On May 28, 2021, the Biden Administration released the FY 2022 Budget of the United States Government, which includes the Budget Message of the President, information on the President’s priorities, and its summary request for fiscal year (FY) 2022 discretionary funding. It includes funding for two plans the President has already put forward — the American Jobs Plan and the American Families Plan. Budget items of note to the real estate industry are summarized below.
The US Department of Treasury also released the “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals,” otherwise known as the Green Book, which includes details of tax proposals included in the President’s FY 2022 budget to pay for infrastructure investments. Two items of particular concern for the real estate industry include proposed changes to like-kind exchanges and to the taxation of capital gains:
- The Green Book clarifies that a $500,000 cap in the amount of deferred gain from a like-kind exchange would be applied to each taxpayer and that the limit for a married couple filing a joint return would be $1 million. The proposed effective date is set for exchanges completed in tax years beginning after 2021.
- The Green Book proposes that the effective date of the increase in the maximum capital gains tax rate for those with income over $1 million would be for gains recognized after the date of announcement. This appears to mean the date when the President first officially proposed the idea, April 28, 2021.
It is important to note that the President’s budget and tax proposals are not law, they are suggestions for Congress. Congress will have its own ideas about appropriate funding levels for the federal government and how to raise the revenue needed to pay for any infrastructure bill that moves forward. Many of the tax proposals to raise revenue will not be supported by Republicans and many Democrats will be skeptical as well. Corporate tax increase proposals are more likely to be considered as viable by Democratic members of the tax-writing committees than rate increases on individuals. Congress still has a long way to go before reaching any agreements. NAR will continue to educate lawmakers about the importance of investing in housing as critical infrastructure in the US and the negative impact that proposed tax increases would have on the real estate economy, and especially on the commercial real estate sector’s recovery efforts.
FY 2022 Budget Summary – Real Estate-Related Provisions
Federal Housing Administration
Proposes $180 million for FHA administrative contract expenses, an expansion of the Good Neighbor Next Door (GNND) Program, and a new Home Equity Accelerator Loan (HEAL) pilot. This is an increase of $50 million from the 2021 enacted level. The Budget also requests $400 billion in loan guarantee commitment authority and $1 million in direct loan authority, which are both equal to 2021 enacted levels.
- The HEAL pilot will offer new loan products to lower barriers to homeownership for potential first-time, first-generation homebuyers. These programs will assist FHA in equitably strengthening communities by providing affordable housing to people that serve those neighborhoods and expanding access to credit.
Housing Trust Fund
Proposes $35 billion investment in HUD’s HOME Investment Partnership program and a $45 billion investment in the Housing Trust for construction and preservation of homes affordable to people with the lowest incomes.
New CDBG Program
Proposes a new Community Development Block Grant Program for resilience activities in communities vulnerable to climate change. HUD would target funding to low- and moderate-income areas with increased risk from climate related disasters.
Housing Choice Vouchers/Section 8
Proposes $30.4 billion for Tenant-Based Rental Assistance, often revered to as the Housing Choice Voucher program or Section 8 housing assistance. This is an increase of $4.6 billion from the 2021 enacted level.
Proposes $85.9 million for the Office of Housing Counseling (OHC). This is an increase of $8.4 million from the 2021 enacted level.
$250 million towards a new Main Street Revitalization Program that would provide grants to communities for renovating their downtown business districts and adding units of affordable housing while, retaining the area’s traditional and historic character.
USDA Rural Housing Loans
Proposes$1.5 million for Single-Family Direct Loan Program and $30 million for the Single-Family Guaranteed Loan Program. This is a $500,000 increase for the Direct Program and a $6 million increase for the Guaranteed Loan Program.
Housing for Older Americans
Proposes $2 billion in HUD's Section 202 Supportive Housing for the Elderly program, increasing the supply of affordable housing with supportive services for very low-income older Americans.
VA Housing Programs
Proposes $34 million for VA housing programs, including the Specially Adapted Housing Program and Loan Guaranty Program. This is a $ 5.7 million increase from the 2021 enacted level.
Proposes $40 billion to rehabilitate and preserve public housing, addressing residents’ critical health and safety concerns.
HUD Fair Housing Programs
Proposes $85 million for HUD fair housing programs, including $81 million in grants to public and private state and local fair housing agencies, a roughly 16% increase from the $73 million enacted in fiscal 2021.
- Fair Housing Initiatives Program (FHIP): $56 million, a $9.7 million increase from the 2021 Appropriation level, will support grants to private fair housing organizations and education and outreach.
- Fair Housing Assistance Program (FHAP): $25 million, a $600 thousand increase from the 2021 Appropriation level, will support state and local civil rights enforcement agencies with grants, training, and technical assistance.
- Limited English Proficiency Initiative (LEPI): $1 million, a $650 thousand increase from the 2021 Appropriation level, will support English translation and interpretation services.
- National Fair Housing Training Academy (NFHTA): $3 million, a $1.5 million increase from the 2021 Appropriation Level, will support national training on fair housing investigation and conciliation techniques.
- Proposes $93.1 million for HUD’s Office of Fair Housing and Equal Opportunity for fiscal 2022, up approximately 16% from the nearly $79.8 million enacted in fiscal 2021.
Proposes $882 million for the Superfund Remedial program to clean up some of the nation’s most contaminated land, reduce emissions of toxic substances and greenhouse gases from existing and abandoned infrastructure, and respond to environmental emergencies, oil spills, and natural disasters. The $40 million increase to the Brownfields Projects Program will stimulate economic development and promote environmental revitalization across America. Water infrastructure programs are funded at $80 million to rebuild and repair our nation’s water infrastructure.
Proposes an increase of more than $14 billion compared to 2021—across nearly every agency to restore the critical capacity needed to carry out their core functions and to take a whole-of-government approach to tackling climate change; secure environmental justice for communities that have been left behind through the largest direct investment in environmental justice in history; and help developing countries reduce emissions and adapt to climate change. The Budget funds the development of technologies and solutions that will drive new markets and create good paying jobs. The Budget restores the Air, Climate and Energy Research Program and increases base funding by more than $60 million, including $30 million for break-through research through ARPA-C with the Department of Energy.
Environmental Justice and Civil Rights
Proposes over $900 million in investments for environmental justice-related work, collectively known as EPA’s Accelerating Environmental and Economic Justice Initiative, elevating environmental justice as a top priority across the Agency. The Budget also proposes a new national program dedicated to EJ to further that goal. The Budget provides $150 million for new environmental justice grant programs to implement solutions to environmental burdens. The Budget proposes $100 million for the development of a new community monitoring and notification program in the Air Office that will monitor and provide real-time data to the public on environmental pollution, focusing on those communities with the greatest exposure to harmful levels of toxins.
Student Loan Debt
While there are no changes to the budget that affect student debt directly, the Administration has proposed to work with Congress on the “Higher Education Act of 1965” to ease the burden of student debt, including through improvements to the Income Driven Repayment and Public Service Loan Forgiveness programs. The budget does provide discretionary funding to increase the maximum Pell Grant by $400, which is in addition to the $1,475 Pell Grant increase in the American Families Plan.
The budget mentions how the government currently holds financial interest in the GSEs valued at $109 billion. The Treasury holds warrants to purchase 79.9% of shares in both Fannie Mae and Freddie Mac, which were valued at $13 billion in 2020.
Temporary Payroll Tax Cut Continuation Act of 2011
Unlike past budgets, this current budget did not mention use of the “Temporary Payroll Tax Cut Continuation Act of 2011” (TPTCCA), which is a 10 basis point fee that has been added onto every mortgage originated by Fannie Mae, Freddie Mac, and the FHA since 2011, and was used to finance a payroll tax holiday. This fee is expected to end in August or September of this year and the implications are meaningful as the government could only charge the fee while the GSEs’ are under government control. This omission could suggest the Administration intends to end conservatorship in the future or it might be a potential funding source at a later time for other uses. NAR opposes the use of the fees on homebuyers to finance general expenses of the government, especially outside of housing.
Capital Magnet Fund and Housing Trust Fund
Proposes $2.4 billion annually from 2022 through 2026 totaling $12 billion for the Capital Magnet Fund (CMF). Contributions to the Housing Trust Fund (HTF) would grow steadily from $90 million in 2023 to a peak of $8.4 billion in 2028 for a total of $45 billion from 2022 to 2031. These annual contributions dwarf the $1.1 billion in combined contributions in 2020. The increased investment in the CMF is linear, while HTF’s funding rises steadily before tapering. This latter pattern of outlays may suggest a fee source for the HTF such as the 10 basis point fee rather than tax outlays. The original TPTCC raised $36.7 billion over ten years. Thus, extending the fee 10 more years would keep guarantee fees constant and could raise the $45 billion sum earmarked for the HTF as mortgage balances are expected to rise over the next decade with a growing housing stock and home prices.
Misclassification of Independent Contractors
Proposes increased funding to the Department of Labor to help end misclassifying employees as independent contractors in order to ensure employee protections and benefits. In addition to stronger enforcement, the Administration intends to work with the Congress to develop comprehensive legislation to strengthen and extend protections against misclassification across appropriate Federal statutes.
Expanded Health Care Options
In furtherance of the Administration’s long-term health care agenda, the budget proposes the President work with Congress to create a public option available through the Affordable Care Act (ACA) marketplaces; and giving people age 60 and older the option to enroll in the Medicare program with the same premiums and benefits as current beneficiaries, but with financing separate from the Medicare Trust Fund. In States that have not expanded Medicaid, the President has proposed extending coverage through premium-free, Medicaid-like coverage through a Federal public option, paired with financial incentives to ensure States maintain their existing expansions.
Proposes funding to strengthen and modernize Unemployment Insurance System. The goal is to provide states with resources to ensure that their systems and administration procedures reflect the “modern economy and labor force.” Funding will also help to ensure UI reforms are accessible to more individuals and less vulnerable to fraud and misuse.
Homeownership and Pandemic Relief
Proposes greater support for underserved borrowers with access to homeownership through the FHA mortgage insurance programs. Through its loss mitigation program FHA also seeks to provide urgent relief to homeowners still suffering financially due to the pandemic.
Expanded CDFI Funding
Proposes $330M for Community Development Financial Institution expansion to provide loans for start-ups and small businesses to promote the production of affordable housing and community revitalization projects.