COLOMBIA — South Carolina lawmakers are seeking to put a cap on a wildly successful affordable housing tax credit program after the cost exceeded estimates by millions of dollars.
The program, created under the South Carolina Workforce and Affordable Housing for Seniors Act of 2020, was a one-of-a-kind tax incentive program designed to spur affordable housing development needed across the state.
It was a success, with affordable housing advocates crediting the program with spurring the development of nearly 9,600 units statewide in just two years. But it was also unsustainable, tax hawks argued, with the number of nominees far exceeding the projected number of appropriations lawmakers thought they would accept.
Before suspending the program in January, South Carolina’s budget oversight board approved about $300 million in tax incentives for affordable housing projects across the state over the next decade, mostly in areas urban.
The bill to reform the program, introduced by Senate Finance Committee Chairman Harvey Peeler, R-Gaffney, and Senate Speaker Thomas Alexander, R-Walhalla, in early March, would set an annual cap on those appropriations. about half the size of the incentive package approved by lawmakers last December, limiting the amount of appropriations that can be approved in any given year to $15 million.
It would also subject all proposed affordable housing developments applying for credits to a competitive bidding process, ending the current practice of awarding tax credits to any qualifying project.
While those who spoke against the bill at a subcommittee hearing on March 16 said they recognized the fiscal impact of the legislation on the state budget, many argued that the Program benefits were too great to ignore.
According to a 2019 study by the state agency that funds affordable housing projects, about a third of families in South Carolina struggle to afford housing.
And according to the National Low Income Housing Coalition, the state has just 44 affordable housing units for every 100 low-income South Carolina residents, a significant backlog of demand that has flooded the state’s Affordable Tax Credit program. requests in its first year.
In Colombia, Mayor Daniel Rickenmann told lawmakers the community needs 700 units this year alone to meet current demand for affordable housing, and that another 16,000 units are expected to be needed over the next decade.
While the city has worked on its own to solve the problem by rezoning communities for greater density and to allow for smaller, more affordable housing units, tax credits from the state as well as the federal government have helped help the city achieve its goals.
“Each of these tax credits helps us keep people here and grow our workforce,” Rickenmann said.
A hard cap on the number of credits issued each year could unduly restrict a number of worthwhile affordable housing projects in the state, critics of the bill argued. The twig would leave South Carolina communities with more than $8 billion combined in negative financial impacts from costs associated with law enforcement homelessness, uncompensated hospital stays, and the cost of shelters for the uncommitted. -shelter, they say.
“The annual costs exceed what we say the cost of the amount of credit will be over the next 10 to 15 years,” said Tina Belge, head of the Greenville Affordable Housing Coalition.
John Van Duys, a bond attorney based in Colombia, told a Senate panel on March 16 that a key limiting factor for developers of affordable housing are rental restrictions imposed by state and federal governments that are required to qualify.
For a project to be eligible, a typical tenant’s income cannot exceed 60% of the region’s median income, with rents not exceeding 30% of their annual income. While it’s more cost-effective to develop projects in high-demand communities like Charleston, Van Duys said, it’s often much harder to develop affordable housing in more rural communities where wages and demand are often higher. weak.
Those measures, affordable housing developer Kevin Connelly told lawmakers, are often two years old, meaning rental costs can’t stay consistent with market fluctuations. And in the past two years, there have been many.
Due to the rising cost of lumber and other materials, Connelly said, construction costs have increased 15% in recent years. Historically low interest rates have started to rise and with them land prices have also risen, putting developers of affordable housing in tough competition with developers of luxury, single family homes and commercial developments.
Meanwhile, starting salaries for the people they tend to serve have also stagnated, which has exacerbated the affordable housing deficit.
“It’s hard to be able to service debt in a rural area where rents barely cover operating costs,” Van Duys said.
Instead of setting a hard cap on the number of credits issued each year, Van Duys suggested that the percentage of state credit allocated to various projects could depend on the market in which they were built, with projects more likely to achieve a funded break-even point. at lower levels than projects that could not be built without tax credits.
While no immediate action was taken on the bill, subcommittee chair Nikki Setzler, D-West Columbia, said he expects the measure to be voted on by a committee of the whole before a deadline. key legislative on April 10.