California will Allocate Bonds Across Two Rounds in 2024 with an Increase in Allocation for Rehabilitation Developments
Published by Thomas Stagg on Thursday, February 1, 2024 - 8:52AM
A Jan. 17 California Debt Limit Allocation Committee (CDLAC) meeting provided a handful of changes to its 2024 tax-exempt bond allocations. Chief among them are:
- Rehabilitation developments will receive more bonds in 2024 than they did in 2023, and
- The number of rounds in which bonds will be allocated was changed from three rounds in 2023 to two rounds in 2024.
CDLAC was created to set and allocate California’s annual debt ceiling and administer the state’s tax-exempt bond program to allocate the debt authority. CDLAC’s programs are used to finance affordable housing developments for low-income Californians, build solid waste disposal and waste recycling facilities, and to finance industrial development projects.
Increase in Allocation for Rehabilitation
At the beginning of each calendar year, and before applications are considered, CDLAC will determine the state ceiling that will be available. In 2024, the CDLAC estimates the state ceiling will be nearly $4.9 billion.
CDLAC will announce either an open application process or a competitive application process, or both, for each state ceiling pool. CDLAC will determine which process is best for each program pool based on several factors (the amount of the state ceiling available to the pool and the history of applications for allocations from each pool are just a couple of factors considered). At the Jan. 17 meeting, staff recommend the pools be competitive in 2024 due to the high demand for bond allocation.
CDLAC staff surveyed issuers and the affordable housing development community to determine estimated demand for authority to issue private activity tax-exempt bonds using allocation of the 2024 state ceiling. The survey found that demand exceeded $12 billion with the demand for the qualified residential rental project program (QRRP) at about $11 billion, single family housing at $474 million, industrial development bonds at $60 million and approximately $467 million for other exempt facilities. This total amount (more than $12 billion) exceeds the state ceiling for 2024 by more than two times the amount available, of nearly $4.9 billion.
Discussions at the Jan. 17 meeting most significantly impacted the QRRP pool.
Under the QRRP, according to the meeting notes, the other rehabilitation pool continues to be oversubscribed while the preservation pool continues to be undersubscribed. In 2022, the committee approved a reduction in the preservation pool from 14% to 10% and an increase in the other rehabilitation pool from 1% to 5%. At the Jan 17 meeting, staff recommended a continuation of this trend by recommending 9% for the preservation pool and 6% for other rehabilitation.
On the other hand, the exempt facility pool continues to be undersubscribed. At the meeting, staff recommended a reduction in the pool from previous years. Staff are also recommending that the allocation be available at the beginning of the calendar year.
In recent years, CDLAC has not made allocation available for single family housing programs to provide adequate support to oversubscribed QRRP and exempt facilities programs. To use the state ceiling in its entirety, CDLAC staff recommends allocation for single family housing programs in 2024. Staff plan to continue providing education to CDLAC on the single family housing programs available and recommend CDLAC determine the amount of allocation to specific programs at a later date.
Important Deadlines for the Two Allocation Rounds in 2024
There will be two tax-exempt bond allocation rounds for the QRRP in 2024 that will align with the California Tax Credit Allocation Committee’s 4% low-income housing tax credit (LIHTC) rounds. Tentatively scheduled, the Round 1 application deadline is April 23, and the Round 2 deadline is Aug. 27.
This is a change from 2023, which had three allocation rounds.
Two rounds will mean that each round will have more bonds available, but developers will need to move quickly to have their applications ready by the April 23 deadline. It is anticipated that the first round will be very competitive due to the $500 million of state tax credits that are available for new construction 4% developments. The $500 million of state tax credits have historically been fully used in the first CDLAC round of the year.
If the private activity bond financing threshold for 4% LIHTCs is decreased from 50% to 30% in 2024 and 2025, that might change the CDLAC rounds. (Read more about this potential change in a previous Notes from Novogradac blog.) Since the CDLAC allocation tiebreaker considers the amount of bonds used by the development and favors developments that use less bonds, developers should be considering how their development would pencil with tax-exempt bonds financing the development at a 30% to 35% level as opposed to 50%.
Learn More with Novogradac
The Novogradac Tax-Exempt Bond Handbook is a comprehensive, single-volume resource for all the regulations, guidance and legislation on the use of tax-exempt bonds in multifamily housing developments.
Novogradac can also assist with reviewing and assembling CDLAC applications.