The state Legislature passed a capital budget on Thursday, Jan. 18—a day late for affordable housing projects across the state to receive crucial funding.

Affordable housing developers had until 5 p.m. on Jan. 17 to apply for federal low income housing tax credits from the Washington State Housing Finance Commission.

But in order for projects to qualify for the tax credits, developers had to show that they had enough funding lined up. And without a capital budget funding the crucial Housing Trust Fund before the Jan. 17 deadline, projects aimed at the lowest income demographics—such as homeless families and disabled veterans—won’t meet the commission’s criteria, according to Housing Finance Commission staff.

“Projects that are dependent on money from the Housing Trust Fund in the capital budget don’t qualify for the 2018 round [of federal tax credits],” said Kim Herman, executive director of the Housing Finance Commission.

“We’ve been sounding the alarm for months that without a Housing Trust Fund by this deadline, those tax credits – approximately $178 million in federal funding over 10 years – will be diverted away from housing that will help solve our state’s homelessness crisis and provide homes for the lowest income people,” said Rachael Myers, executive director of the Washington Low Income Housing Alliance, an advocacy group that represents non-profit affordable housing developers across the state.

“We shouldn’t eliminate the possibly for these projects to be built just because they missed the deadline by two days,” Myers added.

The annual deadline is set by the Washington State Housing Finance Commission, which administers the federal tax credits through a competitive bidding process. The tax credits, which are awarded to states on a per capita basis, have to be doled out by the end of the year. Otherwise, the federal government takes back the tax credits and puts them in a national bidding pool.

Herman said that the application period for 2018 Federal Tax Credit is now closed, and that his agency will be working in future months to come up with alternative funding for projects that target highly vulnerable populations.

However, given the absence of the tax credits, Herman admitted that projects geared towards low-income demographics are going to have a harder time getting needed financing because of the higher subsidy level required.

“We will serve some people at all income levels, but we may not serve quite as many this year,” Herman said.

Herman added that projects receiving funds from well-resourced cities — such Seattle — will fare reasonably well, while projects in rural areas will be hit hardest.

“The projects that most likely will have the toughest time serving people at 30 percent area median income tend to be the rural projects because they don’t have as much extra subsidy money,” Herman said.

Herman declined to say at this point where any replacement funds for projects now lacking federal tax credits will come from.

“The state Department of Commerce and the Washington State Housing Finance Commission must work together to find a way to ensure those projects can still access the final funds they need,” said Myers with the Washington Low Income Housing Alliance. “We’re counting on these agencies to quickly develop a solution that ensures we don’t leave behind people in our communities who are struggling the most.”

In 2017, developers applied for the highest subsidy federal tax credits for 29 projects with a combined total of 1,791 units, according to data from the Housing Finance Commission. These projects are the ones impacted by the missed deadline.

While capital budget bills were waiting for floor votes in both chambers of the state legislature before the Jan. 17 deadline, neither body voted on them due to ongoing negotiations over the so-called “Hirst decision,” a state Supreme Court mandate which made it harder for property owners to drill water wells.

While not technically connected, state Republicans and Democrats failed to come to an agreement on Hirst during the last legislative session, prompting Republicans to refuse to pass a capital budget. A capital budget requires a 60 percent majority to pass either chamber.

However, late into the evening on Jan. 18, both the House and Senate passed a “Hirst-fix” compromise bill that allows limited drilling while local working groups develop governance rules for future water usage.

Shortly after clearing the Hirst-fix vote, both chambers passed the $4.2 billion capital budget by wide margins. The capital budget includes $106 million for the Housing Trust Fund.

Negotiators from the House and Senate majority and minority caucuses and the governor’s office had been meeting regularly over the past few days trying to come to a decision. House Majority Leader Pat Sullivan (D–Covington) said that negotiators were worked until 1:30 a.m. on the morning of Jan. 16.

This report was produced by the Olympia bureau of the Washington Newspaper Publishers Association.