States' Use of Basis Boost Reflects Their Priorities

Published by Mark Shelburne on Tuesday, February 1, 2011
Journal thumb February 2011

While the low-income housing tax credit (LIHTC) industry has spent a great deal of time discussing stimulus funding, from a long-term perspective the more consequential legislation was enacted a year before the American Recovery and Reinvestment Act .  

The Housing and Economic Recovery Act of 2008 (HERA) substantially altered the program in several ways. One of the most important changes in HERA is the 30 percent basis boost designated by allocating agencies. The flexibility it provides has been crucial for implementing state priorities, and simply having deals move forward at all, in these challenging times. This article lists and briefly describes boost provisions in qualified allocation plans (QAPs) for the 2010 cycle.

The policy descriptions and matrix of states on page 18 mean only that the provision appears in the QAP and does not necessarily reflect agencies’ practices. Actual boost designations last year may be more or less than what is indicated.

Also, the descriptions are simplified so as to cover several different but related polices in the categories. (For QAP excerpts go to link.) In some cases there are important interpretive questions, such as what qualifies as an area with limited resources.

Finally, no doubt many provisions have changed for 2011 (e.g. Florida), but not all QAPs were final at the time this listing was compiled.

Keys to Understanding
There are two conclusions readers should avoid drawing from the matrix:
• Just because an idea appears in many QAPs does not mean it makes sense for other states.
• A particular objective may still be a high priority even if not a reason for the boost.

There are several reasons for this:
1. An agency may have threshold requirements applicable to all LIHTC awards and ensures each will be met through its regular underwriting review. Examples include green/sustainable design standards or every property setting aside some units as supportive housing.
2. The state may have other resources available, such as subsidized loans for deeper income targeting. In these cases the discretionary increase can be used to accomplish other goals.
3. Some concepts are more specific and thus included in a broader category. For example, sites near light rail tend to be very expensive, so recognizing high land costs covers transit oriented development. Having both would be largely redundant.

The following are brief descriptions of the types of boosts appearing in more than one QAP, listed in order of frequency. In addition, there are 14 policies unique to a particular state included in the “Other” column.

GF - General Feasibility:
The New Jersey QAP has a good example of the most common provision, which allows an increase in eligible basis where “necessary to achieve financial feasibility.”

SH - Supportive Housing:
A dozen states have policies for persons with disabilities, “special needs” housing and other disadvantaged populations. Awarding the additional 30 percent reflects that must-pay debt service can be a challenge, and also provides an incentive to developers.

GR - Green:
As is the case with green criteria in general, reasons for the boost also take different forms. The most common is agreeing to meet a national or state building standard.

IC - Income Targeting:
Restricting a portion of a property’s units to households at 50 percent or less reduces cash flow, which means more equity may be necessary.

DA - Disaster Areas:
These agencies are mostly responding to the Midwest flooding and may not be carried forward in future years.

L$ - High Cost Land and/or Site Work:
Under Internal Revenue Code Section 42 the cost of land is not included in eligible basis, meaning it must be covered with debt. As a result, many desirable sites (i.e. near amenities) may not be feasible. Providing the boost for this reason allows developers to submit proposals in locations that otherwise would be out of reach.

RU - Rural/Areas with Limited Resources:
Some areas of a state may have difficulty supporting an LIHTC property even without many green features, substantial income targeting or expensive land.

HR - Historic Rehabilitation:
Historic adaptive re-use properties tend to cost more per unit; reducing LIHTC eligible basis by the amount of the historic tax credit makes the numbers even more challenging.

TS - Transit Stops/Areas:
Locating affordable housing near mass transit is increasingly a priority of federal and state agencies.

PV - Preservation:
States use various definitions for preserving existing properties.

JR - Specific Jurisdictions:
A few states provide a list of cities or counties where building will qualify for the boost.

EL - Elderly:
Age restricted properties.

PS - High Point Score:
These agencies increase the eligible basis of proposals that score well in the application review process.

MI - Mixed Income:
Properties where some of the units are unrestricted.

O - Other

Although allocating agencies have made a great deal of progress in implementing HERA, the policies are still relatively new and untested. Therefore the need for feedback, which applies to every aspect of QAPs, is even more important with the discretionary boost. The LIHTC program is a collaborative effort. All participants should provide constructive comments and ideas for improvement.

Mark Shelburne is counsel and policy coordinator for the North Carolina Housing Finance Agency’s rental programs. He would like to dedicate this article to his long-time colleague and friend, Julia Bick of the state Department of Health and Human Services, who passed away in January.