McKee proposes tax credit program to spur production of affordable housing in Rhode Island

Governor McKee plans to file proposals to form the state’s first Low-Income Housing Tax Credits program. The Housing Department also proposes $29m for initiatives including supporting understaffed municipalities.

Contractors work on a new home under construction.Rebecca Noble/Bloomberg

PROVIDENCE — Rhode Island is one of two states in the Northeast that does not offer tax credits to help finance affordable housing development for low-income rental units. But that could soon change.

On Friday afternoon, Governor Daniel J. McKee plans to file a package of budget proposals that includes forming a statewide Low-Income Housing Tax Credit program, and an additional $29 million in State Fiscal Recovery Fund (SFRF) investments, aimed at spurring housing development and supporting municipalities.

Rhode Island and New Hampshire are the only states in the Northeast that do not have State Low-Income Housing Tax Credits program, which are used in 26 other states, and are more commonly referred to as LIHTCs. State LIHTC programs are modeled after the federal LIHTC program, offering state-funded tax credits to developers of affordable housing.

The proposals must be approved by the General Assembly.

On a call with members of the press Friday, Housing Secretary Stefan I. Pryor said he hoped the LIHTC program would help bridge financing for three to four housing projects each year. The number of units this program could help construct is unclear.

“The increases in rents, evictions, and homelessness in recent years demonstrate the need to provide better and more affordable options to Rhode Islanders,” said McKee, who said housing was “essential infrastructure” for municipalities.

These federal credits typically cover 30 percent of an affordable housing project, but are not sufficient in financing an entire development. This tax incentive, Pryor said, will expand subsidized housing options for low-income households. The program would award tax benefits to developers through a competitive process, capped at $30 million annually for five years.

Rhode Island Housing Secretary Stefan Pryor, far right, meets shelter guests seeking refuge from the cold at the Emmanuel House warming center in Providence in February.MARK STOCKWELL FOR THE BOSTON GLOBE

The additional $29 million in funding will be allocated to various housing initiatives that would be designed to expand housing-related infrastructure, fund transit-oriented development, establish a priority projects fund, and invest in housing planning and municipal capacity.

According to the governor’s office, these proposed funding allocations include:

• $17 million to establish a priority projects fund and administer competitive grants to address priority housing developments. Potential uses of this funding include permanent supportive housing for vulnerable Rhode Islanders or housing for special populations such as seniors, veterans, or people with disabilities.
• $4.9 million in grants for housing development near transit options, and for municipalities to study and implement zoning changes for parts of communities in greatest proximity to transit.
• $4.3 million to provide resources on a competitive basis to projects through the Rhode Island Infrastructure Bank, for physical improvements to support housing development where infrastructure deficiencies are a “considerable barrier.”
• $1.4 million to create a housing-related municipal fellows program that Pryor said would help municipalities that are understaffed and are trying to conduct zoning, permitting, and planning activities.
• $500,000 to preserve affordable housing units and allow for the purchase of deed-restricted properties entering foreclosure, so that affordability covenants will remain intact, to mitigate the loss of subsidized housing.

After nearly three decades of underinvestment in its housing stock, Rhode Island has ranked dead last in the nation in recent years for annual housing production per capita, according to a new, independent review of the state’s housing supply shortage and homelessness. The 182-page report, commissioned by the Rhode Island Foundation and conducted by Boston Consulting Group, describes how one-third of all Rhode Island residents are struggling to afford housing, the second-highest growth rate among unsheltered families and individuals in the nation.

McKee allocated $250 million toward tackling the housing crisis in 2022, but most of the funding dedicated to new construction has been or will be awarded by mid-May. On Friday, Pryor said he could not say how many projects this new $29 million allocation could help finance or fast-track.

“Even with this package, we have a long way to go,” said Pryor.

McKee’s proposal also includes the reallocation of $978,755 to create a pilot initiative to support municipal efforts to address homelessness. The proposed pilot would support services like homeless outreach, day programs, ambulance response, and other activities and municipal services, to help emergency shelters succeed in local communities while continuing to expand options for Rhode Islanders experiencing homelessness.

“This latest allocation would grow the state’s total [State Fiscal Recovery Fund] investment in housing and homelessness infrastructure to $309 million,” said Interim Director of Administration Brian Daniels.

Pryor said another part of the proposal includes funding a proactive development subsidiary under the Rhode Island Housing and Mortgage Finance Corporation, a quasi-public agency. The focus of the newly proposed subsidiary would be to identify housing developments “that meet Rhode Island’s most significant needs and work proactively to support cities and towns, property owners, and developers to bring these expanded housing options to fruition.”

“Rhode Island is ready to lead the nation by establishing a state-level public sector housing developer and making major investments in transit-oriented development,” said Lieutenant Governor Sabina Matos in a statement.