As President Barack Obama and House Speaker John Boehner continue hurtling toward the fiscal cliff in a high-stakes game of chicken, the chances of some kind of smash-up for housing agencies budgets are only increasing – even if we manage to avoid going over.

The problem posed by the “cliff” is simple. During last year’s negotiations about the debt ceiling, Obama and Congress agreed to a partial compromise over the budget, moving past the immediate crisis with the promise to come up with a long-term plan for cuts by the end of the year. If no plan was reached, they agreed, a program of harsh cuts to programs dear to both parties and steep tax increases – “sequestration” – would kick in.

Now that the deadline is approaching, the sides are still far apart, with Obama’s plan calling for $1.6 trillion in new revenue while Republicans seek only $800 billion, and both sides calling for tough cuts to spending programs.  

If the talks fail, federal housing programs could see a budget cut of about 8.4 percent across the board, resulting in the loss of housing vouchers for approximately 350,000 households, putting approximately 1 million people at risk of homelessness, cutting housing counseling funds and resulting in about 53,000 job losses.

Speakers at last week’s New England Housing Network Conference, a gathering of affordable housing agency workers and policymakers from across the region, were grim.

“While we think it’s very unlikely that sequestration will occur, there’s a very significant risk that we could get almost the equivalent total level of cuts if the president doesn’t prevail on an immediate increase in revenue,” said Barbara Sard, vice president for federal policy at the Center on Budget and Policy Priorities in Washington, D.C. Sard said that Republican proposals would cut almost as much from discretionary spending in 2013 as the president’s budget calls for over the next 10 years.

“The risk [involved in the cliff talks] is to every penny of affordable housing programs, and no one’s talking about alleviating any of the cuts enacted in the Budget Control Act for 2011 and 2012,” which are still kicking in for many agencies, she said. “The best we can hope for still leaves us in a constrained environment for our programs.”

Even a successful compromise could have devastating long-term impact on affordable housing, with the low income housing tax credit (LIHTC) a strong candidate for cuts. The LIHTC allows corporations or developers who fund the construction of affordable housing to deduct the costs of that capital from their taxes. Since its implementation in 1986, 90 percent of new affordable housing construction has taken advantage of the credit; without it, many projects would not be feasible.

In 2012, Massachusetts received $14.5 million in LIHTCs. Along with federal programs like the HOME Investment Partnership Program, it helps form the backbone of affordable housing funding in the state for new rental units. Demand for funding has been unprecedented over the past several years, and the Department of Housing and Community Development’s own 2012 application forms warn developers that “many sponsors of strong projects have had to apply multiple times before securing resources.”  

‘Huge Threat’

“[The cliff] really does present a huge threat to the low-income housing tax credit,” said Peter Lawrence, senior director of public policy and government affairs for Enterprise Community Partners, a Washington, D.C.-affordable housing finance group. While the LIHTC has many supporters in Congress and the administration, pressure for fundamental tax reform is building in Washington, warned Lawrence.  

“You can’t assume that the Obama Administration will veto [a tax reform bill] to save the low-income housing tax credit,” he said.

Without federal funding, the state’s ambitious plans, announced last month, to boost housing in the state by 10,000 units a year over the next decade may have to be put on hold.

Any cuts would have “a deep impact,” on new rental housing construction, especially at the state level, said Roger Herzog, executive director of the Community Economic Development Assistance Corp., a quasi-state agency which helps affordable housing developers arrange financing. “A very large percentage of projects that we work on require housing tax credits. It’s an extremely important resource.”

Even if the LIHTC itself is left alone, other ripple effects from federal tax reform could undercut its effectiveness, Herzog warned. If reform makes the tax credits less valuable for the corporate sector, demand for them will drop, potentially imperiling development even if the credit itself stays on the books.

When the onset of the recession caused a steep dip in demand for tax credits a few years ago, investors “disappeared for a year, and our programs ground to a halt,” Herzog said.

Email: csullivan@thewarrengroup.com