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2/7/03 - Miami Herald
Housing for poor needs shelter
By Douglas Hanks III
President Bush's plan to help the working poor buy homes would be hobbled by his
push to lower tax bills for stock-market investors, according to critics in the
Bush wants to let shareholders collect profits tax free from companies, provided
the companies have already paid taxes on the profits themselves. Bush made the dividend
exemption a star element of his $674 billion economic stimulus plan, while lambasting
the current system as taxing profits twice at the expense of investors.
But if shareholders would emerge as winners under the Bush dividend plan, critics
say the big losers would be corporate tax shelters -- including the roughly $2.5
billion in housing tax credits Bush proposed this week as part of his 2004 budget.
The new dividend exemption would present many companies with a novel dilemma: Pay
more taxes or anger shareholders. While tax credits currently bring higher profits
by lowering tax bills for corporations, under the Bush plan those tax discounts
would mean more taxes for many investors.
The result, critics say, could be a fall from grace for the dozen or so federal
tax credits designed to pump private money into various good works, from historic
preservation to energy conservation.
''Companies love to invest in affordable housing, but not at the expense of shareholder
value,'' said Buzz Roberts, vice president for policy at the Local Initiatives Support
Corp., which helps revitalize poor neighborhoods.
The home-building credits are modeled after a widely praised program that has subsidized
the construction of 1.3 million low-rent apartment units since 1987, including 20,000
in South Florida. In 2001, government agencies assigned $4.5 billion worth of credits
to developers, who then sold most of them to Fortune 500 companies wanting to lower
their tax bills.
Leaders from the apartment-credit industry first sounded the alarm several weeks
ago about Bush's dividend plan, and they pointed to the proposed home-building credit
as proof of the White House's muddled thinking on the issue.
A dividend exemption ''clearly makes the credits worth less. The question is, what's
the magnitude of that loss?'' said Michael Novogradac, a San Francisco accountant
who specializes in apartment credit investing. ``I think the loss clearly could
The administration has mostly remained silent on the dispute, which has yet to receive
much public attention. Rep. Charles Rangel wrote Housing Secretary Mel Martinez
last month asking why the administration proposed treating foreign tax credits --
which apply to overseas profits -- as taxes paid in calculating dividend taxes,
but would not do so with the apartment credits.
''The president's proposal could have a catastrophic effect'' on the rental program,
the New York Democrat wrote.
The administration maintains critics are being too simplistic in predicting that
tax-free dividends would hurt tax credits. At a Jan. 29 meeting with industry groups,
Bush officials acknowledged the dividend plan might prompt a shake-out in the tax-credit
market, according to two industry representatives who were there.
Many current buyers of the apartment credits -- mostly banks and lending giants
Fannie Mae and Freddie Mac -- pay large dividends to investors, so they would probably
feel strong pressure from shareholders to drop tax shelters, the administration
officials said. But they predicted other investors -- including companies with small
dividend payments and individual investors -- would pick up the slack, according
to the participants. Administration officials did not respond to requests for comment
on the matter.
The tax-credit issue could have an impact on two national developers based in Miami-Dade
LNR Property owns about $74 million worth of low-rent apartment complexes built
using the tax credits and has received more than $125 million worth of the credits
from the government, according to an October regulatory filing. The country's major
home builders -- including LNR's sister company, Lennar Corp. -- are expected to
be significant users of the proposed home-building credit. Officials from both companies
declined to comment for this story.
The proposed home-building credits would subsidize up to 50 percent of the cost
of building a new home or rehabilitating an old one. Developers, both companies
and nonprofit groups, would sell them to investors at a discount in exchange for
cash and use the money to fund construction. The government would require developers
to build in poor or rural neighborhoods and reserve the homes for buyers making
no more than 80 percent of the local median income, making the ceiling about $33,300
in Broward and $28,700 in Miami-Dade.
The credits would cost between $16 billion in lost tax revenue over 10 years, according
to administration projections, and create as many as 50,000 affordable homes a year.
Sheila Crowley, president of the National Low Income Housing Coalition, criticized
the tax credit proposal as once again ignoring the housing needs of the poorest
While the apartment credits have significantly expanded housing options for many
low-income people, she said the very bottom of the economic ladder still can't afford
the subsidized rents, much less a home purchase.
Even without the dividend controversy, the home-building credit might have trouble
getting passed this year because of the tight federal budget, said Alan Hirmes of
Related Capital, which brokers apartment deals.
Bush first endorsed the credit as a presidential candidate and Congress has considered
it before -- under much rosier budgetary circumstances.