COVID-19 Declaration May Allow Flexibility for LIHTC, Bond Developments
[Updated March 25, 2020; 9:00 AM P.T.]
On March 13, the White House declared the COVID-19 public health crisis a “national health emergency.” On March 19, the president ordered the Federal Emergency Management Agency (FEMA) to mobilize assistance under the “Emergency Assistance” provisions set forth under section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). The president also further stated that:
“the disaster is of such severity and magnitude nationwide that requests for a declaration of a major disaster as set forth in section 401(a) of the Stafford Act may be appropriate. I encourage all governors and tribal leaders to consider requesting Federal assistance under this provision of the Stafford Act, pursuant to the statutory criteria.” (emphasis added)
The president added:
“I stand ready to expeditiously consider any such request.”
While presidential comments in connection with declarations are important and useful, they are not proclamations or findings that are otherwise needed for setting federal policy. Nonetheless, under current circumstances, they are – or may be - quite helpful.
Stafford Act and FEMA
The resident invited governors to submit requests for assistance under the Stafford Act on the basis of statements he made regarding sections 401 and 501 of the Stafford Act are significant. The Stafford Act creates distinct definitions for different kinds of disaster criteria and has one definition for an “Emergency” and another different definition for “Major Disaster.”
Major Disasters are covered in section 401 and Emergency Assistance is covered in section 501. Both sections provide for a declaration by the president at the request of the governor of any state or U.S. territory impacted by disaster or emergency. Until recently, since the president declared the COVID-19 pandemic a “national health emergency,” FEMA listed all the states and territories as being eligible for Emergency Assistance under Section 501 of the Stafford Act, but had not listed any state as having requested a required presidential declaration of Major Disaster that would trigger assistance under Section 401 (again, the Emergency Assistance provisions).
Under the Stafford Act, the definition of Major Disaster includes any natural catastrophe in any part of the United States or its territories, which in the determination of the president, causes damage of sufficient severity and magnitude to warrant individual assistance, public assistance or both. The term “natural catastrophe” itself is undefined, accordingly, it has the potential of being the basis for every governor’s petition for “Major Disaster” declaration. In that way, the president’s statement quoted above is useful; the president treated the COVID-19 public health crisis and therefore seemed willing to treat it as a Major Disaster on the basis that COVID-19 is a natural catastrophe, if governors ask.
Starting March 23, 2020, the FEMA website listed five states as having requested presidential declarations of Major Disaster for their respective jurisdictions that would trigger assistance under Section 401’s Major Disaster declaration provisions: California, Iowa, Louisiana, New York and Washington. Florida, North Carolina and Texas submitted their requests within the last 72 hours and may very well have received approval at the time of this writing. Several other states have begun the process to petition for declarations of Major Disaster and should be submitting their requests to the White House imminently.
Unlike past disasters, the FEMA web pages for these Major Disaster declarations do not list specific dollar amounts. Instead, FEMA posted the following:
Individual Assistance - Dollars Approved
If and when individual assistance money is approved for this disaster, it will be displayed here.
Public Assistance - Dollars Approved
If and when public assistance obligated dollar information is available for this disaster, it will be displayed here.
In response to entirely different kinds of disaster events (e.g., more common disasters like hurricanes, earthquakes, floods, large fires, etc.), several years ago the Internal Revenue Service (IRS) issued Revenue Procedures 2014-49 and 2014-50 (the Procedures) replacing previous similar guidance originally issued in 2008. The former is for low-income housing tax credits (LIHTC) and the latter for tax-exempt private activity bonds (PAB). The guidance allows FEMA to provide certain regulatory relief to LIHTC and PAB transactions when the president declares a “Major Disaster” under the Stafford Act in lieu of the IRS.
Revenue Procedure 2014-49 provides relief (described below) from timing requirements for properties with 9 percent LIHTCs (no bond financing). These allowances apply in a “Major Disaster Area,” defined in Section 5.04 as
“any city, county, or other local jurisdiction for which a Major Disaster has been declared by the President and which has been designated by FEMA as eligible for Individual Assistance, Public Assistance, or both.”
When Revenue Procedure 2014-49 applies, it creates relief from timing requirements. The following is not is not a substitute for reading it, understanding directions from LIHTC allocating agencies and seeking advice from your Novogradac or other tax professionals. In summary, the guidance states:
1. For LIHTC properties with 10 percent tests due after the disaster started, LIHTC allocating agencies may allow up to an additional six months to meet the test.
2. If a property already has a carryover allocation, the allocating agency also may grant up to a one year extension to the placed in service requirement.
Agencies may make either determination on an individual property basis or across the board. In all cases owners should maintain documentation of the extension.
FEMA and IRS Terminology
The revenue procedures were primarily drafted with natural disasters in mind, not a global pandemic. As such, unlike with fires or flooding, the sections relating to casualty loss will likely (hopefully) not apply. However, the underlying rationales for the deadline extensions are very similar: Like a major weather event, COVID-19 almost certainly will lead to consequential disruptions in transactions and construction. Examples abound, including:
- citywide mandatory halts in construction activity,
- understaffed lenders,
- suspended site inspections, and
- broken supply chains.
If the revenue procedures do come into effect, the next step will be for agencies to determine whether and how to implement them. Even if a property under development is eligible for timing relief, those responsible should continue to make as much progress as possible under the necessary public health protocols.
Given the recent Major Disaster declarations by the president, the language between the Stafford Act and IRS guidance have come closer to dovetailing but are not quite there yet. In all but five states, the COVID-19 declaration is for the purpose of allocating emergency assistance, as opposed to the more relevant declaration of a Major Disaster.
Moreover, there is a question as to whether FEMA’s “If and when…” language regarding funding approval/obligation is adequate for the procedure’s definition of “been designated by FEMA as eligible” for assistance.
As such, we all have a bit of work to do in order to align the law and the language. The National Council of State Housing Agencies has submitted a letter to the IRS asking for official guidance, and other groups are likely to follow.
One way the timing relief could occur is if a federal agency (most likely the IRS) issued a statement that the current circumstance qualifies in the same manner as a ‘nationwide’ Major Disaster or, alternatively, includes the Declaration of a National Emergency as a self-operating triggering mechanism. The United States has never issued a “nationwide” Major Disaster declaration nor is that concept included within the Stafford Act. On the other hand, it may be obviated by reality. It is likely that all 50 states plus all United States territories and possessions will request the designation over time. The question will be whether FEMA will essentially invoke Revenue Procedures, 2014-49 and 2014-50 for everyone at once upon a plurality or a majority of the states requesting Major Disaster declarations or would make a policy adjustment allowing for the triggering of the revenue procedures sooner than would otherwise be the case in light of the apparent scale of the national disaster.
Check Novogradac’s COVID-19 resources web page for ongoing developments.