SC halts affordable housing tax break after overwhelming surge in demand

A tax incentive program aimed at bringing more affordable housing to South Carolina is being put on hold following criticism from state officials who say the tax break is draining the state’s general fund while primarily benefiting wealthy out-of-state developers.

The State Fiscal Accountability Authority decided on Tuesday to temporarily halt the program until July 21, 2022, or until the state legislature comes up with a more permanent solution.

The legislature passed the Workforce and Senior Affordable Housing Act in 2020. It created a tax incentive a program designed to match tax credits that developers received through the federal Low Income Housing Tax Credit program.

To qualify, projects had to be pre-approved for the federal tax break and include a certain percentage of units with affordable rents for tenants who earned between 20% and 60% of the area median income.

Initial cost estimates for the program were conservative — around $2 million in the first year and $16 million during the next 10 years, according to a January 2020 fiscal impact statement from the South Carolina Revenue and Fiscal Affairs Office.

But overwhelming demand from developers has led the state to lose more than it intended. The program had an estimated cost of more than $25 million in fiscal year 2021-2022, according to a state tax expenditure report published this month.

An unforeseen change in the federal tax credit program may have played a roll. In December 2020, Congress passed legislation that raised the minimum rate on its Low Income Housing Tax Credits to 4%, leaving the state with no choice but to match that rate.

Roughly 24% of renters across South Carolina spend more than half their incomes on housing, and the average resident in 40 of the state’s 46 counties cannot afford a two-bedroom apartment. That’s according to research from SC Housing, the state’s housing and finance development authority, which oversees the tax incentive program.

State Rep. Murrell Smith, chairman of the House Ways and Means Committee and a member of the State Fiscal Accountability Authority, acknowledged the need for affordable housing, but said the state should more closely examine how much money it is willing to invest in that.

“You can’t have an unfettered system like we have now,” Smith, R-Sumter, said at Tuesday’s meeting. “Unfortunately we got erroneous information about the cost of it from the state housing authority.”

Chris Winston, spokesman for SC Housing, said it was not his agency’s responsibility to create the fiscal impact statement for the Workforce and Senior Affordable Housing Act, which included the state housing tax credit. But his agency said that it provided all information and data to those in charge.

He called the bill “one of the most potentially impactful affordable housing bills ever passed by the S.C. Legislature.”

Twenty-five development projects received the tax credit in 2020 and 2021, which Winston said will ultimately add 4,000 new affordable housing units.

Some have raised questions about whether the tax credit is actually helping South Carolina businesses. Winston admitted that several of the companies who have taken advantage of the tax break are based out of state, though he could not provide a specific number.

At a December meeting of the State Fiscal Accountability Authority, South Carolina Treasurer Curtis Loftis called these developers the “richest, whitest people on the planet,” according to reporting from The Post and Courier. “They come here to take their multi million dollar checks back home. ... They don’t owe us a duty of anything.”

Even if an out-of-state company receives a tax credit, Winston said the South Carolina economy still benefits when developers hire local contractors, and buy equipment and materials here.

It will now be up to the state legislature to amend the program. No bill on the subject has been introduced so far.