Minimal Evidence of Low-Income Housing Tax Credits as Political Spoils

Although governance structures for state housing finance agencies (HFAs) vary, governors typically appoint more than half the members of state HFA boards. Because HFAs distribute Low-Income Housing Tax Credit (LIHTC) funding with wide latitude, Claudine Gay examined whether counties with more partisan loyalty to the governor received a greater allocation of these tax credits. She posits that the incentives for partisan distribution of LIHTC may differ between Republicans and Democrats in ways that make partisan allocation of LIHTC to favored counties more likely under a Democratic governor and allocation to favored developers more likely under a Republican governor. (Tracking the latter was not feasible with the available data.)

Gay merged administrative data from the LIHTC program and gubernatorial election returns between 1990 to 2010 to test two hypotheses: (1) an increased vote share for the incumbent governor will increase the level of LIHTC investment in an area and (2) an increased vote share for the incumbent governor will increase the level of LIHTC investment in an area only if the governor is a Democrat. Gay used various county demographic and socioeconomic characteristics to control for other factors that would influence LIHTC awards and then compared counties by the number of LIHTC units per 10,000 residents at the end of a four-year gubernatorial term with election results at the beginning of the term. (States with two-year governors’ terms were excluded from the analysis.)

Key findings

• Overall, LIHTC allocation to counties and the vote share for the governor were modestly to marginally associated, perhaps because “institutional and market constraints…limit the exercise of partisan bias.”
• Factors associated with a county receiving a larger LIHTC allocation per 10,000 residents include lower household incomes, higher minority population, more children, lower senior population, and more residents living in high-poverty census tracts.
• Housing cost burdens for renters or owners were not associated with a county’s LIHTC allocation.
• If less than 60 percent of the HFA’s board is gubernatorially appointed, there is no discernible relationship between LIHTC allocation and county partisan loyalty.
• If a Democratic governor was in office and could appoint more than 60 percent of the HFA board, counties with a larger vote share for the governor received a modest increase in LIHTC units.
• There was no evidence that LIHTC allocations vary in response to county partisanship under a Republican governor.