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State Housing Finance Agencies Change LIHTC Allocations Strategies

Tax Credit Advisor April, 2006: State housing finance agency officials from New York, Florida, Illinois and South Carolina recently gathered to discuss how their HFAs have revised the allocation of federal housing tax credits in an effort to better manage strong developer demand for these subsidies.

The group was brought together in a panel that addressed the National Housing & Rehabilitation’s 2006 Annual Meeting held last month in Miami Beach, Fla. The panel was comprised of Steve Auger, executive director of Florida Housing Finance Corp. (FHFA); Judy Calogero, commissioner of the New York State Division of Housing and Community Renewal (NYDHCR); Josie Kotsioris, manager of the tax credit program at the Illinois Housing Development Authority (IHDA); and Eugene Laurent, executive director of the South Carolina Housing Finance and Development Authority (SCHFDA).

Each of the four officials discussed recent modifications to their agency’s tax credit allocation process, though most involved incremental rather than sweeping changes. The exception to this was SCHFDA, which has decided not to have a point-based allocation system.

No Points in South Carolina

South Carolina’s Laurent said that the points system was scrapped because developers, in the view of state officials, had become overly focused on the competitive aspect of the allocation process rather than offering sound and innovative proposals.

“Developers were chasing points for the sake of chasing points, whether or it made sense to the project,” said Laurent. “We just didn’t think that the system was always supporting the best projects.”

In its place, Laurent explained, SCHFDA has created what it calls a “Preference System,” in which a market study conducted by the housing authority is used to determine which applicants receive tax credits.

The study first examines the site and the market for the property. A recommendation is then made on whether the project should advance to the next step. If it does, it is compared with similar projects and evaluated in terms of quality design standards, amenities offered, and tenant targeting. If further evaluation is necessary to determine which applicants are awarded credits, SCHFDA then looks to other aspects of the proposed development, including government support and the proximity of the site to services needed by residents.

Laurent said that the new system has not discouraged developers from applying for tax credits, noting that there were 75 applications in the current round compared with 55 three years ago.

Changes in New York

NYDHCR has made a number of changes in its allocation of tax credits in its 2006 Qualified Allocation Plan (QAP), beginning with an addition of bonus points to encourage energy efficiency, said Calogero

She said that in response to developer requests, the agency has also modified its fee structure to eliminate two of the payments previously required of tax-credit applicants: one at the time of a credit reservation and the other when the binding agreement occurred. The two remaining fees - the first due when the application is initiated and the other when tax credits are awarded - have been increased.

Calogero noted that NYDHCR prefers to offer preservation projects 4 percent LIHTCs in conjunction with tax-exempt bonds, but has decided to offer more 9 percent tax credits for this purpose than it had previously, if a project is particularly worthy. She added that the agency has refined its definition of a preservation project, requiring developers to demonstrate that their proposed projects will serve to avert the loss of affordable housing.

The housing official also said that the agency is working to make it easier for developers to obtain a subsidy from the state’s Housing Trust Fund along with LIHTCs. In 2006, $39 million is being made available through this program, she said. In an effort to make the program more user-friendly, there is now a single combined application for LIHTCs and Trust Fund subsidy, though scoring for each program is still separated.

Calogero emphasized that NYDHCR is putting more emphasis on its “Feasibility Review,” which combines financial testing, market analysis, and an architectural design review. In particular, she said, the design review portion is being carefully scrutinized, “not just to prevent construction defects, but also because it has helped us a great deal in justifying affordable housing in communities that have issues with it.”

Florida Heeds Developers

Augur said that in response to feedback from developers, FHFC has instituted a number of modifications.

One is to change the timing of the QAP cycle so that it occurs earlier in the year, with due dates for applications in February rather than April, and final awards in July rather than September. Another, in response to sharply higher development costs in the state, is to increase its subsidy limits on projects, a change made for the second year in a row.

Augur said that the housing agency has traditionally been a “new construction culture,” but is working to be “more rehab friendly” in considering applications for preservation projects. He noted that Florida’s Gov. Jeb Bush has appointed a commission that is currently reviewing the issue of preservation, which may help the housing agency convince the state legislature to provide funding for this purpose. Auger hopes that the current session of the Florida legislature will also provide funding for workforce housing to serve renters between 80 percent and 140 percent of Area Median Income.

A downward trend in the ratio of LIHTC applications to awards in Florida has been reversed this year, he said. That ratio was 3.5 to 1 in 2003, 2.5 to 1 in 2004, and about 2 to 1 in 2005. In 2006, it is 3 to 1.

“Land costs, construction costs, and utilities costs continue to spike, and a condominium craze also continues,” Auger said. All this “has really increased the competition level for affordable housing developers.”

Two-Year QAP in Illinois

The IHDA decided to move to a two-year QAP cycle as a result of developers’ requests and an executive order requiring the housing authority to put together a comprehensive housing plan, said Kostsioris.

In addition, for the first time, the housing agency has set aside an allocation for small public housing authorities, and, separately, for preservation. Extra points will be awarded to developers who bring on an experienced team, including a tax-credit equity syndicator. Bonus points will also been given to developers who are able to provide affordable housing in affluent communities.

Kotsioris noted that special needs housing has become a “real priority” in Illinois.

Three of four HFA officials commented on mistakes seen in applications.

FHFA’s Augur said that the most common mistake was the failure to verify funding commitments and zoning changes mentioned in an application. The problem, he said, is that developers tend to assume that these issues have been taken care of - but, in reality, they have not. He said that because such mistakes typically occur late in the application process, during the final “cure” period, they are usually fatal. “Our application is geared towards giving priority to deals that are ready to go,” he said.

IHDA’s Calogero said that some developers’ applications demonstrate that they have not applied the findings of the market studies prepared for their properties. SCHFDA’s Laurent said he was struck by the general prevalence of errors. “Most applications have three or four of them,” he said, noting the housing agency has instituted a system of fining developers for mistakes. If there are five errors on an application, he said, it is rejected altogether.

Augur, Calogero, and Laurent each said that the developers who did not take advantage of application workshops often were not successful in winning an LIHTC allocation.

For more information on events dealing with Low Income Housing Tax Credits sponsored by state housing finance agencies, including details of QAP application workshops, go to

Tax Credit Advisor

Tax Credit Advisor (TCA) is the only publication to provide in-depth coverage of federal low-income housing, historic rehabilitation, new markets tax credits, and state housing & historic credits. TCA, a monthly print publication, alerts you to the news, trends, resources, and emerging opportunities to help you successfully develop, finance, manage, and invest in tax credit projects. read more

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