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by Don Keelan
Senator Bernie Sanders repeatedly lambasts corporations and wealthy people for having huge incomes and paying little in taxes. If he looked out his Burlington office window, he would see how this is so.
The income tax avoidance is evident in the many affordable housing projects developed in Burlington and throughout Vermont. However, before I proceed, let me note that Bis/Now gets credit for coining the phrase, “Affordable Housing Is An Oxymoron,” and rightfully so, as you will soon see.
When real estate developers, individually or in concert with Vermont nonprofits and or municipalities, take on the development of what is described as ‘affordable housing unit projects,’ they do so by entering a quagmire of costly, time-consuming regulations to obtain a substantial portion of the project’s funding.
This is why affordable housing projects completed or under development in places such as Putney, Bennington, Burlington, and other Vermont cities and towns are costing up to or exceeding $600,000 per unit. In California, the cost is closer to $1 million.
Why is this the case? First, take the developer’s side; it needs funding to complete the project. Traditionally, such funding came from lending institutions in the form of a construction loan or mortgage. Upon project completion, it would be converted into permanent financing with predetermined interest rates and amortization terms.
However, if there is no interest and amortization to be paid to a lender, the developer can assess lower rents to the residents (who must qualify by having household incomes below 50% of the area’s median income) of said project. This can be accomplished by having the project approved for Low-Income Housing Tax Credits (LIHTC). This is what corporations and high-income investors are looking for. Syndications have even packaged projects to spread the risk.
Instead of having the project mortgaged, the developer engages the same mortgage institution to make an equity investment in the project.
Why would a lending institution do this? Because the amount invested can be carried over ten years as credits against any federal income tax the institution, generally banks, owes from its other sources of taxable income. The credits eliminate some, if not all, of their taxes.
For example, if a banking corporation has $1 millon in taxes due this year and decides to finance a $15 million affordable housing project with $10 million as an equity investor, under the LIHTC program the bank will be able to obtain in year one and for the next nine years, $900,000 in tax credits, thereby reducing what is owed to the IRS from $1 million to $100,000 in one year alone.
The LIHTC has been around since the adoption of the 1986 Tax Code and is credited with the development of over three million housing units. Each year, the number of housing units started by the private sector is approximately one and 1/2 million.
The quagmire involves the time and money required to qualify a project by the federal government, the state, and investors. It has become so complicated that a cottage industry of brokers, lawyers, and accountants has emerged, corralling a substantial source of fees for themselves.
The Cato Institute noted that “the Novogradac accounting firm’s annual guide to the credit (LIHTC) spans more than 1,400 pages.” The Institute also stated, “the agency’s (IRS) guide for examiners of LIHTC projects is 350 pages long.”
The LIHTC’s dollars are allocated to each state government (about $2 per capita) and then assigned to selected developments. This policy, together with the regulations and specifications a developer must adhere to, is the basis of another column. One thing is sure: the cost of ‘affordable housing’ is significantly greater than what it would take to develop market-rate housing, from 10% upwards to 25%.
What exactly is being accomplished? Housing units are being provided for low-income families; developers can build projects almost debt-free; a cadre of professionals have a massive source of fee income; and lending corporations can avoid substantial taxes.
Who then is paying for this housing? The taxpayer is by having the government issue LIHTC, which reduces the amount of taxes collected.
Senator Sanders should not be surprised. It is just one more example of how Congress has allowed the Tax Code to fund social programs.
The author is a U.S. Marine (retired), CPA, and columnist living in Arlington, VT.
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Categories: Commentary, Housing
Sorry, but one more time:
The government (i.e. the taxpayers) don’t owe you a house or condo.
If you’re essentially unemployed, find suitable employment exclusive of begging.
If you’re addicted, get help – or better yet never start abusing drugs or alcohol.
If you’re young, stay in school. If you’re older, go back, trade school or conventional.
If you’re not ready to support children, don’t have any until you are.
For those who are disabled in any manner or temporarily experiencing hardships, there are numerous options.
The Real Estate market is part of this nation’s free market economy – and despite that moniker, it does NOT mean that your housing is “free”, “free”, “free” as Brooklyn Bernie and his protege Zohran envision nor is it the general citizenry’s responsibility to subsidize.
Hand-outs & more hand-outs and the leftist government in VT is betting on housing “newcomers” (i.e.: illegal aliens) in such housing, the homeless from every state in the Union, and the continuing steady parade of addicted & their dealers just as the endless motel voucher program has attracted – with its plethora of associated crimes and overdose deaths. “Workforce housing” my arse.
How about focusing just half of the time spent on planning construction of Communist-style housing that will inevitably place the final nails in the coffin of this state and focus on reintroducing personal responsibility, accountability, mores, shutting down the drug trade, and reinforcing the concepts of hard work and stable family life that worked long-term for the majority only decades go. None of that is “racist”. It’s simply “life” under a free constitutional republic.
It’s a lot more complicated than that. Companies won’t hire the homeless due to insurance issues, landlords in the state use increasingly ridiculous excuses for not allowing Vermonters to rent from them (I have been paying up to $2K a month for rent at a motel for almost 3 years now), and much more. Pretending the issue is “race” is simply an excuse to delegitimize real problems.
What’s interesting is that historically the Church provided these functions in society, but when the Reformation happened, and even later as Catholic countries secularized, governments had to take over. https://vermontdailychronicle.com/page-from-reformation-to-redistribution/
So, what are more efficient solutions that still allow affordable housing to be available to Vermonters? If we do away with these programs, it means private individuals will have to take on the responsibility to provide that opportunity.
And so..this program is yet another example of socializing the cost of a program onto everyone else or another way of stating this is: wealth transfer program. The state will get the money from you the taxpayer, The players involved get a tax break, and we the people end up ever poorer. All seemingly part of a plan to get everyone dependent on government for everything, and thus yield out of desperation to whatever tyrannical plans the government has to reduce humanity to mere extraction units, and when they are done extracting all they can, then you must enter the carousel ( reference from movie, Logan’s Run ) where you are forced to submit to being murdered.
And they keep pushing it and pushing it with so many initially buying into it under the deluded idea of “helping” others – or just truly believing the “government” ought provide for you as opposed to you providing for yourself.
Amazing how Vermont is rather suddenly in dire need of a “workforce housing” while it has been all along simultaneously severely criticized for decades as being business unfriendly and as so many previously extant businesses within the state have moved out.
Yes, it’s a socialist ruse to take in more illegals, “refugees”, homeless, and addicted to be supported by the state (i.e.: the “party”) and forever beholden to it, as the middle class becomes more & more depleted and the entire populace, with the exception of the uber wealthy, are under complete control of their masters – the governing socialist/Communist party.
Presently, socialist select board member in Manchester Jonathan West and socialist legislator & VT legislator Seth Bongartz (BOTH born & raised Vermonters) are plotting to build hundreds of units of “workforce housing” units to that small rural town – so that “anyone who chooses to live there, can”.
I cannot understand why the same policy & project isn’t underway on Martha’s Vineyard??? I mean, I’ll take one. Or even two. I always required an abode overlooking the Atlantic.
Heart breaking to to imagine how different things might be if Biden hadn’t “won” the last presidential election.
Low income housing is the Politically correct term for “housing projects” . Be careful what you wish for.
This is a complete housing scam.
What also goes on? Low interest or debt forgiving projects.
People making serious bank off of keeping Vermonter’s poor.
These properties can often be converted after 30 years to luxury housing.
The standards set are higher than 80% of all homes already built in Vermont
The taxpayer is subsidizing all rental for the property.
It’s a no lose, highly profitable grift for those involved. It traps people into poverty while making the rich richer…..how is that working for your liberal Vermont sensibilities?
They also make it impossible for any mom and pop to develop but change all the zoning and laws for their own projects, because as they say in Animal Farm, some pigs are more equal than others.
Can’t forget all the millions paid on housing studies…..lol.