Kansas Legislature steps back from terminating popular affordable housing tax credit program

Yahoo

28-04-2025

Rep. Sean Tarwater, a Republican from Stilwell, convinced the 2025 Legislature to reduce by two-thirds the amount of state income tax credits available to incentivize construction or rehabilitation of low-income housing statewide. Since 2022, Kansas has used the tax credit to make faster progress on addressing the state's housing shortage and advocates of the credit opposed the cutback touted by Tarwater. (Sherman Smith/Kansas Reflector)
TOPEKA — Assistant city manager Braxton Copley pleaded with Kansas House members to reject a proposal to end the state's participation in a tax incentive program shown to be successful in promoting construction or rehabilitation of low-income housing.
Copley, representing the city of Topeka, stood at a microphone in February at the Capitol to address Rep. Sean Tarwater, chairman of the House commerce committee and the sole public proponent of a bill eliminating Kansas' low-income housing tax credit, or LIHTC, on July 1. Copley wasn't alone in opposition to the bill. Nearly 40 organizations and individuals offered testimony denouncing details and timing of House Bill 2119.
'Simply put, government cannot afford to construct and manage a sufficient amount of housing to meet the needs,' Copley said. 'Developers are unable and unwilling to construct low-income housing because the low rents will not allow them to achieve a market rate of return. The LIHTC program leverages tax credits to induce private developers to construct affordable housing by providing them a market rate of return.'
In exchange for state and federal tax credits, the affordability of the incentivized housing units was assured for terms of 15 years or 30 years with covenants placed on the real estate.
Copley said undercutting the state's approach to LIHTC would exacerbate homelessness in communities throughout Kansas.
Tarwater, a Republican from Stilwell, listened as a string of community activists, investors and bankers expanded on Copley's thesis.
'I must say there are 39 opponents and I'm the only proponent, evidently,' Tarwater said. 'This is not fair. You guys are going to need more people.'
Fast forward two months, and Tarwater pushed across the finish line on the final day of the 2025 legislative session the contents of House Bill 2289, which included a modified version of the much-maligned HB 2119. Instead of deleting LIHTC in July, the program would survive, on a shorter financial leash, until 2028.
'This is not exactly what we wanted when we set down this road,' Tarwater said. 'We took a page out of Ronald Reagan's book, and we're going to take what we can get today and fight for the rest tomorrow.'
Tarwater objected to the ultimate cost of a program adding each year to tax credits that had to be honored by the state. Over a 10-year period, for example, the compounding effect of $25 million annual allocations of LIHTC tax credits could result in a state obligation of $250 million. The figure wouldn't represent a direct expenditure by the state of Kansas, but would reflect the amount of future tax revenue foregone by the state as investors redeemed credits against their state tax liability.
Last week, Democratic Gov. Laura Kelly signed the bundled bill rather than veto the measure and push the issue to the 2026 Legislature.
The new Kansas law set a maximum on the amount of state housing tax credits issued this year at $25 million. In the final three years of LIHTC, only $8.8 million in annual credits would be available from the state for investors in affordable housing.
The law discontinued the state's LIHTC match for investors receiving the 4% federal low-income housing credit, but retained the state match for developments qualifying for a 9% federal low-income housing credit.
Sen. Stephen Owens, R-Hesston, led negotiations on LIHTC legislation for the Senate. He viewed the final bill as a compromise that resulted in a diminished incentive, but provided a window of opportunity to convince lawmakers it should continue.
'This came to us from the House as a complete elimination of the low-income housing tax program,' he said. 'Recognizing that there's also some value to this program, the Senate's position was to go back in and reduce it by about 70%.'
The program is managed by the Kansas Housing Resources Corporation, a self-supporting, nonprofit public corporation tasked with helping Kansans gain access to safe, affordable housing.
Emily Sharp, of the state Housing Resource Corporation, said substantial reduction in annual tax credit awards and deletion of the 4% program would diminish the state's ability to fill wide gaps in housing. There will be a bigger scramble for the remaining credits, she said.
The 2028 sunset to the LIHTC should be concerning to communities struggling to meet housing demand, she said.
She said a 2021 state housing survey was conducted in collaboration with the governor's Office of Rural Prosperity. The first Kansas assessment of its kind in 30 years showed an acute shortage. It was estimated the state needed to add at least 3,800 units annually, but was falling far below that level.
The National Low-Income Housing Coalition estimated Kansas had a deficit of 50,000 affordable housing units.
'We need more houses,' Sharp said. 'Nationwide we're seeing a shortage of housing. Kansas is no exception.'
In 2022, the Legislature and governor responded with passage of the affordable housing tax credit act that put in place a d0llar-for-dollar match by the state to the federal low-income housing credit.
The objective was to expand the volume of tax credits available to investors. The credits could be sold to generate revenue for construction of housing. The lower debt assumed by developers meant tenants could be offered below-market rental rates.
The state's rate of housing development through state or federal investment tripled after implementation of the Kansas reform law three years ago. In 2021, state and federal government resources were associated with construction of 1,028 homes in Kansas. In contrast, 6,500 Kansas homes were funded in 2023 and 2024.
Ryan Vincent, executive director of the state Housing Resources Corporation, said the elimination of the state's tax credit for housing — currently scheduled for 2028 — would mean that Kansas lagged further behind other states dangling lucrative incentives to attract housing investment.
'Eliminating the KAHTC would send a negative message to current and potential investors, signaling that housing development is a risky prospect in our state,' Vincent said. 'Potential partners will avoid investing in an uncertain environment.'