Relates to conveyances involving real property financed with federal low-income housing tax credits

Justification

The Low Income Housing Tax Credit (LIHTC) is a 23 year old federal program that accounts for nearly 90 percent of all affordable rental housing created in the U.S. today. Preservation of this portfolio and continued investment through this program is critical if we are to make a dent in the ever increasing need to house low income people. The first projects that utilized the LIHTC have reached the end of their 15 year compliance period. These initial projects were developed by community based organizations committed to providing housing for the poor and working families in neighborhoods devastated by blight and abandonment. The City and the State were committed partners and provided flexible financing, up to and including interest only mortgages to enable projects to serve the lowest income possible while maximizing resources to rehabilitate and build decent housing.

Many community based developers of these early projects are now exercising their right to acquire these projects and transfer the ownership from Limited Partnerships structured to take advantage of the equity from syndicating credits into the hands of 501 c(3)s structured to benefit from real estate tax exemptions and abatements and ensuring longer term affordability. However, because they were initially created as for profit entities to access the tax benefits, upon transfer from the Limited Partnerships to 501 c(3)s, these projects will be subject to NYS Mortgage Transfer Tax. The application of the NYS Mortgage Transfer Tax threatens the long-term affordability of these homes, as all resources in these projects are devoted to operations and capital needs necessary to sustain the building for the next 15 years. As the ultimate owner of the buildings, nonprofit organizations - many of which are already stressed due to the current economic crisis - do not have the organizational resources to meet this tax. As a result, these properties can not be acquired and recapitalized as resources to the community. At a larger scope, further obstacles to move these properties through the transfer from Limited Partnerships to nonprofit ownership present an unattractive risk to future investors in the LIHTC program. The contraction of the banking sector and other financial institutions has already eroded the traditional investor base for this critical program.

The impact of this is particularly evident in upstate New York, where affordable housing projects are stalled because they can not find investors. To attract new and continued investors to affordable housing in New York, current projects need to demonstrate that the investor can exit at the projected transfer time. The City has exempted these transfers from their mortgage recording tax should the new ownership entity be a 501 c(3). This legislation would extend the exemption to the State Mortgage Transfer Tax greatly assisting in maintaining the continued affordability of these projects.

Legislative history

New Bill.

Fiscal implications

None to the State.

Effective date

Immediately.