MAINE CREATES NEW $80 MILLION AFFORDABLE HOUSING TAX CREDIT
February 28, 2020
On February 12, 2020, Governor Mills signed into law a bill creating the Maine Affordable Housing Tax Credit program. The new law will make $10 million in state tax credits available each year for qualifying affordable housing projects for eight years starting in 2021. Advocates expect that this new program will create an additional 1,000 affordable rental units over the next decade.
The affordable housing tax credit was modeled on Maine’s state historic rehabilitation tax credit, which has been highly successful in spurring a variety of important and downtown rehabilitation projects across Maine since its enactment in its current form in 2008. The new credit is “refundable” meaning that it will be accessible to developers without the need to attract project funders with large Maine tax liabilities. We also expect that there will be a significant role for nonprofits to play in the financing structure for these projects.
There are three major components of the new tax credit program:
The first and largest component of the new program is designed to be used in tandem with the Federal low income housing tax credit program, the primary Federal funding mechanism for the development of new affordable rental housing. A goal of this component is to help unlock Federal credits that would otherwise not be available to Maine projects. The requirements for this portion of the tax credit program require that at least 60% of the units in a project be set aside for households with income at or below 50% of area median income.
The second component targets a portion of the new credit’s benefits to rural housing. Rural housing has become a particularly important issue in Maine – our state has a large number of units financed through various U.S. Department of Agriculture programs, many of which are in need of rehabilitation and repair. In addition, for many older rural housing developments, Federal affordability restrictions are expiring. The new state tax credit was created in part with an eye toward addressing this urgent problem and allocates 10% of the credit to this need.
The third component provides Maine credits to small projects that do not take advantage of the Federal low-income housing tax credit program. To qualify, these projects will need to incur at least $100,000 in construction or rehabilitation costs and can receive credits corresponding to a maximum of $1,000,000 in such costs. This small credit provision may be most useful for the rehabilitation of existing affordable housing projects that require a modest level of rehabilitation expense, but not enough to justify re-syndication and use of the Federal low income housing tax credit program.
The Maine State Housing Authority has the responsibility for administering and allocating the new credit. MaineHousing is expected to formulate rules and guidelines for the program later this year.
Drummond Woodsum’s John Kaminski, was on the steering committee that advocated for the bill, and played a central role in drafting the statutory language.
Our Affordable Housing Practice will be carefully monitoring Maine State Housing Authority’s process of adopting the rules and guidelines for this program, and we are planning informational learning sessions in the spring as implementation of the new Maine affordable housing tax credit moves forward.
Drummond Woodsum is a Maine and New Hampshire leader on affordable housing and community development law and finance; our team has represented developers and financiers for thousands of units of new housing and historic and community development projects since the early 1980s. We look forward to helping clients utilize this important new development tool to help provide quality homes for Maine’s seniors and families.