A provision in the House Republican tax reform bill could eliminate funding for hundreds of new low-income apartments and home loans in Maine, and might substantially increase construction costs for hospitals, colleges and other institutions.

Maine’s congressional delegation is rallying to try to save an obscure program called private activity bonds that was eliminated in the House version of a tax bill pending in Congress. Private activity bonds allow private, nonprofit institutions to sell bonds, with tax-free interest, to pay for capital improvements such as new buildings and infrastructure and to fund other programs like student loans.

The loss of private activity bonds would hit affordable housing the hardest, Maine housing advocates say. Losing the bond program, combined with the loss of other incentives in the House bill such as historic tax credits and lowering the value for low-income housing tax credits, could reduce the amount of new affordable housing in Maine by almost 50 percent, they say.

That’s in part because the tax-exempt bonds are tied to a 4 percent tax credit that helps pay for new low-income housing, explained Greg Payne, director of the Maine Affordable Housing Coalition. About 1,730 fewer low-income homes would be built in Maine over the next decade if the bonds are eliminated, the coalition estimates.

“If there is no private activity bonds to use, there is no more 4 percent program,” Payne said in an interview Tuesday. “That alone would reduce the number of houses we can build and preserve in the state by 40 percent.”

The bond program is untouched in the Senate version of the tax bill. The two chambers are currently negotiating to resolve differences between the two Republican tax overhaul bills.

LOSING ADVANTAGES FOR INVESTORS

Tax-exempt bonds and tax credits have historically buoyed affordable housing projects, while offering advantages to investors who don’t have to pay taxes on the interest they earn.

The specter of losing the bonds and credits drew about 75 coalition members to a meeting Tuesday at the University of Southern Maine to discuss how to address threats to housing developments.

Dana Totman, president of Avesta Housing, said losing bonds would not affect any of the company’s proposed housing proposals, but would curtail future development.

“Essentially, all the affordable housing developments use tax credits, that is the nation’s affordable housing production program these days,” he said.

Future homebuyers also could be hurt if the bonds disappear, said Peter Merrill, deputy director of the Maine State Housing Authority. The authority uses bonds to pay for a program that gives low-interest mortgages to some first-time homebuyers.

In the past five years, Maine Housing has helped 3,900 homebuyers through the program, Merrill said. The program targets moderate and low-income homebuyers with regional income limits of $73,600 to $98,400 for a family of three or more.

“What makes us lose sleep is that there is a risk that affordable housing programs will be eliminated without any offsetting mechanism to address the problem,” Merrill said.

IMPACT ON INSTITUTIONAL PROJECTS

Losing access to private activity bonds also could affect institutions such as hospitals and private colleges, but the direct impact is less certain.

Tax-exempt bonds typically have lower interest rates than bonds on the open market. A higher interest rate for borrowing could increase project costs, substantially in some cases, said Michael Goodwin, executive director of the Maine Health and Higher Education Facilities Authority. In some cases, those costs could be passed on to customers, but small, independent institutions, such as rural hospitals, might forgo a new building or upgrade if long-term borrowing costs are too high, he said.

“We are assuming they will still be able to access the taxable market,” Goodwin said. “(Financing) will still be there in some form, it will just be more expensive than the tax-exempt market they are using.”

Maine Medical Center plans to use bonds to pay for half of the $512 million expansion at its Portland campus, said communications director Clay Holtzman. The hospital has not finalized financing for the project and Holtzman could not say if it planned to use private activity bonds.

“Tax-exempt bonds are a critical component of health care financing that allows providers to deliver affordable health care,” Holtzman said. “Changing that status would ultimately add to the costs associated with health care. We are working proactively with our federal delegation to help them understand the impact of this legislation and correct it in the final tax reform package.”

LAWMAKERS TRY TO SAVE PROGRAM

A spokeswoman for Sen. Susan Collins of Maine said the bonds are protected in the Senate version of the bill.

“This is something she supports and is supporting,” Collins spokeswoman Annie Clark said.

Rep. Bruce Poliquin, R-2nd District, voted for the House Republican tax bill in November, but has since come out against eliminating the private activity bond and advanced refunding bonds, a tool used to pay off older bonds with higher interest rates. In a letter to congressional Republican leaders, Poliquin and 20 other House members said cutting the bond programs was “incompatible” with President Trump’s priority on infrastructure investment.

“Private activity bonds finance exactly the sorts of public-private partnerships of which we need more of, not less,” representatives said in the letter. “This infrastructure investment created jobs for homebuilders, factory workers and engineers, and contributes to economic growth nationwide. The current tax-exempt status of private activity bonds and advanced refunding bonds benefits all Americans.”

Correction: This story was updated at 10:49 a.m. on Dec. 6, 2017 to correct Peter Merrill’s title.