On September 18, the U.S. Government Accountability Office (GAO) published a new report “LOW-INCOME HOUSING TAX CREDIT: Improved Data and Oversight Would Strengthen Cost Assessment and Fraud Risk Management.”  NH&RA applauds GAO for its thorough study of LIHTC development costs in the 10 states covered by the GAO’s report.  GAO’s review of state cost containment policies nationwide illustrates state agencies’ comprehensive and consistent efforts to ensure reasonable development costs in Housing Credit properties.

GAO’s findings regarding development costs and cost drivers are generally consistent with recent independent research on Housing Credit development costs commissioned by the National Council of State Housing Agencies (NCSHA) and conducted by Abt Associates (more below) and suggest that LIHTC development costs are generally consistent with overall apartment development costs, even though Housing Credit properties must by law meet many requirements that typical apartment buildings do not.  Representatives from GAO will be discuss their finding with NH&RA at the upcoming NCHMA Annual Meeting, Sept. 24-25 in Denver.

Highlights From The GAO Study

GAO identified wide variation in development costs and several cost drivers for Low-Income Housing Tax Credit (LIHTC) projects completed in 2011–2015. Across 12 selected allocating agencies, median per-unit costs for new construction projects ranged from about $126,000 (Texas) to about $326,000 (California). Within individual allocating agencies, the variation in per-unit cost between the least and most expensive project ranged from as little as $104,000 per unit (Georgia) to as much as $606,000 per unit (California). After controlling for other characteristics, GAO estimates that:

  • larger projects (more than 100 units) cost about $85,000 less per unit than smaller projects (fewer than 37 units), consistent with economies of scale.
  • projects in urban areas cost about $13,000 more per unit than projects in nonurban areas.
  • projects for senior tenants—nearly one-third of all projects—cost about $7,000 less per unit than those for other tenants, potentially due to smaller unit sizes.

The report asserts that allocating agencies use measures such as cost and fee limits to oversee LIHTC development costs, but few agencies have requirements to help guard against misrepresentation of contractor costs (a known fraud risk).  Weaknesses in data quality and federal oversight constrain assessment of LIHTC development costs and the efficiency and effectiveness of the program. GAO found inconsistencies in the types, definitions, and formats of cost-related variables 12 selected agencies collected.  The report also found that allocating agencies did not capture the full extent of a key indirect cost—a fee paid to syndicators acting as intermediaries between project developers and investors that IRS requires be collected.

The report finds that IRS does not require allocating agencies to collect and report cost-related data that would facilitate programwide assessment of development costs. GAO found that opportunities exist to advance oversight of development costs, in particular, greater standardization of cost data would lay a foundation for allocating agencies to enhance evaluation of cost drivers and cost-management practices.

The report makes several recommendations to Congress and the IRS.  It recommends that Congress should consider designating a federal agency to maintain and analyze LIHTC cost data. GAO also makes three recommendations to IRS to enhance collection and verification of cost data. The report observes that IRS disagreed with the recommendations and said it lacked certain data collection authorities although GAO maintains the recommendations would strengthen program oversight and integrity and modified one of them to allow IRS greater flexibility in promoting data standards.  Click here to download the report.

NCSHA Responds

NCSHA issued the following letter in response to the U.S. Government Accountability Office’s draft report on Housing Credit development costs, “Low Income Housing Tax Credit: Improved Data and Oversight Would Strengthen Cost Assessment and Fraud Risk Management.” The letter is published in Appendix VIII of the final version of GAO’s report, published September 18, 2018.

NCSHA thanked GAO for the opportunity to provide comments on the draft report and responded to the specific recommendations GAO makes related to the collection of Housing Credit development cost data, cost certification practices, and syndicator fees. NCSHA also compares the findings in GAO’s report to those of Housing Credit development cost research by Abt Associates, which NCSHA commissioned.  It observes, “This report outlines in great detail the many policies and practices states have adopted to oversee and contain Housing Credit development costs. These policies go well above and beyond the statutory and regulatory requirements of the program. Though different states may take different approaches to this task, the commitment to maximizing Housing Credit resources is unanimous across states.”

Earlier this month NCSHA released a corresponding report on Housing Credit development costs, conducted by Abt Associates. The report found Housing Credit-financed apartments on average cost roughly the same to develop as a typical apartment, even as Housing Credit properties must by law meet many requirements that typical apartment buildings do not.  Click here to read our coverage of the Abt Associates report.  See NCSHA’s side-by-side comparison of the findings in the GAO report and the Abt Associates report.