10-year period.

We hope this bill will move quickly, especially since we have clear support in both the House and the Senate. Congressman Jim Ramstad has introduced a similar bill on the House side. In addition, we have widespread support from the housing, real estate and investment community

Before I close I want to make clear--this and similar types of housing tax proposals are not meant to replace funding for current housing programs. We will still fight for full funding of every housing program--from section 8 to CDBG. We just need to modify our strategy and operate more on the offense rather than the defense.

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