Collaborative Governance and the Low-Income Housing Tax Credit

Abstract

The Low-Income Housing Tax Credit (LIHTC) is the largest federal program focused on increasing the supply of affordable housing. The credit is designed as a collaboration among the federal government, states, localities, developers, and investors. But it is not meeting its goals. Budget hawks have noted that costs have increased while units have fallen and that there is waste and fraud. Civil rights and equity advocates focus on how LIHTC exacerbates segregation and traps children in poverty. But the solutions proposed are atomized and disparate.

This Article seeks the root cause of these disparate problems. It draws on the concept of collaborative governance from public administration and administrative law as a framework for analysis. This analysis reveals that there are divergent preferences between the parties and the federal government. These divergent preferences are poorly managed and ineffectively monitored as-is, and the incentives indeed exacerbate these different preferences.

The Article then proposes a series of reforms based on these insights. It first suggests some internal reforms to the program, mainly directed at better aligning party incentives with federal goals and at having IRS improve its financial monitoring of the projects. But, most importantly, the proposal seeks to draw in the Department of Housing and Urban Development (HUD) to assist IRS in the management and administration of LIHTC. It provides a detailed framework as to how to achieve an effective interagency effort that can improve monitoring on other dimensions where IRS lacks expertise. This use of interagency efforts and the collaborative governance framework in LIHTC also serves as a case study of how to analyze and manage other social policy related tax expenditures.

Keywords: Low-Income Housing Tax Credit, LIHTC, affordable housing