NCSHA’s Recommended Practices for LIHTC Administration
The National Council of State Housing Agencies (NCSHA) today released its updated and revised “Recommended Practices in Housing Credit Administration” (RPs). Although technically not binding, the RPs are influential because they represent near consensus among allocators on low-income housing tax credit (LIHTC) policy. Allocating agencies generally align their qualified allocation plans (QAPs) with the RPs wherever possible.
The revised RPs are the result of more than a year of work by NCSHA’s staff and allocating agency members, plus input from industry partners. (For example, Novogradac’s LIHTC Working Group submitted comments.) The document now combines what were separate collections of policies for
There also are many additions. The 47-page document contains recommendations and explanatory discussions for each RP.
New and Different
The list below summarizes the most important variations between the current and previous versions (some RPs are essentially the same as before). For more details see this track-changes document indicating substantive revisions. An article in the February edition of the Novogradac Journal of Tax Credits will feature a more thorough discussion.
Items marked below with an asterisk are new RPs.
3. Revitalization Plans*: This RP lists factors agencies should consider when evaluating concerted community revitalization plans (CCRPs). The list is adapted from what the Affordable Housing Credit Improvement Act (AHCIA) would add to Internal Revenue Code Section 42 if enacted. NCSHA also notes
- federal law does not require CCRPs to have been approved by a local government;
- agencies may allocate to properties in qualified census tracts even without a CCRP; and
- the IRS does not need to provide further guidance on CCRP content (having done so in 2016).
4. Local Approval*: Another concept the RPs take from the AHCIA is restricting the role of local approvals and financial support. Specifically,
- not allowing localities to exercise a veto over LIHTC approvals, and
- municipal/county funding being given no more weight than other sources.
Civil rights advocates and more than one federal agency have expressed concerns about fair housing objectives being impeded by QAP requirements and incentives along these lines.
5. Agency-Designated Boost: The criteria for how agencies designate properties should be part of the QAP process. Also, a text change clarifies the boost is “up to” 30 percent.
8. Market Studies: To help ensure market analysts’ independence from developers, agencies may provide an approved list of providers or contract directly for studies. The evaluation could vary based on whether the subject property is new construction or rehabilitation.
9. Choice and Opportunity*: The RPs address what has been a much-discussed topic by calling for a balance between locating LIHTC properties in “areas of opportunity” and supporting revitalization efforts. NCSHA explains that the former can benefit residents’ well-being (especially children), whereas the latter improves neighborhoods. The policy choices matter; not surprisingly research shows QAPs have a significant effect on the location of LIHTC properties. Agencies should consider relevant data when defining opportunity areas, including crime rate, jobs, transportation access, school quality, and the presence of subsidized housing.
11. Native American Housing*: Responding to yet another provision of the AHCIA, this RP encourages agencies to analyze impediments to using LIHTCs on tribal land and make appropriate changes.
12. Supportive Housing: In setting policies for units serving persons with disabilities, agencies must ensure compliance with the U.S. Supreme Court’s Olmstead decision. As applied to housing, the holding was governments have a duty to provide residents “meaningful opportunities to live and receive services in an integrated community setting.”
13. Sustainable Development: Like opportunity areas, the question of how “green” to build has been the subject of much discussion. While acknowledging the field is important and rapidly evolving, this RP says agencies should take into account the impact of policies on properties’ capital and operating budgets. NCSHA observes some practices may be inconsistent with cost containment strategies.
14. Development Costs: Applications showing costs in excess of agency limits may be ineligible for an allocation.
15. Developer Fee: The maximum should be the lesser of a per-unit amount or 15 percent, the former being a newly added concept. Exceptions to the limit should be possible only in “extremely limited” circumstances. NCSHA points out that using a per-unit calculation avoids an incentive to increase development budgets. Also, agencies should apply the same standards for 9 percent LIHTCs and tax-exempt bonds.
16. Consultant and Professional Fees: Previously this RP was limited to consultant fees. The new version encourages agencies to assess the reasonableness of these budget line-items by making comparisons to past and current applications. Any outliers should be subject to additional review.
17. Verification of Expenditures: Agencies should require “audits of general contractors and/or sampling of subcontractor invoices” for all LIHTC properties before issuing an IRS Form 8609. NCSHA likely was motivated in part to respond to reporting from earlier this year.
18. Sources and Uses Certification: Owners should make certifications regarding fees (syndication, debt placement, guarantees) and amount paid to purchase the site.
19. Operating and Replacement Reserves: Funds in these accounts should stay with the property upon investor exit. Some general partners have expressed concerns about reserves being liquidated in year 15 dispositions.
20. Operating Expenses and Vacancies: Considering the program’s 30 year history, agencies should use available data to underwrite applications. A source of information would be requiring owners of existing LIHTC properties to submit operating expense reports already provided to third parties (e.g., lenders). For vacancy rates the RP replaces use of 7 percent with consideration of market conditions and project-specific factors (e.g., rent assistance contracts).
24. Appraisals for Acquisitions: This RP calls for agencies to apply greater scrutiny to transactions between related parties.
25. Extended Use Agreements: The restrictions should be recorded as soon as possible after the LIHTC entity takes ownership.
26. Encouraging Preservation: NCSHA substantially expanded its RP on allocating LIHTCs to existing properties. Noteworthy among the many changes are
- a recommendation to proactively assess risk of conversion to market within the portfolio, and
- a statement about not releasing extended use agreements other than as allowed under Section 42.
27. Qualified Contracts*: There are two aspects to this RP. First, agencies should require all recipients of LIHTC allocations in future cycles to waive the right to request a qualified contract (QC), including those using tax exempt bonds. The other is discouraging owners of older properties from initiating the QC process, including by assessing negative points on future LIHTC applications.
28. Construction Monitoring: Agencies should oversee construction progress and compliance with applicable requirements (i.e., accessibility). The work can be done in coordination with lenders and investors.
32. Foreclosure Prevention*: This RP adds three steps agencies should take to limit foreclosures.
- Monitor existing properties for risk and consider intervening where appropriate.
- Ensure affordability restrictions will “not automatically” terminate.
- Require documentation in advance to check for the action being an arrangement between the lender and borrower.
The above would be less necessary upon enactment of the AHCIA provision granting agencies the authority to determine a foreclosure is not valid.
36. Income and Rent Limits: Due to the extensive complexity of determining the maximum housing expense and household income, agencies may want to provide project-specific limits.
37. Utility Allowances*: Owners should be allowed to use all available options.
41. Fair Housing Compliance: Both owners and managers to need to attend fair housing training, and agencies should encourage properties’ use of “affirmatively furthering” marketing plans.
42. VAWA Compliance*: Policies should be adopted and/or amended to implement the Violence Against Women Act.
43. Extended-Use Period Compliance*: After the initial 15-year period agencies may establish different criteria for students, unit transfers, inspections, documentation, and monitoring fees.
44. Compliance Issues in Resyndication*: Following IRS guidance, households that were LIHTC income qualified at initial move in should be considered eligible upon the property receiving another allocation.
As mentioned above, allocating agencies pay close attention to the RPs. As such they also are important to anyone who works with LIHTCs. Being familiar with the RPs will help in several ways, especially in developing QAP comments.