An Evaluation of Community Revitalization Plan Provisions in QAPs

Published by Mark Shelburne on Friday, June 3, 2016
Journal thumb June 2016

Weighing in at 14,600 words, Internal Revenue Code (IRC) Section 42 goes into substantial detail about the low-income housing tax credit (LIHTC). However, less than 2 percent of this text covers qualified allocation plans (QAPs), which are the most visible and frequently discussed aspect of administering the program.

QAPs attract attention largely because they determine outcomes in the intensely competitive process of developers applying for LIHTCs. The IRC establishes two distinct kinds of rules for conducting the competition: required preferences and selection criteria.

For the first, QAPs must give a preference for properties

  1. serving the lowest-income tenants for the longest periods, and
  2. located in qualified census tracts (QCTs), the development of which contributes to a concerted community revitalization plan (CCRP).

Section 42 also lists 10 criteria that agencies have to consider when selecting among applications. These are not the same as the two requirements above, in that there is no need to give a particular advantage among competing developments. These concepts simply have to appear in a QAP in some fashion.

Therefore, as the only federal mandate for determining outcomes, the preferences are uniquely important.

There is no federal guidance for either what it means to give a preference or how to define CCRPs. These tasks are left to allocating agencies, as is entirely appropriate considering the vast differences among states. The Department of Housing and Urban Development (HUD) determines QCTs; generally speaking these have higher poverty rates than surrounding areas.
The purpose of this article is to examine how agencies interpret the CCRP requirement. Novogradac & Company LLP recently completed a comprehensive evaluation, including having:

  • reviewed 50 states’ 2016 QAPs for revitalization plan language,
  • compiled a list of the provisions,
  • surveyed allocators to check for accuracy/completeness and also outcomes of their recent application cycles, and
  • categorized the factors.

The firm’s blog has a summary preview of the evaluation.

QAP Background

The CCRP requirement is implemented via QAPs, which have four main components:

  1. set-asides divide LIHTCs based on various characteristics;
  2. thresholds are fundamental requirements of eligibility;
  3. preferences result in selection of eligible projects within a set-aside; and
  4. underwriting is the agency’s review and modification of a project’s numbers.

(In some states, program manuals or other documents contain the most pertinent provisions.)

Of these four, CCRPs primarily appear as set-asides and preferences. The former can be either a number of projects or amount of LIHTCs (dollars or percentages). While usually setting a minimum for awards, a set-aside also can be a maximum. Another possibility is no application meeting the expectations.

The vast majority of QAPs apply preferences with numerical points, but a few use verbal descriptions. In a competitive environment, the measure of a scoring item’s consequence is not the amount of points or percent of total available. Instead, what matters is the relative ability for an applicant to earn them.

For example, assume building a gazebo and being in a narrowly defined geographic area are each worth five points. Since developers can almost always find room for a small structure, gazebos would not differentiate among applications. By contrast, only some properties can be in a particular location, giving them a real advantage.

Knowing a QAP has a set-aside or points for certain characteristics is important, but because of the above complexities, a simple set-aside or granting of points does not tell the whole story of how much it matters.

Evaluation of Factors

Not surprisingly, all states recognize the Section 42 requirement in some fashion. This is not a new phenomenon; a 2001 study of QAPs, “Analysis of State Qualified Allocation Plans for the Low-Income Housing Tax Credit Program,” found CCRPs were widely prevalent.

The first category in Novogradac’s evaluation is the form used. More than 80 percent of states award points. The amounts vary, but again what matters is applicants’ relative ability to score, not the particular number. Likewise, a tiebreaker can be either mostly irrelevant, hugely consequential, or somewhere in between, depending on the ease of meeting the requirements.

Form of Preference

  • 37 use points
  • 5 both points and another
  • 3 set-asides
  • 2 tiebreakers
  • 3 some other, (e.g., priority)

While there has to be a preference for CCRP properties in QCTs, Section 42 does not say only those in QCTs. Two dozen states use this flexibility to include other areas in their QAP definition.

Required to be in a QCT?

  • 14 yes
  • 6 for max points or other aspect
  • 24 no
  • 3 yes if new, not rehabs
  • 4 other

In addition to their own definition, 13 states recognize other designations as being effectively equivalent a CCRP. The most common among these are HUD programs.

Eligibility of/Connection to Other Designations

  • 37 have none, only the QAP definition
  • 9 various federal (Choice Neighborhoods, Promise Zone)
  • 4 state designations
  • 2 new markets tax credit properties
  • 3 Main Street or historic district

The list above totals to more than 50 because some states cover multiple designations.

Section 42 does not specifically mandate, or even imply, the CCRP be adopted by a local government. Thirteen states recognize community-based nonprofits and similar organizations can make a real difference without official support.

Role of Local Government

  • 30 require some official action
  • 13 allow another (local nonprofit)
  • 7 accept a letter

Eligibility for a preference depends on the specific requirement. The following are some (but by no means all) of the additional standards agencies have put in place in order to qualify.

  • 17 require a financial contribution (2 include specific amounts),
  • 15 have an expectation for activity in the surrounding area,
  • 13 specify time periods, such as being underway or adopted within five years,
  • 5 require some degree of public participation before being enacted,
  • 5 expressly state that consolidated plans, zoning, etc. are insufficient,
  • 4 consider proximity to amenities, services, and/or job centers,
  • 4 preclude developer involvement in creating the plan,
  • 3 have distinct rules for urban and rural areas,
  • 2 evaluate the CCRP’s connection to fair housing.

If there were an award for the single most interesting provision, it would go to the Massachusetts Department of Housing and Community Development. Under its QAP, LIHTC applicants seeking CCRP points agree the state will assess “the effects of the development on the surrounding neighborhood” on a regular basis.

Outcomes

How important are CCRPs for determining awards? As explained above, merely seeing QAP text is not enough to know the extent to which applications have a preference.

Although half of state agencies responded to the survey, only 10 provided information on CCRP awards in recent years. However, even this small sample gives a clear picture of the widespread variation. Two states made a single award each, while others ranged from 20-30 percent all the way to more 90 percent of their allocations.

Learn More

The CCRP provisions have been added to Prezcat.org, an online, searchable catalog of QAPs and other affordable housing policies, including provisions regarding preservation, opportunity areas, and supportive housing. In addition, all four topics were covered in a Novogradac webinar, the recording of which is available on www.novoco.com/events/webinars.