SALEM — The Oregon Legislature’s decision not to regulate tax credits for farmworker housing projects has allowed those credits to be sold to investors for as little as 53 cents on the dollar.
Low prices meant the tax credits were less efficient at raising capital for state policy priorities than other state tax credits, which are regulated or managed in ways that result in higher prices.
Oregon has issued more than $38.2 million in agricultural workforce housing tax credits over the last two decades and the program, run by Oregon Housing and Community Services, can claim some successes. It helped pay for the renovation and construction of approximately 1,400 units of affordable housing for laborers on farms and nearby towns around the state, according to housing agency data.
But because of the way the state structured the program, much of the face value of the tax credits — 40 to 47 percent in some cases — went to banks and individuals with big income tax bills, instead of farmworker housing, according to interviews and data provided by the state and housing nonprofits.
This occurred because the state awarded a majority of the tax credits — $33.3 million — to nonprofits, religious organizations or governments that would not owe state income taxes, according to an analysis of state data going back to 1997. In order to raise cash for the housing projects, those groups had to sell the tax credits to entities that pay taxes. This is allowed, because these are transferable tax credits. The farmworker housing tax credit was created in 1989, but state data on tax credits awarded before 1997 was not easily available.
The remaining $5 million in tax credits were awarded to owners of orchards and other farms that provide onsite housing for workers. Those recipients typically use the credits themselves because they pay state income taxes, according to Oregon Housing and Community Services.
In 2013, the Legislature discussed whether to allow the farmworker housing tax credit expire. It was part of a routine review for a batch of tax credits scheduled to sunset in 2014. A large group of tax credit supporters, from farmworker advocates to large farms and then Gov. John Kitzhaber, pushed the Legislature to renew it.
Legislative committees held several hearings on the tax credit. During a hearing on the technical details at the 2013 Joint Committee on Tax credits, lawmakers raised questions about sales prices of the credits.
“I’m personally interested in the efficiency of the markets that are being used for the (sale) of these credits,” said Rep. Phil Barnhart, D-Springfield, a co-chair of the committee.
Rep. Cliff Bentz, R-Ontario, had a similar question.
“What’s the haircut that’s taken when we pay the investor for the credit? In other words, how much actually goes to the building?” Bentz asked Peter Hainley, executive director of the nonprofit CASA of Oregon, which helps other organizations to finance and build affordable housing for agricultural workers.
“It can range from 70 cents on the dollar, 68 cents on the dollar,” Hainley said. “It’s been as high as 80 cents on the dollar.”
Hainley didn’t tell lawmakers that CASA of Oregon had facilitated projects where the farmworker housing tax credits sold for much lower prices. The nonprofit Milton-Freewater Orchard Homes, Inc. sold its $700,000 tax credit in 2005 for just 53 cents on the dollar, or $371,000, according to data provided by CASA of Oregon. CASA of Oregon provided information on 14 pending and completed agricultural housing tax credit sales going back to 2004. The highest price listed was 77 cents on the dollar. Nearly all the tax credits were sold to banks.
Hainley told lawmakers there was another reason to keep the tax credit: the Oregon Department of Revenue had found that among entities that purchased the farmworker housing tax credits, “a lot” were not using the credits to reduce their tax bills. “And so as far as the state’s return on this investment, it’s really good,” Hainley said.
Barnhart asked Department of Revenue staff at the hearing to send him the data. It’s unclear whether the Department of Revenue followed through on Barnhart’s request. The Department of Revenue does not appear to have analyzed claims rates for the credit. Joy P. Krawczyk, a public information officer for the Department of Revenue, pointed to the agency’s estimates that entities claimed an average of $900,000 to $950,000 worth of the tax credits annually from 2011 through 2015. However, the reports did not reveal what portion of the credits — which can be claimed over 10 years — expired without being used.
The Department of Revenue and Oregon Housing and Community Services had agreed to track the amounts of farmworker tax credits awarded and claimed, under a 2012 memorandum of understanding. The 2012 memorandum specifically called for the two agencies to track “the name and contact information of contributors who may have purchased credits thus identifying the taxpayer who will claim the credit.”
Alison McIntosh, a government relations and communications liaison for Oregon Housing and Community Services, wrote in an email that “entities that receive the credit aren’t required by statute to inform (Oregon Housing and Community Services) of who purchases the credit. In some instances, we do have some of that information, but not all.” Instead, the tax credit recipients are required under state law to report information about the buyers and the purchase prices directly to the Department of Revenue, McIntosh wrote.
Krawczyk wrote in an email that “we’re not statutorily required to track purchaser or purchase price for this credit.” Tax credit sellers and buyers report information to the Department of Revenue when they file their tax returns, and that information is not public, Krawczyk wrote. In contrast, the Oregon Department of Energy tracks tax credit price and buyer information and has released that data in response to public records requests.
Lawmakers in 2013 ultimately decided to extend the agricultural workforce tax credit, and the state can award up to $3.1 million in credits annually. “I think we do usually reach that in allocation,” McIntosh said. The tax credit will likely come up for review again in 2017. It expires Jan. 1, 2021.
The housing developer that sold the most tax credits in recent decades was the Farmworker Housing Development Corporation, which received state tax credits with a face value of approximately $10.3 million, according to state housing agency records. The nonprofit sold at least $5.8 million of those tax credits to a Portland-based division of the bank PNC Financial Services Group Inc. that is one of the largest owners of apartment buildings across the nation.
Roberto Jimenez, executive director of the nonprofit, said the organization sold one tax credit — records show it was worth $1.2 million — for approximately 60 cents on the dollar, which would be about $712,000. Jimenez said the tax credit was originally going to sell for closer to 75 cents on the dollar, but the buyer lowered the price because the sale took place in 2009 “right at the peak of the recession.” Jimenez said his nonprofit sold its other agricultural housing tax credits for 65 to 75 cents on the dollar. A majority of the group’s tax credits paid for rehabilitation and new construction of the Nuevo Amanecer housing project in Woodburn.
Jimenez said the benefit of receiving a tax credit instead of a state grant is largely political.
“Tax credits don’t (get cut) because they serve both the user and the buyer, and grant programs don’t function the same way,” Jimenez said. “There’s a lot more shared benefit with the tax credit program than there is with the grant program.”
Jody Wiser is chair of Tax Fairness Oregon, a group which advocates for a progressive tax code and full enforcement of state tax laws. Wiser said she thinks affordable housing groups prefer the tax credit because the Oregon Legislature can only increase taxes by a two-thirds majority, whereas “it takes a simple majority to move a budget bill.” That makes it more difficult for lawmakers to change tax credits in between scheduled credit sunsets.
Wiser said the complicated nature of tax credits can make affordable housing more expensive to build.
“Everybody knows it’s the most complicated way of doing policy,” Wiser said of tax credits. “We should be doing the simple thing of providing funding to help with the cost to help with the cost of things we think the community needs.”
One option could be to sell the tax credits at public auctions. Proponents of auctions have pointed out the Oregon Film Office sells its tax credits for as much as 99 cents on the dollar by using auctions.
“The solution could be to just have all of them sold at auction, and (the state would) pass out grants,” Wiser said.
Hillary Borrud is a reporter for the EO Media Group/Pamplin Media Group Capital Bureau and Oregon Capital Insider.