Economics & Finance

Pump Up the Volume (Cap)



CHPC embarked on a research project to shed light on the inner workings of tax-exempt private activity bond financing in order to help policymakers understand better what has often been an obscure -if crucial- source of funding for housing. CHPC’s study Pump Up The Volume took the first deep look at the use of tax-exempt private activity bonds and proposed a series of recommendations to improve the allocation of bonds to support housing development.

The total PAB volume cap in the State between 2005 and 2013 was $15.4bn. This study reveals that during this period the City and State issued a total of $13.4bn in PABs for housing. Industrial Development Agencies, in contrast, issued $1.6bn over the same nine years.

In light of this disparity, the CHPC Pump Up the Volume initiative asked the questions: Why does State legislation prioritize economic development over housing in determining which agencies will receive bond allocations? Why is there no public reporting on the PAB allocations made to each agency and the bonds actually issued? How does this impact the ability of housing agencies to plan their project pipelines and how do they make the decision to select the projects which will receive financing?

The study concluded with a series of recommendations that led to many improvements in the way that the City and State allocate bonds for affordable housing in NYC.

Watch an explainer video about Private Activity Bonds

The publication

Our research study shows that multifamily housing makes for the best use of PABs, in part because it leverages Low-Income Housing Tax Credits and in part because housing is often the only feasible use of PABs due to onerous requirements that limit their usefulness for economic development. But, despite the reality that little non-housing activity is generated through the use of PABs, State legislation prioritizes allocating bond volume to economic development agencies rather than to housing agencies, whose annual allocations are not fully decided until late in the year.

As a result, New York Citys Housing Development Corporation (HDC) and the New York State Housing Finance Agency (HFA) are restricted in their ability to plan their pipelines fully and to more accurately manage the demand for PABs. The current allocation process also potentially creates an illusion of scarcity within the development community, when in fact in any given year there may be more bond allocation available for housing than is assumed because other agencies fail to use their allocations in full.

Initiative sponsor