The federal Community Reinvestment Act (CRA), enacted in 1977, charges federal bankingregulators to ensure that banks, “serve the credit needs of their local communities in a safe and sound manner.” In order to meet CRA requirements, banks have invested considerably in low-income housing tax credit (LIHTC) properties over time. However, in recent years the location of bank deposits has become an increasingly important factor in determining where banks must make their equity commitments. This trend has caused tax credit pricing to be much higher in major urban areas where deposits are heavily concentrated, like New York City and San Francisco.
Federal bank agencies have recently sought to reform CRA regulations, particularly by expanding the concept of CRA assessment areas and published new proposed interpretive guidance in March 2013. Based on comments from more than 200 organizations, changes were incorporated into the final version of the guidance, published in the Federal Register on November 20, 2013.
As published in the January issue of the Tax Credit Advisor, Matt Barcello and Fred Copeman of CohnReznick, LLP, believe that under the new guidance, banks will have the option of investing in LIHTC projects in other areas within the same state or the same region. For example, a bank whose CRA footprint is in the New York City area, which tries, to no avail, to find a local LIHTC project, should be able to invest in a project in upstate New York and receive CRA credit for that investment. As Barcello and Copeman point out, this change might not reduce credit pricing in CRA “hot” markets, but it could take pressure off banks to bid up pricing for projects within their footprint. In order for this change to materialize, banking regulators will need to revise the training of their CRA examiners, which the industry is currently awaiting.