What You Need to Know About Alabama’s Workforce Housing Tax Credit

Alabama is taking significant strides to address its low labor participation rate and the resulting workforce shortages with a novel approach in the form of the Workforce Housing Tax Credit. As part of the 2024 "Working for Alabama" program, Governor Kay Ivey and legislative leadership introduced this initiative to stimulate private capital investment in affordable workforce housing. Initially presented as House Bill 346, it was met with overwhelming support, passing 103-0 in the House of Representatives and 34-1 in the Senate. On May 9, 2024, Governor Ivey signed it into law as Act No. 2024-302. 

Leveraging Federal Programs for State Benefits 

The Workforce Housing Tax Credit is designed to complement a federal program from the Reagan Administration that incentivizes private investment in affordable housing. Starting January 1, 2025, the Alabama Housing Finance Authority (AHFA) will allocate $5 million annually in state tax credits for three years, up to September 30, 2027. Totaling up to $150 million, these credits can be claimed over ten years against personal and corporate income taxes, financial institutions' excise taxes, and insurance premium taxes. 

Flexible Allocation and Rural Focus 

The credits can be allocated to any entity with an ownership interest in the housing project, allowing flexibility beyond federal tax credit allocation rules. Additionally, 20-25% of these credits are reserved for rural areas, pairing with federal low-income housing tax credits (LIHTCs) to encourage development where it is most needed. 

Support for After-School Care and Community Development 

One unique aspect of the Act is its provision for supporting after-school care for tenants' children. Projects that supplement the cost of third-party providers or create on-site facilities can receive up to $50,000 annually for three years, funded through a development cost reserve. 

Anticipated Impact and Industry Preparation 

The Act's goals are ambitious yet achievable. Economic forecasts predict the creation of over 3,100 jobs and $1.1 billion in economic activity. It aims to nearly double the current affordable housing production by making 2,000 new or rehabilitated units feasible within its three-year pilot period. 

The AHFA is tasked with developing a Qualified Allocation Plan and obtaining input from the Alabama Department of Commerce to align housing developments with job development activities. It is expected that a pre-application process will be established to help industry participants prepare and gauge their likelihood of success. 

Conclusion

The Workforce Housing Tax Credit is Alabama’s first state-funded workforce and affordable housing initiative, building on successful strategies from other states. This program aims to create a sustainable and impactful model for housing development in Alabama, supported by a coalition of industry, financing sources, and housing advocates. With its targeted incentives and comprehensive planning, the state looks forward to significantly boosting its housing infrastructure and workforce participation. 

By passing the Alabama Workforce Tax Credit, Alabama has an additional economic tool to keep and recruit additional workers. If you have questions about the program, use the form below to connect with a team member.