How the Affordable Housing Tax Credit Improvement Act Would Affect QAPs

Published by Mark Shelburne on Monday, April 26, 2021 - 12:00am

The Affordable Housing Credit Improvement Act of 2021 (AHCIA) proposes an unprecedented expansion and modification of the low-income housing tax credit (LIHTC). Several of the bill’s provisions would affect LIHTC allocating agencies’ program administration rules contained in qualified allocation plans (QAPs) or equivalent documents.

Enactment will lead several important questions:

  • Amend the current QAP? In some states, doing so is lengthy and/or difficult.
  • Can agencies immediately implement the AHCIA based on the Internal Revenue Code (IRC) superseding state laws and regulations?
  • Does the QAP text represent its own separate mandate despite no longer being necessary?

The answers depend on provisions’ effective dates and will vary by state. As with all legal questions, decision-makers must consult with their attorneys.

In preparation, agencies can delete text restating aspects of federal law and adopt certain concepts now. The former means nothing to change, and the latter makes sense considering the significant overlap between the AHICA and National Council of State Agencies’ “Recommended Practices in Housing Credit Administration.”

Expand the 9% LIHTC

Legislation: A 50% increase in the allocation authority of population-based, competitive LIHTCs (9% LIHTCs), phased-in over two years. Currently the amount is $2.8125 per capita (other than small states), although it will decrease to $2.50 in 2022 absent Congressional action.

Direct QAP effect: Any specifically stated dollar amounts of the LIHTCs available in total and/or in specific set-asides become obsolete. Provisions using percentages (e.g., 10% to preservation) will update automatically.

Other consequence: More LIHTCs could allow creation of new priorities or practices. For example, a set-aside in a small state or an “innovation round” for applications with unique circumstances.

Lower the 50% Test to 25%

Legislation: Only 25% of development costs must be initially financed with tax-exempt multifamily bond authority from the state’s private activity bond volume cap.

Direct QAP effect: Many agencies refer to the 50% test.

Other consequence: According to a Novogradac estimate, lowering percentage would result in nearly 1.5 million additional affordable rental homes financed over 10 years.

Concerted Community Revitalization Plans

Legislation: In determining what constitutes a concerted community revitalization plan (CCRP), agencies will need to consider the extent to which it

  1. is geographically specific,
  2. outlines implementation,
  3. includes a strategy for securing non-housing investment, and
  4. demonstrates the need for revitalization.

Direct QAP effect: All agencies already address CCRPs, although some do not specify all of the criteria above. In those cases, awarding points or other competitive benefits could be problematic. Attempting to not follow federal law creates the possibility of challenges from developers with losing 9% LIHTC applications.

Other consequence: Jurisdictions may need to revise their CCRPs to fit within the new law.

Local Approval and Contribution Requirements

Legislation: QAP selection criteria cannot reflect either political support for an application or local government contributions. Agencies could use scoring to encourage local financial contributions so long there is no priority over any other outside funding source. (For more of a discussion see this post.)

Direct QAP effect: As with CCRPs above, agencies with nonconforming policies would need to either not implement them or complete amendments.

Other consequence: Ending the ability to reward financial contributions from local jurisdictions more than other sources may result in agencies making broader policy revisions. California’s important tiebreaker is a possible example.

Local Notification

Legislation: Remove the requirement to notify the jurisdiction’s chief executive officer. (For more of a discussion see this post.)

Direct QAP effect: Many QAPs describe the process for providing notice to the locality. Even so, depending on the text and an agency’s ability to be flexible, the change could take effect right away. Regardless, rules adopted in the future can end the process (absent anything to the contrary in a state statute).

Other consequence: Not informing local officials would help avoid NIMBY opposition and end what is effectively a land use expectation not applicable to market-rate rental housing. In other words, the IRC currently says following zoning is inadequate for LIHTC developments.

Adding Cost Reasonableness and Native Americans to Selection Criteria

Legislation: QAP selection criteria must include cost reasonableness.

Direct QAP effect: Under IRC Section 42, QAPs must use 10 selection criteria: location, housing needs, use of existing housing, sponsor characteristics, populations with special housing needs, public housing waiting lists, households with children, eventual tenant ownership, energy efficiency and historic nature. These are not the same as giving a preference.

These two AHICA provisions will have little if any effect, especially regarding development costs since that already is a high priority for all agencies. Some QAPs in the 35 states with one or more federal recognized tribes might need new policies.

Other consequence: Possibly none.

Basis Boost for Serving Extremely Low-Income Households

Legislation: Provide up to a 50% basis boost for developments serving extremely low-income (ELI) households in at least 20% of the apartments. The increase applies only to the extent a building contains these units.

Direct QAP effect: While agencies should explain how they would implement this provision, technically a QAP revision is not necessary.

Other consequence: Many properties would generate greater equity, making them better able to serve these populations. Nearly half of LIHTC households already have incomes below 30% of the area median (which is lower than ELI).

Qualify Indian and Rural Areas as DDAs

Legislation: All Indian and rural areas count as difficult development areas (DDA). The latter includes nonmetropolitan counties, locations designated under a QAP, and areas defined as rural under Section 520.

Direct QAP effect: Although not required to take effect, agencies may add text.

Other consequence: Properties will become more feasible (other than those already in basis boost areas).

Extend Discretionary Basis Boost to Bond Investments

Legislation: Allow agencies to designate tax-exempt bond-financed properties as eligible for the discretionary basis boost. The Housing and Economic Recovery Act of 2009 (HERA) first created the agency-designated boost, but only for 9% LIHTCs.

Direct QAP effect: Although not required in the AHCIA, QAPs should contain clear parameters for when the boost will apply. After HERA was enacted the Joint Committee on Taxation (JCT) published its Technical Explanation; Section I(A)(3)(a) expresses an expectation for standards determining “which projects shall be allocated additional credits … in the State allocating agency's allocation plan.” This expectation is at least as important for 4% LIHTCs.

Other consequence: In their communications with agencies, developers will need to understand the JCT expectation.

Conclusion

The AHCIA is must-pass legislation. The LIHTC community should do its part to help make it happen. When it does, Novogradac professionals stand ready to help with implementation.