Affordable Housing Officials Push Back Against New Tax On Low-Income Properties

Housing advocates say they will rally behind a bill next legislative session to standardize the way low-income properties as taxed. Credit: MMA

Tax officials across Tennessee have begun sending developers of affordable housing properties higher tax bills. It’s based on a way of evaluating properties for low-income residents that is becoming increasingly widespread, and housing advocates and developers say if it doesn’t change, private builders might completely pull out of subsidized housing.

Developers get money from the federal government in the form of tax credits to make it financially viable to build low-income housing. The Federal Reserve Bank of San Francisco has called the program “the single most important form of federal assistance to preserve and expand the supply of affordable rental housing for low-income households.”

Here’s the issue: While 30 states have standardized the way of taxing properties that receive this type of federal funding, Tennessee has not. For years, there have been efforts in the legislature to straighten this out, but all have fallen flat.

Meanwhile, assessors in a number of counties have decided that those credits should be figured into a property’s tax bill. To put it another way, assessors are not taxing what tenants are actually paying, but instead what tenants are paying in addition to the federal subsidy. Thus, the annual tax bill for an affordable housing property looks the same as a market-rate property.

“It’s only been a very, very recent situation,” said low-income property developer Phil Lawson, who sat in on a panel discussion Thursday organized by the Tennessee Advisory Commission on Intergovernmental Relations. “It’s not like people are gonna say ‘OK, I now understand this, so I guess I need to anticipate the fact that I’m creating a project that’s going to lose money every year.’ Developers won’t do it, and investors won’t buy into it and lenders won’t lend on it.”

Recently, Lawson had two properties in Sullivan County re-assessed, doubling the taxes from the last assessment.

“We had budgeted $124,000 on these two properties, and this will take us to minus $58,000,” Lawson said. “This might devastate the [federal tax credit] program.”

Ralph Perrey, who leads the Tennessee Housing Development Agency, said it isn’t a cost that developers can pass off to tenants because they’re legally bound to keep rents cheap.

“It’s already difficult to make tax credit developments work in rural areas,” Perrey said. “They would have little ability, probably none, of passing that along.”

Others on the panel pointed out that few private developers already undertake affordable housing projects. By further taxing properties, they argue, that number will only shrink, putting more of a burden on government agencies to fill the housing needs of the state’s poorest residents.

Will Denami, who heads up the Tennessee Association of Assessing Officers, said his members have nothing against affordable housing. He said taxing affordable properties like market-rate ones is only fair. This also leads to more revenue for government services.

As he points out, it’s completely within the law. Denami and other advocates of taxing the credits point to a 2002 Tennessee Court of Appeals decisions, Spring Hill, L.P. v. Tennessee StateBoard of Equalization, that concluded that assessors can consider the credits as part of an evaluation. Although the decision is more than a decade old, developers are saying that there’s now a movement afoot among tax officials to apply it.

Affordable housing advocates plan on pushing a bill in the Legislature next session to tackle the taxing issue. Assessor Denami, though, said it’s their job to evaluate properties indiscriminately.

“It’s not to penalize someone, or give a break to someone,” he said.