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Low-income housing tax credits: the federal subsidy for well-connected developers

June 07, 2010

20100607-2.jpgRoxanne Conlin is likely to roll to an easy win tomorrow in her bid to be crushed by Chuck Grassley in November's U.S. Senate race. On the way to her victory, though, she has had to deal with pesky questions about her husband's tax credit-financed real estate development business. The Des Moines Register reports:

The Des Moines Register reported Friday that Conlin, who has campaigned against tax breaks that benefit wealthy Americans, is a part-owner of 27 low-income apartment complexes that were financed through the sale of millions of dollars in federal tax credits.

The rental developments, all located in the Des Moines metropolitan area, were built in the past 19 years using $64.2 million from federal low-income housing tax credits, the Register reported after a review of state and federal records.

Conlin, a Des Moines lawyer, told the Mason City audience: "I know people might think just from reading the headline that I took $65 million from the federal government, and nothing could be further from the truth."

Of course she didn't take $65 million from the federal government. Her husband just distributed it, for a fee.

Low-income housing tax credits are supposed to be a way for the government to supply low-income housing to the poor. In real life they are a way for well-connected developers to obtain and distribute tax credits for investors needing some tax shelter -- typically banks, insurance companies and wealthy individuals. Each state gets an allocation of credits from the U.S. Treasury, and the states pass the allocation to developers. The process favors insiders with connections who know how to pull the levers of the allocation bureaucracy: people like the Conlins and Senator Jack Hatch. There's nothing illegal about this. They are playing the credit allocation system the way it is designed. But does this system make sense? Not surprisingly, Ms. Conlin is a fan:

"I'm very proud of what my husband and my family have done to house people and create jobs," she said.

Since 1991 those projects have created about 2,400 jobs, mostly in construction, she said. The result was "very nice places where people can live safely and with dignity," she said.

The center-left Tax Policy Institute is less enthused. They find that running subsidies through developers is less effective than providing direct vouchers to the needy:

If the supply of low-income housing is very elastic in the long run, then production of limited amounts of subsidized housing will simply replace other housing that would otherwise have been provided. Housing supplied or subsidized by the government might increase the average quality of housing available to low-income tenants, but it would have little lasting effect on the quantity or price of housing available to poor people. (See Weicher and Thibodeau 1988 for a discussion of the effects of subsidized housing on the housing market as a whole.) Moreover, because new and substantially rehabilitated housing is expensive to produce, it is likely to be worth far less to tenants than an equal cash supplement, such as housing vouchers. Furthermore, DiPasquale, Fricke, and Garcia-Diaz (2003) estimate that the average cost of producing a tax credit unit exceeds the cost of the average voucher unit by 19 percent.

But while vouchers help the poor, they do nothing for the fixer class. That's where the tax credits come in:

Conlin said she opposes income tax cuts that benefit the top 1 percent of the wealthiest earners. In contrast, she supports tax credits that help small businesses, manufacturers and housing programs create jobs.

In other words, wants small business taxpayers to pay higher rates to subsidize her. Because that $75 million legal fee she won in the Microsoft litigation won't last forever, you know. When she loses to Senator Grassley in November, as seems probable, she at least will have the consolation of losing to someone else who favors taking money from you and me and giving it to the well connected.

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