Georgia Senate Advances Bill To Sunset Affordable Housing Tax Credits

Several states have passed laws to address housing affordability, and as the November midterm elections approach, more are following suit.

Georgia state legislators, however, are taking a different approach that has frustrated developers focused on housing for low-income earners. The Peach State’s Senate passed a bill Thursday that would cut state-issued low-income housing tax credits by 50% next year and eliminate them in five years.

The bill’s sponsors would use the cuts as an offset to push through lower personal and corporate tax rates.

Lowering the tax credit next year would put owners of tax-credit subsidized low-income properties at high risk of foreclosure. Those owner-developers say the risk would cause a cascading national effect.

“[If] I get barred in Georgia, then I can’t do business in the other 49 states,” Ken Blankenship, president of the Georgia Affordable Housing Coalition, told The Builder’s Daily.

If the bill becomes law, developers will lose a key capital stack financing mechanism, potentially limiting affordable housing production amid an estimated shortfall of more than 200,000 units. The change could also impose another financial burden on Georgia’s affordable housing developers, who are already contending with property valuations that don’t pencil with their financing models.

No other state is considering lowering or eliminating state-offered LIHTC in the new year. Kansas enacted a law last year that cut the state’s available credits by more than 50% through 2028, when the program will sunset.

Lawmakers created the program in 2022 to address a need for 3,800 to 5,000 new homes annually. However, lawmakers last year did not like estimates showing the state could lose nearly $1 billion in future tax revenue because of the tax credits.

Impact of Georgia’s LIHTC on affordable housing

Georgia created the state credit in 2001 to match the federal low-income housing tax credits a developer obtains. It is the only state source for building and preserving affordable housing in Georgia.

The credit has helped create more than 123,000 affordable housing units since 2001, according to the Georgia Affordable Housing Coalition.

Nonprofit organization Georgia Advancing Communities Together wrote in a social media post that the credit helped create or preserve 34,731 homes from 2021 through last year. More than 60% of the development has happened outside the Atlanta metropolitan area. A third of that development occurred in rural areas.

In 2022, a University of Georgia study conducted for the coalition found $5.79 of economic impact created for every net $1 in lost state income tax because of the tax credit.

“If LIHTC were eliminated, Georgia could lose nearly 4,300 jobs per year,” according to the study.

Potentially compounding a financial problem

Losing the tax credit would compound a property valuation challenge that has grown problematic over the past two decades. Despite Georgia Supreme Court rulings, numerous counties across the state treat the low-income housing tax credit as income.

“You can’t tax what’s built at a rate that is not fair to the owner,” Blankenship said. “If the state credit thing gets worked out, you’re still driving developers away from certain areas that need it the most.”

The problem started with Lowndes County in South Georgia when county officials chose to include credits as income about 20 years ago. The method spread to other counties. According to the coalition, one county’s tax bill for an affordable property now exceeds its revenue by 200%.

State lawmakers passed a bill in 2017 that included language that tax assessors could not count the credits as income unless they could prove otherwise. The language presented a gray area for counties to exploit.

Property owners sued Lowndes County, which tried to argue that the bill was unconstitutional. The state Supreme Court ruled in 2019 that the credits were not income. The court reaffirmed the decision last year in a separate lawsuit. The decision has not deterred the overvaluations from continuing, Blankenship said.

He said the coalition wants to revive a constitutional amendment this year that would treat affordable housing properties, dubbed Section 42 under the federal LIHTC program, as a separate property class for valuation. An effort two years ago never made it to the House floor for a vote.

Many states have statutes that treat Section 42 as a separate property class. They also tend to exclude the credits in the valuation process. A smaller number of states include the credits in valuing property.

Politics in play

Blankenship is not confident, however, that they will succeed in finding a lawmaker to introduce the amendment this year in the current environment.

Republican Lt. Gov. Burt Jones is a key player backing the legislation. Jones is running for governor to replace Gov. Brian Kemp, who is term-limited. He has made cutting personal and corporate income tax rates a major part of his campaign. Republican Sen. Blake Tillery sponsored the bill and is running for the seat Jones currently holds.

“They’re all supporting a reduction of the state low-income housing tax credit, which would reduce the amount of affordable units in the state that are available for working Georgians,” Blankenship said.

The bill passed 32-18 along party lines. Lawmakers formally introduced it three days before the vote.

“The Senate is leading the effort to continue making significant cuts to our income taxes, while maintaining the fiscal soundness of our state,” Jones said in a statement after the bill passed.

Affordable housing advocates expect the bill to receive a frosty reception in the Georgia House. Lawmakers failed to scale back the credit in 2024. The Senate pushed for a 50% cut, as it did on Thursday. Affordable housing advocates fought it. The House made changes, and the bill died in the Senate.

Housing advocates hope they can kill the tax credit portion of the latest bill.