Guidance issued by the U.S. Department of the Treasury today encourages more use and broader use of Coronavirus State and Local Fiscal Recovery Funds (SLFRF) for affordable housing–including a provision to allow SLFRF to fund the full principal amount of long-term affordable housing loans that meet certain affordability requirements.

The goal of the updated guidance is to finance more development and fill gaps in funding for construction or renovation of affordable housing properties.

The guidance follows a final rule on use of SLFRF issued earlier this year and focuses on two major provisions:

• Increasing flexibility to use SLFRF to fully finance long-term affordable housing loans, and
• Expanding eligible affordable housing uses to maximize the availability of SLFRF for affordable housing.

The American Rescue Plan Act contained a provision to provide $350 billion in SLFRF and Treasury has encouraged state, local and tribal governments to dedicate a portion of that amount to the development, repair and operation of affordable housing. Treasury data shows that through March 31, more than 600 state and local governments had budgeted $12.9 billion in SLFRF funds for housing needs. Of that, $4.2 billion was for affordable housing development and preservation.

In March, more than 80 organizations–including Novogradac–signed on to a letter asking Congress to amend regulations to make it easier for long-term loans for low-income housing tax credit (LIHTC) properties. This guidance provides that option and more.

“Increasing the nation’s housing supply is essential to lowering shelter costs over the long term,” said Deputy Secretary of the Treasury Wally Adeyemo in a press release announcing the guidance. “Treasury continues to strongly encourage state and local governments to dedicate a portion of the historic funding available through President Biden’s American Rescue Plan toward building and rehabilitating affordable housing in their communities and the actions being announced today will make it even easier for them to do so.”

The guidance provides some specific opportunities for affordable housing stakeholders:

Increased Flexibility to Use SLFRF for Long-Term Affordable Housing Loans

The updated guidance simplifies the use of SLFRF for long-term affordable housing loans. Under the final rule, SLFRF can be used to combat the public health and negative economic effects of the COVID-19 pandemic, but before this guidance, recovery funds could only be used to finance the cost of the loan, not the full principal amount.

Construction of affordable housing is specifically included in the updated guidance, with the governmental bodies allowed to fully finance long-term affordable housing (including the full principal), subject to the following requirements:

• The loan has a term of not less than 20 years,
• The affordable housing property being financed has an affordability period of not less than 20 years after the units are occupied and funded with SLFRF,
• For loans that finance LIHTC properties:
  • The owner must waive the right to request a qualified contract, and
  • The owner must agree to repay the SLFRF loan in full at the time the project becomes noncompliant.

Loans that meet the criteria above may be considered “expended” at the point of disbursement to the borrower.

These changes will provide significant additional financing for a variety of affordable housing developments, including those eligible for the LIHTC.

Expanded Presumptively Eligible Uses

The final rule allowed for use of SLFRF in affordable housing, specifically with the U.S. Department of Housing and Urban Development’s (HUD’s) National Housing Trust Fund and HOME program.

The new guidance expands that list to other programs and other agencies, including LIHTC, public housing capital funds, HUD Section 811 and Section 202, project-based rental assistance and United States Department of Agriculture multifamily preservation.

Significantly, Treasury’s updated guidance includes clarification that SLFRF funds can be used to finance the development, repair or operation of any affordable housing rental unit that provides affordability for 20 years or more for households at or below 65% of the area median income. That makes SLFRF funding eligible in a variety of state, local and tribal affordable housing options.

Next Steps

Treasury and HUD published a how-to guide to help governments combine American Rescue Plan funding with that of other sources of federal funding. Treasury will also provide a series of webinars and briefings with states, local governments, nonprofits and private-sector entities involved in affordable housing.

Novogradac professionals are available to assist governmental agencies and affordable housing stakeholders evaluate the recommended approaches to secure SLFRF financing.