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How QAPs Would be Affected by the Affordable Housing Tax Credit Improvement Act of 2019
The Affordable Housing Credit Improvement Act of 2019 (AHCIA) proposes an unprecedented expansion and modification of the low-income housing tax credit (LIHTC). Many of the bill’s provisions would result in LIHTC allocating agencies adopting new or different policies; these program administration rules are contained in qualified allocation plans (QAPs) or equivalent documents.
This discussion addresses the aspects of AHCIA most directly consequential for the content of QAPs (listed in order of appearance in the bill). Some of the explanations are adapted from materials created by the ACTION Campaign.
An important question will be whether agencies need to amend the QAP currently in effect or are able to simply incorporate the policies into the next iteration. The answers depend on provisions’ effective dates and will vary around the country. Unfortunately, amending a QAP can be a lengthy and/or difficult process in some states.
Another possibility is adopting some of the concepts now in anticipation of future enactment. Doing so may make sense, especially considering the significant overlap between the AHICA and National Council of State Agencies’ “Recommended Practices in Housing Credit Administration.”
Expand the 9 Percent LIHTC (Section 101)
Legislation: A 50 percent increase in the allocation authority of population-based, competitive LIHTCs (9 percent LIHTCs), to be phased in over five years. Novogradac estimates the increase would create 384,000 additional apartments over 10 years.
Direct QAP effect: At a minimum, changing any stated specifics of the LIHTCs available (i.e., dollar amounts).
Other consequence: More LIHTCs to allocate could lead to new priorities or practices being possible. For example, a set-aside for a particular type of development; added geographic splits; or an “innovation round” for applications with unique circumstances.
Victims of Domestic Violence (Section 206)
Legislation: Better align the LIHTC with the Violence Against Women Act (VAWA) by requiring all recorded extended use agreements and lease agreements include VAWA protections and specifying that victims qualify under the general public use (GPU) requirement.
Direct QAP effect: Some agencies describe what appears in their use agreements and/or compliance rules, while others include them as attachments.
Other consequence: Expressly including VAWA-covered households under GPU may mean adding the population to “special needs” categories.
Minimum 4 Percent Rate (Section 301)
Legislation: Permanently establish a minimum 4 percent rate for LIHTCs (4 percent rate) used to finance acquisitions and tax-exempt financed developments. Novogradac estimates the change would create 66,000 additional apartments over 10 years.
Direct QAP effect: Sections covering feasibility or underwriting set out the tax credit percentage LIHTC applications use, often whatever is in effect a month before the deadline. Even if the QAP text doesn’t change, federal law will supersede. While the result is increasing the maximum possible allocation, agencies are responsible for only allowing the amount necessary.
The effective date will be of great consequence for tax-exempt bond investments in the pipeline. On a program level, since more developments would become feasible (approximately 6,600 units’ worth annually), agencies could create or increase incentives for developers to shift their proposals to using tax-exempt bonds instead of 9 percent LIHTCs.
Relocation Expenses in Basis (Section 305)
Legislation: Tenant relocation costs incurred in connection with rehabilitation will count towards eligible basis (federal guidance had suggested otherwise).
Direct QAP effect: Similar to the 4 percent rate, the Internal Revenue Code (IRC) supersedes any state limitations, thereby increasing the maximum allocation, but agencies could still award less.
Other consequence: Rehabilitation developments, especially those involving extensive work and/or using tax-exempt bonds, would have more equity, in some cases enough to move forward.
Concerted Community Revitalization Plans (Section 307)
Legislation: In determining what constitutes a concerted community revitalization plan (CCRP), agencies will need to take into account the extent to which iti s geographically specific, outlines implementation, includes a strategy for securing non-housing investment, and demonstrates the need for revitalization. (For more of a discussion see this post.)
Direct QAP effect: All agencies already address the CCRP requirement, so few if any will need to revise their QAPs.
Other consequence: Possibly none.
Local Notification (Section 308)
Legislation: Remove the requirement to notify the jurisdiction’s chief executive officer. (For more of a discussion see this post.)
Direct QAP effect: Absent anything to the contrary in a state statute, agencies could end the notification process.
Other consequence: Not informing local officials would help avoid NIMBY opposition and stop what is effectively a land use expectation not applicable to market-rate rental housing. In other words, the IRC currently says regular zoning is not enough for LIHTC developments.
Local Approval and Contribution Requirements (Section 308)
Legislation: Selection criteria cannot include consideration of either political support for or opposition to 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: Where these policies are in place, agencies would need to either elect to not implement them, or complete amendments. The former choice would be based on the IRC superseding the QAP. Attempting to not follow federal law would create the possibility of challenges from developers with ineligible or losing 9 percent LIHTC applications.
Other consequence: As with notification, the intent is to limit effect of NIMBY opposition.
Basis Boost for Serving Extremely Low-Income Households (Section 309)
Legislation: Provide up to a 50 percent basis boost for developments serving extremely low-income and homeless households in at least 20 percent of the apartments.
Direct QAP effect: While agencies should explain how they would implement this provision, technically a QAP revision is not necessary to use this new boost.
Other consequence: Properties would have greater equity, making them better able to serve these populations, which is crucial because their incomes are too low to cover debt service.
Basis Boost to Bond Investments (Section 310)
Legislation: Allow agencies to designate tax-exempt bond-financed properties as eligible for the difficult development area (DDA) basis boost. The Housing and Economic Recovery Act of 2009 (HERA) first created the agency-designated DDA, but only for 9 percent LIHTCs. (One of several reasons why HERA is the most consequential LIHTC legislation to date.)
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 percent LIHTCs.
Other consequence: Unlike the minimum 4 percent rate, a property does not benefit from an increase in basis simply by AHCIA becoming law- the agency has to act. The two provisions are similar in that the effective date matters. Another reality is developers will need to understand the above JCT expectation, and that agencies may decide the boost means bond developments can serve more policy objectives.
Adding Cost Reasonableness to Selection Criteria (Section 314)
Legislation: Selection criteria must include cost reasonableness.
Direct QAP effect: Very little, if any, as costs are a high priority for all agencies.
Other consequence: Possibly none.
Adding Native Americans to Selection Criteria (Section 401)
Legislation: Selection criteria must include the affordable housing needs of Native Americans.
Direct QAP effect: Some agencies may need to add policies. (For more of a discussion see this post.)
Other consequence: The extent of effect is difficult to anticipate.
Qualify Indian Areas as DDAs (Section 402)
Legislation: All Indian areas count as DDAs.
Direct QAP effect: Although not required to take effect, agencies in states with Indian areas likely will add text.
Other consequence: Properties will become more feasible (other than those already in basis boost areas), which is particularly important because Native American households have disproportionately low-incomes.
Qualify Rural Areas as DDAs (Section 501)
Legislation: The following count as DDAs: nonmetropolitan counties, QAP-designated rural areas, and areas defined as rural by Section 520 of the Housing Act of 1949
Direct QAP effect: Same as above.
Other consequence: Same as with the other boosts, plus in some circumstances 4 percent LIHTCs and tax-exempt bonds will be possible. The trend towards portfolio rehabilitation transactions could increase.
The AHCIA is must-pass legislation. The LIHTC community should do its part to help make it happen.