Stakeholders Respond to Proposed Rules on Utility Allowances for Submetered LIHTC Properties

Published by Michael Novogradac on Monday, December 3, 2012 - 12:00am

In August the Internal Revenue Service proposed updates to low-income housing tax credit utility allowance regulations. The proposed regulations cement industry practice of using submetering arrangements to charge tenants utilities based on actual consumption, while using the applicable utility allowance to determine the maximum tenant paid rent. In addition, the changes will allow building owners to charge a fee for the cost of administering submetering arrangements.

The notice invited those interested in testifying at a Nov. 27 public hearing to submit a request to speak, but the IRS cancelled the hearing after reporting that it had not received any requests as of Nov. 2. However, comments to the proposed changes were accepted through Oct. 9, 2012 and the IRS received four comment letters covering a range of topics. Here is a sample:

  • The National Council of State Housing Agencies wrote, “ … the proposed regulations generally allow for more accurate utility allowance determinations, provide greater flexibility to make such determinations, and help HFAs promote energy efficiency in housing credit properties … more accurate utility allowances help keep housing credit properties financially sustainable.”
  • A group of LIHTC developers, owners, management agents and lenders, including the National Multi Housing Council and National Affordable Housing Management Association, wrote, “For the most part, the proposed modifications contained in the proposed rule are consistent with the intent of the original rule and the multifamily industry’s support for more accurate information to better estimate utility adjustments … However, we are very concerned with the IRS’ interpretation in the August 7, 2012, proposed rule regarding the approval of permitted estimation methods by state housing agencies … We disagree with the general implication of this language that state housing agencies may arbitrarily choose to disapprove any method described in the regulation.”
  • The Texas Department of Housing and Community Affairs (TDHCA) wrote, “TDHCA recommends that approval by the agency with jurisdiction over the building should be necessary for both properly licensed engineers and qualified professionals. In general, TDHCA believes that the regulation should make it clear that the state housing finance agency has the ability to approve or deny an owner’s utility allowance, unless they are a RHS property or HUD regulated building.”
  • Cameron Williams of 2rw Consultants Inc. wrote, “Either through a regulatory clarification, amendment, or creation of a new methodology, an engineered type model and methodology for utility allowances could adequately compensate tenants for an appropriate level energy and utility use, create financial incentives for owners and developers to build more energy efficient housing stock, and encourage retrofits and renovations to improve conditions of existing housing stock.”

To read summary and analysis of the changes, refer to the September issue of the Novogradac Journal of Tax Credits. Or, if you have questions about how the changes would affect your LIHTC property, please contact my partner Jim Kroger, CPA, in Novogradac’s San Francisco office.