Murphy Talks About Challenges Facing Affordable Housing










Having fought many battles with Congress over curbs to bond and other programs that affect affordable housing, John Murphy expects the challenges will continue as he retires from the National Association of Local Housing Finance Agencies after 30 years as its executive director.

“We’ve had many legislative battles over the years, fighting for our lives, as it were, as Congress decided to reduce funding or to change tax code incentives, stimulate private investment in affordable housing,” said Murphy, who joined NALHFA the year before Congress passed the 1986 Tax Reform Act. “I had a very active membership in terms of advocacy on Capitol Hill and before the Treasury Department and the Department of Housing and Urban Development. I feel, collectively, we’ve made a difference.”

In a lengthy interview, Murphy told The Bond Buyer that, with congressional interest in tax reform, controlling government spending and winding down Fannie Mae and Freddie Mac, there will be no shortage of challenges for the affordable housing industry after he retires at the end of the year.

Murphy, 70, is to be succeeded by Jason Boehlert, vice president of government affairs at the Manufactured Housing Institute. Boehlert is expected to join NALHFA on Dec. 2. He and Murphy will work together during their overlapping month.

NALHFA represents 80 to 100 local HFAs, which finance affordable housing. Some states do not have local HFAs, and others have multiple agencies. State and local HFAs can issue tax-exempt mortgage-revenue bonds, which are used to provide mortgages to low-and moderate-income, first-time home buyers. They can also issue tax-exempt multifamily housing bonds, which are used to finance multifamily rental real estate with units set aside for lower income households. Both MRBs and multifamily housing bonds are private-activity bonds.

Murphy talked about some of the challenges the affordable housing community will face in the new Congress.

Leaders of the incoming Congress have expressed an interest in corporate tax reform. Tax bills take a while to write, but there could be some activity on corporate tax-reform in the next congressional session, Murphy said.

“Does that mean bonds are at risk in a discussion of corporate tax reform?” Murphy asked. “I will saythat any time that Congress is considering taxes, bonds are at risk.”

The draft tax-reform legislation that outgoing House Ways and Means Committee Chairman Dave Camp, R-Mich., released this year would essentially cap the value of the municipal bond tax exemption at 25% and eliminate the tax exemption for private-activity bonds issued after 2014. The proposal would also disallow federal tax credits for mortgage credit certificates, which state and local governments can provide to homebuyers instead of issuing MRBs. Additionally, the plan would repeal the 4% low income housing tax credit, which owners of multifamily housing buildings can receive if they finance at least half of the project with tax-exempt PABs.

President Obama’s fiscal 2015 budget request would cap the value of the muni exemption at 28%, but would actually ease some PAB rules. It would allow states to convert some of their PAB volume cap into 9% LIHTCs that states can allocate. But the 9% LIHTC’s cannot be used with bond financing. The budget request would also allow building owners to qualify for the 4% credits, even if the building was not mostly-PAB financed, as long as certain requirements were met.

In recent years, market participants have organized national groups, such as the Municipal Bonds for America Coalition and the Don’t Mess With Our Bonds Coalition, that work to preserve the exemption. Murphy said that these market groups have to continue their advocacy efforts.

“We’ve simply got to continue to speak out about the importance of the tax exemption, what it does, who benefits from it, and that’s a lot of work,” he said. “But it absolutely is essential if we are to survive with our tax-code provisions intact.”

In the new Congress, which starts in January, Sen. Orrin Hatch, R-Utah, is expected to become chairman of the Senate Finance Committee. Murphy said he is “encouraged” by the fact that Hatch was the principal champion in the Senate of making MRBs permanent, ending the practice of short-term extensions of the authority to issue the bonds. The new chairman of the House Ways and Means Committee will be Rep. Paul Ryan, R-Wis. Murphy said there is a fairly strong state HFA in Wisconsin.

In addition to tackling tax reform, the new Republican-controlled Congress may want to rein in federal government spending. As a result, “the appropriations subcommittees may have their hands tied by overall budget caps that don’t tend to grow with inflation or any other need to adjust upward. I think that will be a tough battle to fight,” Murphy said.

Grant Programs

The HOME Investment Partnerships Program and the Community Development Block Grant program, provide grants that can be used for affordable housing, are both subject to annual appropriations. Murphy said he thinks there are good arguments for keeping these programs well-funded.

“Our spending programs are popular, and I think the case can be made that the need for further affordable housing has not stopped, in fact it’s increased, and that there absolutely has to continue to be a federal role in funding programs that expand affordable housing opportunities,” he said.

Leaders of the congressional committees with jurisdiction over housing and the Obama administration want to phase out Fannie Mae and Freddie Mac.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, released a proposal last year to phase out Freddie and Fannie within five years. Earlier this year, Senate Banking Committee chairman Tim Johnson, D-S.D., and ranking minority member Mike Crapo, R-Idaho, released a proposal to wind down and eliminate the entities. Their proposal would establish a new Federal Mortgage Insurance Corp. modeled after the Federal Deposit Insurance Corp. Johnson is retiring from the Senate at the end of the year, but Murphy said that the likely incoming banking committee chairman, Sen. Richard Shelby, R-Ala., may want to make changes to Freddie and Fannie as well.

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