FY 2017 Budget: Affirmatively Furthering Fair Housing as a Required QAP Preference

Published by Mark Shelburne on Tuesday, February 23, 2016 - 12:00am

As described in this space earlier this month, the Obama administration’s budget request for fiscal year (FY) 2017 signaled continued strong support of the low-income housing tax credit (LIHTC), in the form of provisions estimated to cost of nearly $10 billion over 10 years.

Federal budgets go beyond appropriations and taxes. For example, the request includes many proposals to amend statutes, including six ways to change Internal Revenue Code (IRC) Section 42. Of those, five are essentially the same as what the White House proposed in previous requests. The sixth, new idea that would add a new preference to state’s LIHTC allocation plans, merits a closer look.

Under current law, as noted in IRC Section 42(m)(1)(B)(ii), qualified allocation plans (QAPs) must give a preference to applications for developments

  1. “serving the lowest income tenants”
  2. “obligated to serve qualified tenants for the longest periods, and”
  3. “which are located in qualified census tracts… the development of which contributes to a concerted community revitalization plan.”

Specific language has not been issued, but in essence, the administration would add a fourth preference for affirmatively furthering fair housing (AFFH).

A FY 2017 budget request document produced by the U.S. Office of Management and Budget (OMB) adds context. “Analytical Perspectives, Budget of the United States Government” states, “to remove any doubt, [AFFH] would be made an explicit fourth allocation preference in qualified allocation plans.”

Another budget companion document describing the administration’s tax proposals produced by U.S. Department of the Treasury, known as the Greenbook, also has a description:

None of [the Section 42 preferences or criteria] unambiguously requires States to allocate housing credit dollar amounts in a manner that affirmatively furthers fair housing, even though Federal agencies administering housing programs or activities are subject to such a requirement.

The AFFH addition would be different from the relatively recent changes in what Section 42 requires of QAPs. The Housing and Economic Recovery Act of 2008 added “energy efficiency” and “historic nature” to the selection criteria allocating agencies have to consider when reviewing applications. Similarly, the administration proposes in its FY 2017 request to add an 11th selection criterion on the preservation of affordable housing.

Other selection criteria include housing needs and sponsor characteristics. Unlike the three preferences listed above, and what would be the new proposal, QAPs do not have to give a particular advantage to applications for these reasons.

Interestingly, the proposed AFFH preference would apply to the annual award of LIHTCs, but does not appear to apply explicitly to ongoing operations. The OMB and Treasury descriptions do not mention LIHTC property owners producing and following an AFFH marketing plan (as is required in properties with federal funds). In other words, the preference would apply at a program level, not necessarily at the property level. The latter may be assumed.

Given the U.S. Supreme Court fair housing opinion and the new HUD AFFH regulations, the two companion FY 2017 documents provide an interesting insight into the federal perspective on how AFFH relates to the LIHTC.