Memorandum — Economic & Fiscal Impact of Proposed State-Level Affordable Housing Tax Credits (March 6, 2023)
Summary
Memorandum from Danny Court, Principal, Senior Economist, to the Ohio Affordable Housing Coalition, dated March 6, 2023, re: Economic & Fiscal Impact Summary of Proposed State-Level Affordable Housing Tax Credits. The memo states that the objective of the proposed Affordable Housing State Tax Credit for the State of Ohio is to induce private sector investment in housing affordable to individuals and households in the lowest income brackets. It states that production is expected to average 4,325 new units annually, equating to a total of 25,950 new units over six-years. Its closing bullets state that increased revenues would offset the cost of the tax credits by 41.3% ($1.2 billion), reducing overall state costs from $3 billion to $1.76 billion.
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“Memorandum — Economic & Fiscal Impact of Proposed State-Level Affordable Housing Tax Credits (March 6, 2023).”
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Economic and Real Estate Consulting
MEMORANDUM
To: Ohio Affordable Housing Coalition
From: Danny Court, Elliott D. Pollack & Company
Principal, Senior Economist
Date: March 6, 2023
Re: Economic & Fiscal Impact Summary of Proposed State-Level Affordable Housing
Tax Credits
1. Introduction
Elliott D. Pollack & Company has assessed the economic and fiscal impacts of the proposed
Affordable Housing State Tax Credit for the State of Ohio. The objective of the state tax credit is to
provide a funding mechanism to induce needed private sector investment in the development of
housing that will be affordable to individuals and households in the lowest income brackets of Ohio’s
population. It is our understanding that the goal of proponents of the Ohio state tax credit is to
model the administration of the proposed program after the best practices of other state tax credit
programs already operating.
The following summary outlines the impacts of the proposed affordable housing tax credit program.
For modeling purposes, the production of new affordable housing units was based on a proposal for
$50 million in annual tax credits for each of ten years issued over a six-year sunset period (2024-
2029) for a total allocation of $3 billion in state affordable housing tax credits. For development
potential, the tax credit program’s historical performances in other states were analyzed in terms of
development potential and construction costs and used in the following calculations.
Administration of the state tax credits will fall under the discretion of the Ohio Housing Finance
Agency (OHFA) and will likely include a mix of 4% and 9% affordable housing projects in both urban
and rural areas. Production from the new state tax credit program is expected to average 4,325
new units annually, equating to a total of 25,950 new units over six-years.
In addition to new apartment construction and operations, this analysis includes the impacts of new
household spending. Affordable housing helps households overburdened by rent, offering units at
below market-rate rents to individuals, families, and seniors who are income restricted. These
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Ohio Affordable Housing State Tax Credit Impact Analysis
households gain additional money that would have otherwise gone towards housing costs thus
allowing them to meet other household needs such as food, transportation, utilities, and personal
services. This is new money spent in the local economy that supports local jobs and generates tax
revenue.
2. Report Authors
Elliott D. Pollack & Company is headed by one of Arizona’s most noted economists. Since 1987,
the firm has been offering a broad range of economic and real estate consulting services backed
by the most comprehensive database found in Arizona. The firm’s services can generally be
classified into the following areas:
• Real Estate Consulting: Marketability and supply/demand studies, financial feasibility
analysis, real estate forecasting, land use/land economic studies, highest and best use
analysis, and property evaluations.
• Economic and Fiscal Impact Analyses/Modeling: Forecasting and evaluating the
potential impact of a particular activity from the standpoint of job creation and revenue
to governmental entities.
• Economic Consulting: Economic forecasting, demographic analyses and econometric
modeling. Analysis and development of economic development programs at the local and
state level, workforce studies and targeted industry studies.
• Tax and Fiscal Policy Consulting: Forecasting of tax revenues, policy related demographic
analyses, bond revenue forecasting, State and local government program evaluation, and
other diverse tax and fee evaluations.
• Litigation Support: Statistical analysis and expert witness testimony to both plaintiff and
defense attorneys in all areas related to economics, finance, and real estate.
• Key Note Speaking: Presentations on the local, state and national economies and real
estate markets organizations throughout the Southwest region of the U.S.
Elliott D. Pollack & Company’s staff is comprised of professionals with a blend of backgrounds
that support a number of technical disciplines. The wide variety of studies and investigations
undertaken by the Company demonstrate the creativity and expertise of its staff. The firm has
been retained by both public and private entities to provide services in the areas of economics
and real estate.
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Ohio Affordable Housing State Tax Credit Impact Analysis
3. Rationale for and Description of Proposed Ohio Legislation
Unlike 22 other states, Ohio does not have an affordable housing tax credit. It is therefore missing
an important state policy and finance tool designed to address the large and growing shortage of
affordable housing. Ohio’s extremely low-income families are severely cost burdened with regard
to housing. They spend more than 50% of their income on housing costs and utilities. In 2017, 67%
of extremely low-income renter households were in this situation, while 84% were defined as cost
burdened for spending more than 30% of their total income on housing and utilities.
These realities, which have become even more challenging with the COVID-19 pandemic and related
recession, have led to an Ohio affordable housing crisis. The shortage of affordable housing in Ohio
has now reached a shortage of nearly 250,000 units. And high costs and a shortage of homes has
also resulted in an estimated 70,000 Ohioans who experience homelessness each year, including
21,000 children and 3,000 infants. In 2020, the hourly rate a worker would need to earn in order to
afford a modest, two-bedroom apartment unit increased to $15.99.
And while Ohio does not have an affordable housing tax credit, the biggest driver of affordable
housing nationally is the federal Low-Income Housing Tax Credit (LIHTC) program, which has been
incenting private sector investment since 1986. In Ohio, more than 100,000 affordable housing units
have been developed through this program. The LIHTC comes in two forms: the 9% and 4% credit.
The 9% credit in Ohio is allocated competitively by the Ohio Housing Finance Agency. Applications
for projects are oversubscribed every year because the 9% credit provides equity financing for 70%
of the present value of a project’s construction cost.
Projects using the 4% credit are financed in part with tax-exempt bonds. Each year, $120 million of
federal bond volume cap it allocated to OHFA for multifamily development. Yet, since 2015, because
of a lack of private sector investments in affordable housing OHFA has not been able to sustainably
utilize the $120 million allocation; this means that Ohio is currently leaving substantial federal
resources on the table. In order to change this, additional funding sources are necessary.
Importantly, it worth noting that the LIHTC is an investable tax credit in the sense that the
government allocates tax credits to affordable housing developers who then sell the credits, often
via intermediaries, to investors in exchange for equity financing. Tax credits are subsequently used
(redeemed) by investors on their respective tax returns.
Using this proven model to create a new Ohio affordable housing tax credit to address significant
Ohio affordable housing shortages is a great opportunity for Ohio. The proposed state tax credit is
modeled on the LIHTC and thus designed to encourage needed private sector investment in
affordable housing. This state credit is a dollar of tax credit for every dollar of investment. The
credits are authorized for issuance of $500 million over ten years with issues beginning in each of
six year (2024-2029) thus allowing for an issuance of a total of $3 billion in state affordable housing
tax credits. These tax credits can help generate additional private sector investment that, as this
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Ohio Affordable Housing State Tax Credit Impact Analysis
following analysis reveals, will produce more affordable housing and more related jobs, wages and
taxes. Put simply, without an affordable housing tax credit Ohio investors will continue to invest in
business opportunities that provide a better return on their investment and Ohio’s affordable
housing problem will grow in size and significance.
4. Economic Impact Methodology
Key Assumptions
The assumptions used to estimate the economic and fiscal impacts of the construction and
operations of the low-income housing units have been developed from a variety of sources. The
analysis assumed that the state tax credit program would help produce an additional 4,325 units per
year totaling 25,950 units over the 6-year program. These figures are based on Ohio’s historical
experience with low-income housing development. Average construction costs, square footage and
rents were gathered from Ohio industry data but align with experiences in other states.
An average of 44 units per employee was used to calculate the number of operating jobs with
taxable supply purchases of $1,000 per employee. These figures are based on national industry
standards for apartment development and operation. The average annual income for residents of
$32,800 was estimated based on 30% of income devoted to rent. The annual taxable spending of
residents was then calculated based on the U.S. Consumer Expenditure Survey using the average
household income. Based on information from the U.S. Census Bureau, a typical household size of
1.77 persons per unit was used. All calculations assume a 2% stabilized vacancy rate.
Assumptions
Ohio Affordable Housing Tax Credit Program
(2023 Dollars)
Construction
Total units built over 6 years 25,950
Construction cost per unit $202,000
FF&E per unit $5,000
Impact fee per unit $3,000
Operations
Average units per employee 44
Taxable supplies per employee $1,000
Average rent per unit $820
Average vacancy 2.0%
Average income per resident $32,800
Percent of income devoted to rent 30%
Average number of people per MF Unit 1.77
Source: Ohio Housing Council; Elliott D. Pollack & Company; U.S. Census Bureau
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Ohio Affordable Housing State Tax Credit Impact Analysis
Economic Impact Methodology
Economic impact analysis examines the economic implications of an activity in terms of output,
earnings, and employment. For this study, the analysis focused on the construction impacts as
well as the ongoing operations including direct expenditures by the residents.
The different types of economic impacts are known as direct, indirect, and induced, according to
the manner in which the impacts are generated. For instance, direct employment consists of
permanent jobs held by project employees. Indirect employment is those jobs created by
businesses that provide goods and services essential to the operation or construction of the
project. These businesses range from manufacturers (who make goods) to wholesalers (who
deliver goods) to janitorial firms (who clean the buildings). Finally, the spending of the wages
and salaries of direct and indirect employees on items such as food, housing, transportation and
medical services creates induced employment in all sectors of the economy, throughout the
region. These secondary effects are captured in the analysis conducted in this study.
Multipliers have been developed to estimate the indirect and induced impacts of various direct
economic activities. IMPLAN developed the multipliers used in this study and were selected
based on the spending type. The multipliers used for this project represent the construction of
multi-family dwellings, service to buildings, and those related to the spending of residents on
retail sales, entertainment, services and restaurant and bars.
The multipliers specific to the State of Ohio are used in this study. This means that the indirect
and induced figures represent jobs created throughout the state.
The economic impact is categorized into three types of impacts:
(1) Employment Impact – the total wage and salary and self-employed jobs in a region. Jobs
include both part time and full-time workers.
(2) Earnings Impact – the personal income, earnings or wages, of the direct, indirect and
induced employees. Earnings include total wage and salary payments as well as benefits
of health and life insurance, retirement payments and any other non-cash compensation.
(3) Economic Output – also referred to economic activity, relates to the gross receipts for
goods or services generated by the company’s operations.
Economic impacts are by their nature regional in character. That is communities throughout the
State of Ohio would also benefit from the operations of each project.
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Ohio Affordable Housing State Tax Credit Impact Analysis
Evidence from Other States
Twenty-two states have an affordable housing state tax credit. These credits are modeled on or
informed by the federal LIHTC. A leading example of a successful, well-documented state
affordable housing tax credit – and one that helps anchor the proposed Ohio tax credit in state-
level evidence, can be found in Colorado.
Colorado’s Affordable Housing Tax Credit (AHTC) was created in 2001 and modeled after the
LIHTC. It was renewed in 2014, 2016 and 2018. And it was expanded in 2019. From 2015 to
2022, the AHTC produced impressive results in a state that is substantially smaller than Ohio in
population:
o 9,669 Housing Units Directly Supported
o $108.8 Million Federal 4 Percent Housing Tax Credit Leveraged
o $1.4 Billion New Private-Sector Investment Raised To Support Colorado Housing
o $4.6 Billion Economic Impact
o 31,241 Jobs Supported
5. Economic Impact Analysis
Construction of the new affordable housing units will create 11,546 jobs in each year of the
program. This equates to a six-year total of 69,277 person-years of employment, $4.8 billion in
wages, and over $10.0 billion in economic activity throughout the state of Ohio.
The commercial operations of new apartment communities and the additional employment
supported by increased household spending will create an estimated 2,365 direct, indirect, and
induced jobs annually, with wages of $108.1 million and generate an estimated $489.9 million in
economic activity each year. Over the 30-year operating life of each apartment community (35
years for the entire program), a total of over $3.2 billion in wages will be created and nearly $14.7
billion in economic activity will occur throughout the state.
In total, both construction and operations will create nearly $24.7 billion in economic activity
over the course of construction and 30 years of operations.
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Ohio Affordable Housing State Tax Credit Impact Analysis
Economic Impact Summary
Ohio Affordable Housing Tax Credit Program
State of Ohio
(2023 Dollars)
Construction Avg Annual Total
Jobs (direct, indirect, induced) 11,546 69,277
Wages ($mil) $803.2 $4,819.4
Economic Output ($ mil) $1,667.8 $10,007.0
Operations (Total at Buildout) Annual 30-Year TOTAL
Jobs (direct, indirect, induced) 2,365 70,950
Wages ($mil) $108.1 $3,242.3
Economic Output ($ mil) $489.9 $14,698.5
GRAND TOTAL CONSTRUCTION & OPERATIONS
Wages ($mil) $8,062
Economic Output ($ mil) $24,705
_______________
1/ The total ma y not equa l the s um of the i mpa cts due to roundi ng.
Sources : El l i ott D. Pol l a ck & Co.; IMPLAN
6. Fiscal Impact Methodology
Fiscal impact analysis studies the public revenues associated with a particular economic activity.
The primary revenue sources of local, county, and state governments (i.e., taxes) are analyzed to
determine how an activity may affect the various jurisdictions. This section will evaluate the
impact of the project on state and local government revenues.
The fiscal impact figures cited in this report have been generated from information provided by
a variety of sources including the U.S. Bureau of the Census; the U.S. Department of Labor; the
Internal Revenue Service; the State of Ohio; and the U.S. Consumer Expenditure Survey. Elliott
D. Pollack & Company has relied upon the estimates of operating revenues outlined in this study.
Fiscal impacts are categorized by type in this study, similar to economic impact analysis. The
major sources of revenue generation for governmental entities are calculated based on ongoing
operations. Employees will spend part of their salaries on local goods and services and pay taxes
on the homes they occupy.
The following is a description of the applicable revenue sources that will be considered for this
analysis.
Construction Sales Tax
The State levies a sales tax on materials used in the construction of buildings. That tax is
calculated by under the assumption that 65% of the construction cost of the facility and its
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Ohio Affordable Housing State Tax Credit Impact Analysis
land improvements are related to construction materials with the remaining 35% devoted to
labor. The state sales tax rate is then applied to the 65% materials figure.
Sales Tax
The State of Ohio imposes a sales and use tax that applies to all retail sales of tangible personal
property that are not specifically exempt. Exemptions include items such as groceries, motor
vehicle fuel subject to the state motor fuel excise tax, gas, water, communications,
prescription drugs, medical equipment, construction materials sold to a contractor and other
utilities and other items described in statute. Based on data from the U.S. Consumer
Expenditure Survey, the projected extent of retail spending and resulting sales tax receipts
was calculated. The Ohio sales tax rate is currently 5.75%
Income Tax
The State of Ohio levies income tax on personal income of Ohio residents. The taxable income
begins with federal adjusted gross income. The personal income tax rate varies from 2.85%
for income over $22,500 to 2.797% plus $8,143.14 for the amount over $221,000 depending
on income levels. The model uses the effective tax rates applied to the wages and earnings of
direct, indirect and induced employment produced in the model.
Motor Fuel Tax
The State collects a motor vehicle fuel tax of $0.39 per gallon and is calculated based on the
average vehicle traveling 12,000 miles per year at 20 miles per gallon. These factors are
applied to the projected direct and indirect employee count supported by the company.
Cigarette Tax
The State of Ohio charges a cigarette tax in the amount of $1.60 per package of 20 cigarettes,
applied to the projected employee count in the model based on statistics from the CDC that
20.5% of Ohio residents are smokers and smoke an average of 2.32 packs per day.
Property Tax
Local governments levy a property tax in Ohio. The assessed value allows for a 65% deduction.
The millage rate varies per jurisdiction and averages at 64.00 per $1.,000 of assessed value.
These calculations are applied to the projected market value of the new multi-family
complexes. In addition, employees supported by operations will pay property taxes on the
homes they occupy. In order to estimate property taxes, the assessed full cash value of the
occupied space along with the projected value of a typical housing unit has been calculated.
Income Tax
Local governments in Ohio levy an income tax. In many cities, the income tax continues to be
its primary source of revenue. The tax applies to all wages, salaries, commissions, and other
compensation paid by employers and/or the net proceeds from operation of a business,
profession, or other enterprise activity. The average income tax rate is 1.8%.
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7. Fiscal Impact Analysis
Construction of the 25,950 new affordable housing units would generate an estimated $709.3
million in tax revenues for the State of Ohio and local governments, including construction sales
tax, use tax, permit fees and employee generated taxes. In addition, apartment operations and
additional household spending would create over $104.8 million in ongoing annual tax revenue
that would be collected by state, county, and local governments each year at stabilized
occupancy. Over 30 years of operations, total tax revenue will total over $3.1 billion.
Combined, construction and operating tax revenues of the program would total nearly $3.9 billion
to state, county, and local governments.
Fiscal Impact of Operations Summary
Ohio Affordable Housing Tax Credit Program
(2023 Dollars)
Local
State of Ohio Governments Total
Impact from Construction
Sales tax on materials $195,916,000 -- $195,916,000
Permit & tap fees -- $77,850,000 $77,850,000
Use Tax $7,460,600 -- $7,460,600
Employee generated taxes $216,582,400 $211,500,600 $428,083,000
Total - Construction $419,959,000 $289,350,600 $709,309,600
Ongoing Annual Operations at Buildout
Resident spending sales tax $23,688,400 -- $23,688,400
Property tax -- $70,451,100 $70,451,100
Retail sales tax (supply purchases) $34,000 -- $34,000
Employee generated taxes $3,557,800 $7,070,500 $10,628,300
Total - Operations $27,280,200 $77,521,600 $104,801,800
35-Year Operations $818,406,000 $2,325,648,000 $3,144,054,000
GRAND TOTAL $1,238,365,000 $2,614,998,600 $3,853,363,600
_______________
NOTE: Al l of the a bove fi gures a re es tima tes ba s ed on the ca l cul a tions outli ned i n the
methodol ogy s ection of thi s report. The fi gures a re i ntended onl y a s a genera l gui del i ne a s to
how they coul d be i mpa cted by the project. The a bove fi gures a re ba s ed on the current economi c
s tructure a nd tax ra tes .
Sources : El l i ott D. Pol l a ck & Co.; IMPLAN
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Ohio Affordable Housing State Tax Credit Impact Analysis
8. Conclusion: State of Ohio Costs and Benefits
The financial upshot of this analysis can be distilled into a short list of important points that reveal
both costs and benefits – the return on investment – to the state of Ohio produced by this
proposed state affordable housing tax credit.
Net Costs to the State of Ohio:
• The proposal authorizes the issuance of $3 billion in state affordable housing tax credits. The
credits will be authorized in annual increments between 2024 and 2029. In each of these six
years, there will be authorization of $50 million per year for each of ten years, or $500
million, of tax credits for a total of $3 billion. These tax credit costs to the state are tax
expenditures that are expected to be incurred from 2025 through 2040.
• This $3 billion cost to the state will be spread over 15 years. Construction and financing
related timing issues mean that there will be an initial transition period when affordable
housing tax credits will be issued and redeemed at a relatively slower pace after which
estimated redemption rates will climb.
• Increased tax revenues directly related to the housing tax credit will follow a slightly different
pattern as they will accrue over the life of the housing units, which is anticipated to be 30
years. But, in total, these increased revenues will offset the cost of the tax credits by 41.3%
($1.2 billion) thereby reducing the overall state costs from $3 billion to $1.76 billion.
• Within this framework, the state is spending $1 in tax credit costs to buy $8.24 in enhanced
economic output and the new jobs, wages and state and local taxes that come with it.
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