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QAP Thresholds (post 3 of 10)

Published by Mark Shelburne on Thursday, September 16, 2021 - 12:00AM

This post is part of a series on QAPs:

  1. Introduction
  2. Set-Asides
  3. Thresholds
  4. Selection Criteria
  5. Underwriting
  6. Creating a Competition
  7. Special Case of Cost Policies
  8. 114 Different Criteria
  9. Drafting Considerations
  10. Providing Effective Input

Threshold requirements are the minimum eligibility standards to receive an allocation of low-income housing tax credits (LIHTCs). These criteria often have the effect of limiting competition by pre-selecting, in that a developer knows an application would not have a chance (e.g., a site adjacent to a wastewater treatment plant). Other times being ineligible comes as an unpleasant surprise.

Federal Law

The only specific federal expectations are in Section 42(m)(1)(A), none are challenging to meet:

  1. LIHTCs must be allocated pursuant to an approved qualified allocation plan (QAP);
  2. the agency must notify the chief executive officer of the jurisdiction where the building(s) is/are located and allow a reasonable opportunity to comment;
  3. a disinterested party approved by the agency completes (at developer’s expense) a comprehensive market study of area low-income individuals’ housing needs.

Under Revenue Ruling 2016-29, agencies cannot claim the notice and comment requirement in (ii) is a reason to allow local governments to veto applications.

In addition to the above, there is effectively a fourth federal threshold. Under Section 42(m)(2)(B), agencies must consider all sources of funds before making an allocation. As described in the Underwriting post, the reason is to properly size the amount of LIHTCs. What this means is applications should contain valid commitments from the anticipated funding sources. To varying degrees agencies allow the details to change as the development process moves forward.

State Administration

QAPs contain many other minimum standards. The following are very common and not all-inclusive:

  • the developer has completed a certain number of LIHTC properties (also applies to the management company)
  • no one involved has negative history, such as allowing a foreclosure to occur
  • the developer has site control, an option or contract to purchase the real estate
  • all discretionary zoning and other land use approvals are in place
  • maximum development costs, often shown as a per-unit total
  • minimum amount of rehabilitation per unit
  • certain design features, including green

As described in a later post, point scoring provisions can have the effect of being mandates. Applications unable to earn the maximum will not be competitive.

Conclusion

Program participants often take threshold requirements as a given. While some are essentially unchangeable because of practicality, most are not any more set than preferences in future QAPs.

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