LIHTC: 50% Test Question
For 4% LIHTC, 50% or more must be funded by Tax Exempt debt.
Does anyone know the reasoning behind WHY specifically 50%? Why not 80% or 40%?
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It’s a federal rule. As for its origin, no idea. There’s actually been mention of legislation passing to lower it to 25% because tax exempt bonds are a finite source. Most municipalities run out of volume cap despite there being a multitude of public projects that deserve public financing. Lower the threshold to 25% would mean more projects get done since they would only need to pass the 25% test, not 50%.
Probably because it's a simple majority? In practice, it always ends up being more than 50% (even if only by a dollar), and "must fund a majority of the project" seems to be the most intuitive reason out there...
Why have the requirement in the first place? Why do you NEED Tax Exempt debt to qualify for a 4% Tax Credit?
I'm not sure why you're asking this. The tax credits flow with the bonds - if you want to know why they aren't being handed out willy nilly, you'll have to invent a time machine and travel back to 1986 to ask the legislators what they were thinking. Sounds like more trouble than it's worth, honestly. At that point, you may as well start asking a lot of other questions: Why do we call debt obligations a "bond"? Why a tax "credit" instead of a tax offset?
Presumably, federal legislators wanted to exercise some control over how tax credits were allocated to the states, so they attached it to a bond program, since that's within the power of the purse that Congress controls. But as I said above, it's kind of a meaningless question. I'm sure there are reams of publicly available data if you want to FOIL it, concerning the various testimony and drafts of the 1986 Tax Act which brought the LIHTC program into place. Perhaps instead of asking, you should go read all that and report back?
OP asked a simple question and now you’re coming off as condescending.
Oh, okay, please provide the simple answer, in that case.
It is absolutely not a simple question, and you're displaying your own ignorance in asserting such a thing. Maybe someone out there has some insight into the thought process of the legislators in 1986. If so, I'm genuinely all ears. But not every question is equal. "What is the meaning of life" is a simple question, or "why does water feel wet." Those aren't easy questions to answer, despite being easy to ask. If OP had put some sort of purpose behind the question, a reason he's asking, maybe he'd get a better answer, but a fully open ended question is just an imposition on the people he's asking. There isn't a request for help, or information, just a demand.
And yes, this was meant to be condescending.
My man. You’re not required to answer the question.
I just always wondered “why 50%?” and came to a forum to ask if anyone knows why, since doing some Googling doesn’t turn up any answers.
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