Arizona is the 1st state to create low-income housing tax credits and then kill them

Arizona is the first state to establish and then abolish a low-income housing tax credit program.

In 2021, a bipartisan coalition of lawmakers established the state program, known as LIHTC, under former Republican Gov. Doug Ducey. It gives tax breaks to developers as an incentive to build affordable housing.

But opponents of LIHTC blocked an expansion plan from advancing in the state legislature this year. Now, the program is set to expire in December.

“It is extremely disappointing, and you know developers and projects will pull out of Arizona and that pipeline will shrink in bringing affordable units online,” Rep. Sarah Liguori (D-Phoenix) said.

Including Arizona, 31 states and the District of Columbia have their own LIHTC programs. That’s about twice as many states as had their own LIHTC programs when Arizona established one.

In order to qualify for Arizona’s tax credits, a development must either put aside at least 40% of the housing units as rent-restricted to go to to tenants with income 60% or below the area median gross income or put aside at least 20% of units as rent-restricted for tenants making 50% or under the area median gross income.

Although there was some bipartisan support for LIHTC this year, Gov. Katie Hobbs said she couldn't get a Republican champion for the extension and expansion of the program.

“LIHTC has been a priority. We've seen the huge impact that those investments have had across the state and it's something important that we'll keep fighting for. Quite frankly, we need a Republican to champion it, and there wasn't anyone that was willing to - even Republicans who had supported it in the first iteration that was passed in the state. So not something that we're giving up on, we'll continue to fight for it,” Hobbs said.

One of the most important opponents of LIHTC expansion in the state Legislature is Senate President Warren Petersen (R-Gilbert).

He said in January that he would not support LIHTC and prefers broad tax cuts that help everyone.

Liguori said there was an overall trend in this year’s legislative session of inaction on housing.

“My frustration lies in Arizona not understanding the importance of this program and the continuation of constructing affordable units across the state. We had a number of bills that addressed affordability and creation of units across the state … and none successfully made it over the finish line,” she said. “It sets us up for potentially more housing insecurity in the next few years.”

Federally, LIHTC was established in 1986 by President Ronald Reagan. The federal program still exists and can still be utilized in Arizona.

However, the state program had about $4 million a year to spend on affordable housing. It has resulted in more than 1,500 homes statewide, with some of the money earmarked for rural Arizona specifically, according to a report by economic consulting service Elliott D. Pollack & Company.