One of this blog's "anonymous" - oh sorry, "Anonymous" commenters asked me to explain the tax credits in Woodstock Commons. This person's questions can be found at the end of several comments below post #68.
Here is part of the quote that this commenter wants explained:
A tax credit, or equity, syndicator connects private investors seeking a strong return on investments with developers seeking cash for a qualified LIHTC project. Enterprise Community Partners and LISC are the largest of these syndicators. As mentioned above, the credit is used to generate private equity, often prior to, or during, the construction of the project. Developers typically "sell" the credits by entering into limited partnerships (or limited liability companies) with an investor, with 99.99% of the profits, losses, depreciation, and tax credits being allocated to the investor as a partner in the partnership. The developer serves as the general partner/managing member, and receives a majority of the cash flow (either through the payment of fees, or through distributions). The funds generated through the syndication vary from market to market and year-to-year.
All this means that investors want to invest in affordable housing because they make a good return on investment. This makes the housing, Woodstock Commons, a for profit project. RUPCO is the applicant, and its for profit subsidiary makes 0.01% of the profit, but is the general partner in the partnership, and makes the private investment possible. There is a non-profit organization working with RUPCO, that exists solely to take investment and act as the limited investment partner in this kind of project. That "partner" makes 99.99% of the profit.
See http://www.enterprisecommunity.com/products_and_services/lihtc.asp
If creating affordable housing is profitable, why doesn't the market produce enough affordable housing? Why does the government use a mechanism like tax credits to promote creation of affordable housing in the first place?
ReplyDeleteAffordable housing, given the current tax credits available, is a profitable investment. However affordable housing is not a free market commodity. It is tightly regulated. The tax credits are just that: TAX credits, and the supply of any tax, or any tax credit, is controlled by the government. Therefore the supply of affordable housing is also controlled by the government.
ReplyDeleteFor the answer to why the government uses a mechanism like tax credits in the first place, go ask the government why they set up affordable housing financing the way they did, or what their other options were.
Because this is an issue I haven't engaged deeply with in the past, I am curious about successful models of affordable housing planning, funding, and construction. Who is doing this well, and what characterizes a successful project? Thank you for your work on this, Ms. Segal!
ReplyDeleteIt appears that Robin doesn't fully understand this issue. The incentive for investors in low income housing tax credit projects is simply the opportunity to mitigate their future tax burden. That's why it is highly regulated by the government. The investment they make in the housing project is to fund construction. In return, the investor gets tax credits which they apply in future years to mitigate the future taxes they would otherwise owe the government. (There is also an arguable secondary public relations benefit for investors who get bragging rights for their help in financing needed housing with many benefits for society.) The entire purpose of this government program is to help fund the construction of affordable housing that, left to market forces, developers won't build because it is not profitable.
ReplyDeleteIt appears that Anonymous from Staten Island is trying to make me look stupid. Well, whether you make a straight profit, or mitigate taxes, it all goes to the bottom line, and if you do not like the word profit, then we can call it wealth. Investing in affordable housing increases the investors' wealth. And, I never said, or wrote, that affordable housing should be left to market forces. That was something that you, Anonymous, brought up. You seem to be more interested in proving that I do not understand something than in making your case, which you are not doing very successfully.
ReplyDeleteIn any case, please differentiate yourself from the other anonymouses " 'mouses " by calling yourself AnonymousSI. All you cowards who do not use your names, it is so confusing trying to tell you apart.
Actually, no. The taxes a company owes is the same, it just paid them in advance (at a discount) to pay for construction of affordable housing instead of funding other gvernment activities, like the war in Iraq or you name it. The investment does not equal profit. The dollars invested equals future tax liability.
ReplyDeleteAnonymousSI doesn't need to try and make you look stupid, Robin. Seems you got that base covered.
ReplyDeleteWell, as much as I am interested in your point, and I am, I cannot make any sense of it since you can't decide whether your subjects are singular or plural. The meaning of your comments is obscure to me. What does this mean: "The dollars invested equals future tax liability." "Dollars" is plural. "Equals" belongs with a singular subject. Plus, if money is invested today, why is it also a liability in the future? Is it a liability for the person who invested it? Wouldn't that mean that they are paying twice?
ReplyDeleteIt would be a lot more productive if you could communicate your ideas clearly. Take your time. I'm right here. And I'm interested in your point of view, even though you are calling me names while hiding behind anonymity, which is practically the definition of cowardice.
Plural or not, what part of "tax credits" don't you understand? Maybe you should start to post anonymously like SI, to hide your complete misunderstanding of the subject.
ReplyDeleteIf you are not willing to clarify your unclear comment, do not want clarity of the subject, and do not want an open dialog in which I told you that I welcomed your explanation, and apparently only want to taunt me from behind the veil of anonymity, I cannot help you. Please post anonymously somewhere else. I will no longer accept anonymous posts. Your taunts are abusive. This is my blog, and I will not have you wasting my time without even trying to communicate a point to the best of your ability. All anonymous posts from here on will be removed. My blog, my rules. No free ride for cowards.
ReplyDeleteReminder: No anonymous posts, and no posts attacking me personally, psychoanalyzing me, or anything else that is not directly related to the CONTENT and PROCESS of the housing project called Woodstock Commons, sponsored by RUPCO, which is also the subject of this blog. And the Planning Board of Woodstock, which is the gatekeeper to this project coming to town, is also relevant.
ReplyDeleteThe person who wrote in to tell me that with some research he or she was able to make sense of the former anonymous' comments should have shared the explanation, rather than criticize my motives or manner.
Try again. Or don't.