A final version of the tax-code overhaul being negotiated by House and Senate leaders appears likely to preserve a widely used tool of municipal finance that D.C. officials call critical for building low-income housing.
The tool, called private activity bonds, has made possible the creation of about 9,000 units of affordable housing in the District since 2010, city officials say. The tax-exempt bonds — which effectively allow private companies to borrow at municipalities' low interest rates and give them access to a 4 percent tax credit — are used to attract developers to housing and infrastructure projects that wouldn't otherwise be viable.
The House version of the Republican tax plan now nearing passage had eliminated the bonds, stirring widespread angst among local government officials. In high-rent D.C., the bonds' loss was of particular concern to affordable-housing developers and the administration of Mayor Muriel E. Bowser (D).
But as differences are ironed out between the House version of tax reform and the Senate bill, which preserved the bonds, it seems increasingly probable that the bonds will survive.
Sen. John Cornyn (R-Tex.) told reporters Wednesday that he supports the inclusion of private activity bonds in the final bill and was "optimistic it'll be in there."
Officials at the National League of Cities said they have also heard that private-activity bonds will be safe in the final version of the tax bill. By contrast, the fate of other tax credits local governments use for development and public-works projects — such as the Historic Tax Credit and New Markets Tax Credit, which lures developers to poor neighborhoods — is less certain.
On private activity bonds, "I think we're okay," said Irma Esparza Diggs, director of federal advocacy for the National League of Cities. Diggs said leaders from cities that belong to the league, including Republicans, have been making the case to Congress that eliminating the bonds would make it harder to mount local infrastructure projects, among other things.
Christine C. Quinn, the former speaker of the New York City Council who now runs Win, or Women in Need, a not-for-profit New York provider of housing and services to homeless families, said the loss of the bonds would have had a serious effect on efforts to reduce homelessness by making it impossible to develop permanent supportive housing in competitive real-estate markets.
"It's not that we wouldn't be competitive in the game. There would be no game," Quinn said. "Keeping this from being destroyed in the tax bill is really going to be life-sustaining for many of the programs that are out there."
D.C. Housing Finance Agency Executive Director Todd A. Lee said that while preserving private activity bonds was cause for some relief, city officials should wait to see the fine print. For example, he said he has been told that Congress is still debating whether to change the rules governing the bonds in such a way that would prevent governments from rolling over unused bonding authority from year to year.
Were that to happen, Lee said, the District alone would lose $800 million in bonds at the end of this month, a cache that was originally built up when development slowed to a crawl during the early years of the Great Recession.
Lee said the city is still pursuing a plan to issue up to $500 million in private activity bonds, a kind of clearance sale in anticipation of the potential elimination of the bonds or restrictions on their use in the final version of the tax legislation.
Erica Werner contributed to this report.