Doing Our Part
Who says accountants don’t have heart? Some GJM team members set aside some time recently to help unload a huge delivery to Perrysburg-based nonprofit organization Hannah’s Socks. Would you believe 7 pallets of socks (651 cartons) donated by GBG socks (also known as Planet Sox)?
GJMers helping out included Clay Barron, Steve Miller, Cole Bruner, Travis Roehrig, Adam Larkins (who joins us full-time in September) and Mike Brough. Mike is the board president for Hannah’s Socks. Established in 2005, the organization conducts sock drives and accepts donations of new socks and undergarments for men, women and children in need. The story of how Hannah’s Socks was established is remarkable. It all began with an act of kindness from a 4-year-old girl. Learn more about the organization and how you can help.
Gilmore Jasion Mahler believes strongly in the importance of community service. Many of our people are very active with local nonprofit organizations including serving on boards and hands-on public service activities.
Healthcare Heroes Recognized
Those who choose healthcare as a living would tell you they’re just doing their job. It’s their passion to help people get well and live happy, healthy, fulfilled lives. But sometimes these unsung heroes get some much deserved recognition for their selfless commitment to their patients and their families.
The Hospital Council of Northwest Ohio presented its 2017 Healthcare Heroes Awards on June 27 at the Toledo Museum of Art’s Glass Pavilion. Five committed healthcare heroes and one organization were acknowledged for their contributions.
Those recognized in 2017:
- Dr. Tomas Welch, Regional Chief Clinical Officer, Mercy Health – Lifetime Achievement Award
- Dr. Kent Bishop, Chief Experience Officer, ProMedica
- Randy Oostra, President and CEO, ProMedica
- Barbara Ann Oxner, Patient Navigator, UT Center for Health & Successful Living
- Dr. Kamala Tamirisa, ProMedica Physicians Cardiology
- ABLE Medical-Legal Partnership for Children
Gilmore Jasion Mahler was once again a sponsor of the event. Judy Anderson, a member of GJM’s Healthcare Specialist Group, sits on the Healthcare Heroes Committee. Gilmore Jasion Mahler works with healthcare clients across the region and beyond, including physician practices, skilled nursing facilities, hospice agencies, hospitals & health systems and more. Congratulations to all of the nominees and winners and thank you to all of our healthcare heroes for all you do!
Corporate Tax Reform and Its Impact on Affordable Housing
With the Internal Revenue Code stretching to more than 70-thousand pages, everyone agrees that tax reform is an attractive idea, right? Economists generally believe that simplifying the code encourages growth in the overall economy by reducing the costs of compliance with the law. Both President Trump and leadership in the 115th Congress have said that this is a priority. What would a modern tax reform look like, and why is the affordable housing industry so nervous about it? Are they right to be?
Tax reform generally refers to some combination of reducing tax rates and simplifying the code. Usually this takes the form of eliminating certain deductions and credits, which have been added to the code over the years in various attempts to incentivize actions that are helpful to the economy or to aid a disadvantaged group. As a result, tax reform is always a heavier lift politically than expected. While everyone will benefit from the lower rates, some groups will find that valuable deductions they relied on for prior decisions are being discussed for removal from the code – and some will find that the lost deductions are a bigger financial hit than the lower rates provided in savings. With 70-thousand pages of code, there are a lot of groups that fall into this category.
The last time we saw significant tax reform at the federal level was the Tax Reform Act of 1986 that was signed by President Ronald Reagan. So although the code is long and complex and it would be great if it were simpler, a lot of inertia exists behind the status quo.
President Trump’s proposed tax reform would make a variety of changes to individuals’ income taxes, including trimming the number of tax brackets from seven to three, and reducing the highest rate from 39.6% to 35%. Corporate tax rates would be cut from a maximum of 35% to 15%. It is this proposed reduction in the corporate rate that has some surprising potential to impact the affordable housing industry and development plans that are underway or still being priced by the market. How big of a concern is this in the affordable housing industry? As a CPA and advisor specializing in this area, I speak with decision-makers just about every day who are watching the tax reform discussion very closely.
So, how exactly would reducing the corporate tax rate affect the development of affordable housing projects? Let’s look at a simple example of a project developed under the competitive, 9% low-income housing tax credits (LIHTC) that make up the majority of LIHTC development in Ohio.
- In 2016 the Ohio Housing Finance Agency (OHFA) awarded a total of $32M in annual credits to 42 projects.
- Credits run for 10 years but projects are required to operate as affordable housing for 15 years.
- For simplicity let’s say a typical project receives $720,000 in annual credits, which the investor can claim on its tax return.
- Since it’s a 9% credit, the basis required to produce this amount of credit is about $8M ($8M x 9% = $720,000).
- Assuming the whole $8M is made up of a building that will be depreciated over 27.5 years, the project will deduct depreciation expense of $291,000 per year, which the investor can deduct on its tax return. There would be other deductible losses as well, but this will keep our example simple.
So, the benefit to the investor is made up of two parts: the credits themselves, which are a dollar-for-dollar reduction in the investor’s tax liability, and the ability to deduct depreciation and other expenses, which reduce the investor’s taxable income (not its tax liability).
A lot of factors go into determining the amount an investor is willing to invest in a project, but here’s a simplified look at an $8M project funded with 9% credits, with investors hoping to see a 6% return. The first column is under current tax law, the second one reflects the impact of tax reform reducing rates from 35% to 15%.
Sorry for all the numbers. We accountants love numbers. The highlighted areas above really tell the story here. The total return to the investor drops by almost a million dollars under this scenario and required gap financing increases by $563,000. Gap financing represents additional grants, loans, or deferred developer fees that need to be obtained in order for the project to go forward at all.
So this would present a major challenge to developers of affordable housing if it comes to pass. How likely is this major tax reform?
In 2017? This accountant’s opinion: not going to happen. The 1986 Tax Reform Act took 10 months to get through Congress from the time full legislation was reported out of the House Ways and Means Committee to the time it reached President Reagan’s desk for signature. Even the Affordable Care Act took about 9 months from the initial introduction of legislation to the time it reached President Obama’s desk, despite Democratic supermajorities in both chambers of Congress.
While the Ways and Means Committee has held hearings on the subject of tax reform in May, and there are probably a number of proposals being debated behind the scenes, nothing I’ve heard suggests that anyone is ready to bring what will doubtless be a controversial bill forward any time soon. The Senate is preoccupied with debating the American Health Care Act, the ongoing confirmation of Administration appointees, and (of course) Russia. Until the Senate’s docket clears a bit, the House will not vote on anything controversial that will be months away from being taken up by the Senate, if at all.
What about 2018? That’s tougher to predict. Conventional wisdom says that if the Senate cleared the decks by the end of the year, then pushing through tax reform over the course of 9 or 10 months would have the final votes taking place on the eve of the November 2018 elections, which no one from either party would want to do. In spite of this, a consensus seems to be forming that it’s going to happen. One theory in circulation is that the run up in stock prices we’ve seen since the election represents the market pricing in a high likelihood of major tax reform. In that line of thinking, if it starts to look like reform won’t happen, a major correction to the market would occur, and a recession would become likely. While the two parties have shown little inclination to cooperate with each other on anything so far during President Trump’s Administration, perhaps avoiding a recession would be enough incentive to get the two sides to find some common ground and pull together.
Will this be enough to tip the scales in favor of moving forward with tax reform in the near term? Until the parties begin to show some cooperation and some attempts to find common ground, I’ll remain skeptical of the idea that major tax reform is imminent and will be enacted in what would be an election year. But the political world has made a habit of making conventional wisdom look silly over the past year. For the good of the nation’s economy I hope Congress defies the conventional wisdom one more time and is able to deliver some much-needed major tax reform.
As for affordable housing, in the meantime, pay attention to the House Ways and Means Committee’s Subcommittee on Tax Policy. Representative Pat Tiberi of Ohio’s 12th District is a key member and is a reliable ally of affordable housing in Ohio. But Representative Tiberi is only one member. The message to all of Congress should be that major tax reform is an idea whose time is come – but it needs to be done carefully so as not to jeopardize the industry’s ability to develop safe, decent and affordable housing.
J Kenneth Saggese is a partner in the Audit Department of Gilmore Jasion Mahler. With the Firm since 2006, Ken is a member of GJM’s Construction and Real Estate Specialist Group. His area of expertise is affordable housing.
Honor Flight is Family Affair for GJM’s Steve Schult
Gilmore Jasion Mahler’s Steve Schult likes helping businesses and people solve problems. A partner with the firm for almost 20 years, his expertise in tax has been invaluable for countless clients through the years.
On June 7th, Steve was offering a different kind of help as a Guardian to a Veteran on Flag City Honor Flight, a nonprofit based in Findlay that takes area Veterans to Washington, DC to see the memorials built in their honor. Gilmore Jasion Mahler held a special benefit event last year in Findlay called Carnevale to raise money for the trip. The Findlay community was very generous with sponsorships and donations. The event brought in over $42,000, enough to help fund a second flight in 2017.
Steve accompanied a Vietnam Veteran on the June trip for Flag City Honor Flight. They saw Arlington National Cemetery, other historic sights and the war memorials, including the Vietnam Veterans Memorial. Steve says his Veteran served in the Army in the late 1960’s. Like many Vietnam Veterans, he says his homecoming back then wasn’t easy. He and Steve had a chance to talk about not only his experiences in Vietnam, but what happened when he came back to the US.
“It’s shocking what he went through,” says Steve. “He said when he arrived back with about 20 other guys on his plane, there was a colonel on board who told them that protestors would be at the airport and they needed to remember to handle themselves with honor. They were called four letter words and spit on.”
Steve’s father-in-law Gerald Piotrowicz was also on the June 7 Flag City Honor Flight. A Machinist 2nd Class, he served in the US Navy during the Korean War from 1951 to 1955. His Guardian for Honor Flight was his grandson Justin, Steve’s nephew. Steve says his father-in-law really enjoyed being in Washington, D.C. and seeing all of the memorials. He came home to proud family members cheering him on as he arrived in the Grand Aire hangar at Toledo Express Airport.
“He said it was one of the best days of his life," says Steve. "He loved it. Mail call at the end of the welcome home celebration clearly meant a lot to him.”
Everyone seems to have a different answer when asked what they enjoyed most during Honor Flight. For Steve it wasn’t so much what he saw, but who he was with.
“Just being around all those Veterans. World War II was the Greatest Generation. Being around them and talking to them was special to me. I don’t know if any of us will ever understand what they went through… It was an honor to serve them for a day.”
Flag City Honor Flight’s next trip is scheduled for September 20, 2017. For more information or to volunteer to help, you can email firstname.lastname@example.org or call 419-306-9723. Sponsorships and tickets are now available for GJM’s Carnevale 2017, which will once again benefit Flag City Honor Flight.
GJM’s Roberta Perkins Receives President’s Award for Volunteer Work
Gilmore Jasion Mahler's Roberta Perkins has received the President's Volunteer Service Award for her dedication to a nonprofit organization called New Heights Educational Group. Roberta has volunteered with New Heights for the past 8 years. The organization is designed around home schoolers or any education for children and teens. She started off volunteering as an accountant, handling bookkeeping. As the organization grew, Roberta says her role changed from bookkeeping to accounting advisor. She's handled a wide variety of responsibilities for New Heights including taxes, research and some grant writing as well.
"New Heights has truly become more than a volunteer opportunity for me," says Roberta. "They have become a family."
The President and Founder of New Heights, Pamela Clark, surprised Roberta with the award certificate and medal. The letter from the White House she received came from President Barack Obama. The certificate and award come from the Corporation for National and Community Service. There are certain criteria to meet for the adult gold award Roberta received, such as volunteer time of over 500 hours within a year's time. Congratulations, Roberta!