Tax credit advocates to push for increase in cap Low-income housing tax credit advocates plan to push this year for legislation to increase the annual limit on the amount of credits, which hasn't been changed since the program was created in 1986.

To encourage the production of low-income housing, the program provides an annual tax credit for 10 years equal to about 9% of the cost of housing construction and substantial rehabilitation and 4% of the cost of acquisition in connection with a rehab project.

Credits are allocated by state agencies, subject to a $1.25 per capita annual ceiling. (Projects financed by tax-exempt bonds are exempt from the allocation cap since such bonds are subject to a separate ceiling.) In New York State, for example, with a population of about 18.2 million, the 1997 credit limit was about $22.7 million.

The credit ceilings are adjusted each year, based on the prior year's population figures, and the national credit limit for 1997 was $331.6 million.

Advocates are now seeking to increase the per capita limit from $1.25 to $1.75 and index the cap for inflation. At $1.75, the national credit ceiling in 1997 would have been $464.2 million. Legislation to raise and index the cap has been introduced in the Senate (S. 1252) by Sens. Alfonse M. D'Amato (R-N.Y.) and Bob Graham (D-Fla.) and in the House of Representatives (H.R. 2990) by Reps. John Ensign (R-Nev.) and Charles Rangel (D-N.Y.).

With demand for the credit far exceeding the supply, said D'Amato, the current cap "is strangling a state's capacity to meet pressing low-income housing needs."

The prospects for an increase in the credit cap are unclear. While the survival of the credit seems assured after an abortive effort by House Ways and Means Committee Chairman Bill Archer (R-Texas) to impose a sunset date, an increase in the size of the program is another matter.

Advocates must find an appropriate legislative vehicle and, even more importantly, they must find a way to "pay" for the increase with an offsetting revenue raiser.

Changes proposed for single-asset real estate bankruptcies The National Bankruptcy Commission has recommended changes in the treatment of single-asset real estate bankruptcies under Chapter 11, including elimination of the $4 million debt limit. A single-asset real estate bankruptcy involves a debtor whose only asset is real property (other than one-to-four-family residential property) which generates substantially all of the debtor's gross income. The mortgage holder in such cases can get expedited relief from the automatic stay against foreclosure.

Currently, a property is classified as single-asset real estate only if the debt secured by the property doesn't exceed $4 million. The commission report says this debt should be eliminated because there is no reason to treat large single-asset real estate bankruptcies differently from small ones. The House of Representatives has passed a bill (H.R. 764) that would raise the debt limit from $4 million to $15 million. In addition to removing the debt limit, the commission would revise the definition of single-asset real estate to exclude a property which is used by the debtor in an active business.

Other commission recommendations would require the debtor to begin making payments to the creditor on the later of 90 days after filing the bankruptcy petition or 30 days after the court determines that the case is subject to the single-asset real estate provisions, set the interest rate for the debtor's payments at the contract mortgage rate, and clarify that payments can be made from project rents. The commission would also require debtors seeking to retain an interest in the property to make a substantial equity contribution.

* Elimination of $4 million debt limit * Debtor requirement to begin making payments to creditor on the later of 90 days after filing bankruptcy or 30 days after court decision * Interest rates for debtor's payments set at mortgage rate * Payments can be made from project rents