Key Points:

• Tax credit provides incentives to create affordable housing

• Recent budget fails to fund tax credit

• Loss of program could exacerbate homelessness, stunt development

Gov. Katie Hobbs and Arizona lawmakers successfully averted a government shutdown with a late budget deal, but housing advocates are disappointed at the loss of a first-of-its-kind state housing tax credit program.

Arizona’s $17.6 billion budget doesn’t put new dollars into the Housing Trust Fund nor the Low-Income Housing Tax Credit Program. Extending the LIHTC program was one of Hobbs’ priorities in her State of the State Address. 

“We are the first state in the nation to implement the LIHTC program and not renew it,” said Rep. Mariana Sandoval, D-Goodyear. “This means that housing insecurity and scarcity will continue to grow, particularly in rural areas.”

Arizona has allocated federal funds for the national housing tax credit program, originally established in 1987 when Republican President Ronald Reagan signed a bipartisan law that allowed states to adopt the program. Since its inception, the program has helped create tens of thousands of housing units for people who earn less than the median income, leading to Arizona creating a state version of the program in 2021.

Arizona Housing Coalition Executive Director Nicole Newhouse credited the low income tax credit program for helping housing developers fund affordable projects in rural areas of the state. 

“Those deals would not pencil out in Globe, Arizona, where we have one of the first state LIHTC projects coming online, which is a revitalization of the historic Hill Street School,” Newhouse said. “That would not have happened at all without that state tax credit.”

In the 2023 legislative session, Gov. Katie Hobbs got $150 million for the Housing Trust Fund and $60 million for homeless services. 

The Department of Housing’s Deputy Director Joan Serviss, who was director of the agency at the time, called that year’s budget “historic” for the appropriations the state secured for housing projects.

This year’s budget situation left lawmakers no room for historic spending in any area. It comes just a year after the Legislature resolved a two-year $1.4 billion budget deficit. That deficit, combined with federal uncertainty and potential cuts to tax revenue, left lawmakers worried. 

In her January executive budget proposal, Hobbs requested a five-year expansion of LIHTC, which will sunset on Dec. 31. Hobbs also urged legislators to increase the annual tax credit from $4 million to $10 million. 

Hobbs also wanted $15 million for the Housing Trust Fund this year, which has received $165 million combined in her first two budgets she signed. 

House Minority Leader Oscar De Los Santos, D-Laveen, said funding for housing programs like LIHTC was a major priority for Democrats and Hobbs, but Arizona’s divided government and limited funds required all parties to make concessions. 

“Our caucus is supportive of LIHTC, but in order to get something into the budget, you need champions on both sides, and unfortunately, there were not enough Republicans who were willing to include LIHTC in the deal,” De Los Santos said. 

Instead of historic-levels of funding like in 2023, Democrats instead focused on funding people in need with more limited budget resources. 

The budget does include $16.5 million for homelessness services, including eviction prevention and shelter operations for youth and families. It also provides $2 million for Hobbs’ Homes for Heroes initiative which aims to reduce homelessness among military veterans. 

“Although they are small wins, we are proud of the inroads we have made to provide relief to those who are struggling,” Senate Minority Leader Priya Sundareshan, D-Tucson, said of the budget on the Senate floor. 

The loss of LIHTC is significant for those seeking affordable housing. Nate Smith, the CEO of Central Arizona Shelter Services, said the program’s discontinuation would exacerbate a public health crisis of people experiencing homelessness, who are more prone to heat-related injuries or death in the hot summer months.

According to Central Arizona Shelter Services, there are approximately 10,000 people experiencing homelessness in Maricopa County, and while shelters like CASS are good temporary solutions, Smith said eliminating LIHTC could put further pressure on shelters.

“That’s when we’re actually building units using LIHTC. You take LIHTC away, what’s going to happen to that number?” Smith said. “We don’t have enough now,” Smith said. “Removing the options of moving on to permanent housing isn’t the solution.”

While several other housing policy measures failed to pass through the Legislature this session, Hobbs did sign Senate Bill 1611, dubbed “Ag-to-Urban,” which supporters say will lower housing prices and help create more housing by allowing high water-use farmers to sell their land and groundwater rights to housing developers.

Sen. T.J. Shope, R-Coolidge, in a news release after SB1611 was signed, said: “Hard-working Arizonans will be able to pursue their American dream of homeownership as home supply increases in Maricopa and Pinal Counties and prices naturally ease. Our farmers, who are ready to retire, can reap the benefits of their land while also allowing the state to save water. The Ag-to-Urban plan is the most consequential piece of groundwater conservation legislation since the 1980 Groundwater Management Act.”

Other lawmakers still would have liked to see more done for housing this session. 

Sen. Analise Ortiz, D-Phoenix, has been a major housing policy advocate at the Legislature. She helped form the bipartisan legislative housing caucus, which was organized at the start of the session. However, she said her vote against the bipartisan budget was partly due to the lack of legislative action on affordable housing. 

Other housing measures failed to garner support from lawmakers in both chambers. The “Arizona Starter Homes Act,” Senate Bill 1229, never received a hearing on the House floor. 

Another measure that would have allowed churches to develop housing on their property, House Bill 2191, dubbed the “Yes in God’s Backyard Act,” failed on the House floor, 28-26.

“We had a responsibility this session to deliver on affordable housing, and we failed. We especially failed in this budget,” Ortiz said.