Nevada doesn’t have much of an affordable housing policy, and a state tax credit plan embraced by Gov. Steve Sisolak and legislative Democrats is a spoon in a flood.
Maybe we can do some other stuff too?
Each year the federal government, which used to be a working thing, through the IRS, also an erstwhile working thing, allocates many millions of dollars’ worth of tax-exempt bonding to each state to finance private projects that are presumably in the public interest. In 2018, Nevada’s allocation of tax-exempt “private activity bond” (PAB) financing totaled $314 million.
The state didn’t actually get $314 million. What the state got is the power to help other people make money. The state can tell someone — let’s say a housing developer — “here, you win, go find investors for the thing you are building/buying/renovating/whatever and tell your investors they don’t have to pay any federal taxes on the profit they make, which means they’ll loan you money even if you don’t pay as much interest on the loan as somebody else might. So that’s yummy for you and your investors too. Cool, no?”
Or words to that effect. And it’s cooler still, for the investors, because projects financed with the assistance of PABs are more or less automatically eligible for the federal low income housing tax credit, and/or maybe some other federal tax credits or advantages.
While housing is the thing that PABs are used for most, tax-exempt bonds can also be authorized and issued to help finance other stuff, from buildings for charter schools to, as a state website puts it, “projects to increase economic growth, industry and employment in Nevada.”
And so last year, state officials blew, er, approved $47 million of their Magic PAB Beans on a biofuels project at the Tahoe Reno Industrial Center (TRIC), because apparently there’s a rule that says any endeavor within the confines of TRIC (home of Elon Musk’s Big Battery Thing) absolutely positively must have government assistance.
Turning garbage into jet fuel, as the project has been described, sounds like it might be something that doesn’t suck.
That project has, well, sucked $200 million worth of state PABs over three years, nearly a fourth of the entire total allocated to Nevada over the same time period.
Is a company’s garbage-to-jet fuel plant a higher priority than low-income and affordable housing? (Oh. I’m sorry. That’s a rhetorical question, to which the answer is NO!)
Last year (and pretty much ever year) roughly another $30 million in PAB-assisted financing got allocated to the Nevada Rural Housing Authority to support mortgage credits, which isn’t a low-income or affordable housing program as much as means to help people build and/or sell single family homes.
Here’s an idea: Private activity bonds are pretty powerful. The best we can, let’s apply that power to truly urgent priorities.
Let’s stop using our limited volume of private activity bonds to finance charter school buildings. The charter industry will squeal, because buildings are The Big Thing they want the state to give them now (the state having already given them everything else they wanted). But barely monitored out-of-state management firms don’t need more Nevada financial support. (Their growth. Capped. That’s what they need). Housing in Nevada is a priority. Revenue for a Florida-based school choice conglomerate is not.
Let’s also stop using PABs to help whatever project is trending at TRIC. Further, let’s stop using PABs to help finance industrial projects wherever they are in the state. Is some company’s big plan a worthwhile investment? Let the market decide. Nevada already give oodles of tax breaks and “incentives” to every company that asks for one anyway, whether the company needs it or not.
And let’s confine the Nevada Rural Housing Authority’s use of PABs to genuine low-income housing, and make sure others in the housing development industry aren’t using PABs for projects that would “pencil out” anyway and that don’t really need more government assistance than that industry already gets.
The Legislature can set the parameters for using PABS, by the way. Just a couple years ago the Nevada Rural Housing Authority got a bill drafted that would have directed even more private activity bonds to the authority, threatening to deprive other potential uses of financing, including affordable housing in Las Vegas and Reno. (The bill was withdrawn after everybody who knew anything about the subject reacted with mockery and scorn.)
Once we stop assisting things that don’t need assistance, each year we can direct many tens of millions of dollars more in private activity bond financing to help develop affordable housing.
In other words, a hell of a lot more than the measly $10 million a year in state housing tax credits that Sisolak and Democrats advocate.
And about those state tax credits…
The credits are transferable, which means when granted to a housing developer, the developer can sell them to, say, MGM, for 90 cents on the dollar or so. Then instead of paying taxes with actual money, MGM can give the state tax credit certificates, aka worthless pieces of paper that, unlike actual money, can’t be spent on nice things the state needs but doesn’t have. (If this rings a bell it’s because you’re familiar with Nevada’s unconditional surrender to Elon Musk and his Big Battery Thing.)
It’s pretty objectionable policy. Maybe the best thing about the recommendation embraced by Sisolak and Democrats is the fact that the program is so very small.
Private activity bonds are objectionable too. Like tax credits, they are a surrender to market ideology, the belief that the only way society can tackle a problem is by making life easier for business. This is the 21st century but most U.S. policy thinking is still mired in Reagan-Thatcher reverence for the idea that government’s highest calling is helping business, not people. So not surprisingly, along with tax credits, the other splashy idea that came out of a legislative study committee is lowering fees on developers, because of course it is. (On the bright side, where I’m always looking, the committee has also recommended expanding the state’s menu of Medicaid services to “facilitate housing as health care,” which is a good idea and not at all lame).
But unlike tax credits, PABs don’t cost the state anything. The lost revenue is the federal government’s problem. And what’s the federal government going to do about it? It can’t even stay open.
The same legislative committee that is recommending the miniscule tax credit program that Sisolak has embraced also had, not a recommendation, but a finding, and it is interesting:
“Since there are no apparent statutory provisions prohibiting the use of inclusionary zoning by a city or county, a city or county has the authority under existing law to use inclusionary zoning as a method of creating and supporting affordable housing.”
That means when Mr. Rhodes Ranch Guy (probably not his real name) or Tract Houses R Us or any other developers want to build a few dozen or hundred or thousand mini-McMansions ’round here, Clark County could tell them “only if 20 percent of your units are affordable for lower-income people.” Or 15 percent. Or 25 percent. Everyone feel free to fight over that.
Of course neither Mr. Rhodes Ranch Guy, Tract Houses R Us nor any other developers in Nevada have ever heard a city or county tell them anything of the sort. Because the tract housing industry hates inclusionary zoning, and while the state of Nevada may be a subsidiary of the resort industry, local government traditionally has been an arm of developers.
“Our Department of Comprehensive Planning has reviewed” the legislative committee’s take on inclusionary zoning, “and, through discussions with Commissioners, is reviewing the various inclusionary zoning ordinances and laws across the United States to determine a next step,” a county spokeswoman said, when I asked.
“However, at this time, the process is in the early stages of review,” the spokesperson added, in what I took to be a deliberate attempt to curb my customary optimism.
Upon review, county officials will find that inclusionary zoning is not a silver bullet that will make everything better. But they will also find that it is tool that can be used to make things somewhat better. So they should get on it, pronto.
Housing in the U.S. is an omnishambles, not least because of decades of racist policies that have deprived minorities of generational wealth. It will take more than inclusionary zoning or more focused use of private activity bonds to remediate what is effectively a market failure and make housing affordable and accessible for the working class. It will take lots of things (the People’s Republic of Vermont has a renter rebate program). Perhaps I will write about some more of those things some other time (spoiler: I will write about some more of those things some other time).
The most consequential, structural housing policy reforms are ultimately going to have to come out of Washington. Unfortunately, even when it is open, Washington is currently yet another failed Trump enterprise, like Trump Steaks. So state and local governments must do what they can. And they can do a lot more than the putting-markets-first policy morsels currently on the table.