Details on Gap Fund Guidance Emerge as States Issue Tentative Plans
By Caitlin Jones
7 min read
Tax Credit Advisor, May 2009: A few details have emerged about the forthcoming federal guidance needed by states to begin accessing and awarding the new low-income housing tax credit (LIHTC) gap funds authorized by the American Recovery and Reinvestment Act (ARRA).
State housing credit agencies (HCAs) will be using these funds – from the Tax Credit Assistance Program (TCAP) and credit exchange program – to restore stalled, equity-starved LIHTC projects to feasibility so they can move forward to construction.
ARRA provides $2.25 billion for the TCAP program for allocation through the U.S. Department of Housing and Urban Development (HUD) to state HCAs in 50 states, the District of Columbia, and Puerto Rico. HCAs will be able to use these dollars to make competitive awards of funds to projects with housing credit awards received during the three-year period ending 9/30/09. HCAs must give priority to projects with expected completion by 2/17/12, and commit at least 75% of their funds by 2/17/10.
Under the second program, state HCAs may exchange a portion of their unused housing credits to the U.S. Treasury for cash grants. HCAs will be able to use these dollars to provide funds (“subawards”) for new construction or acquisition/rehabilitation projects – with or without a credit allocation – that have a funding gap. HCAs will be able to exchange up to 40% of their 2009 per capita and national pool credits, and up to 100% of unused 2008 credits and credits returned in 2009. The grant amount will be 85 cents per dollar of exchanged credit, times 10.
The potential total sum of available funds is enormous. This includes the $2.25 billion in TCAP funds, plus the credit exchange proceeds, the amount of which will depend on how many credits states exchange. However, just an exchange by all HCAs of 40% of their 2009 per capita credits would generate $558 million in cash.
HUD, Treasury/IRS Guidance
As the Tax Credit Advisor went to press, state HCAs were still waiting for issuance of critical federal guidance for the two programs so they can begin accessing the funds and providing assistance to projects.
HUD recently announced the TCAP allocation amount for each of the 52 HCAs. In an interview on 4/21/09, HUD officials said the release of the implementing notice is “imminent.”
This notice will tell state HCAs what they must do to access their TCAP funds. HUD official Cliff Taffett said it will give state HCAs sufficient guidance to “understand how they are to proceed to select projects,” and the paperwork required before they provide funds.
Taffett said HUD will simultaneously post “Q&A’s” about the TCAP program on its Web site (http://www.hud.gov/recovery/ tax-credit.cfm).
HUD later will air an informational session on the TCAP program – live over the Web, and by satellite to Department regional and field offices. Taffett said this broadcast will cover the program requirements and process and address any questions. (HUD Webcasts: http://www.hud.gov/webcasts/index.cfm).
Taffett declined to provide details of the notice. But he expected that HUD approvals of state participation plans will “move quickly” after issuance of the notice, and was hopeful funds will become available within six weeks of the notice.
In comments on 4/21/09, Garth Rieman, of the National Council of State Housing Agencies, expected that forthcoming guidance for the credit exchange program will be in two parts. The first, from Treasury, will instruct HCAs on how to notify Treasury of the type and amount of credits they wish to exchange for cash, and note how many times HCAs will be able to make exchanges. “We expect multiple opportunities for exchange,” said Rieman, who spoke at a Washington conference of the National Low-Income Housing Coalition. He said Treasury’s guidance will probably also specify the particular general federal (“cross-cutting”) requirements that will apply to the credit exchange program.
Rieman anticipated issuance of Treasury’s guidance by the end of April or in early May, followed by separate “tax-related” guidance issued by the Internal Revenue Service discussing how the exchange funds interact with specific LIHTC statutory requirements. One likely part will identify how exchanged credits are to be treated under the credit program’s “stacking rules,” which specify the order in which different categories of housing credits (e.g., per capita, carryforward) are to be allocated from a state’s annual housing credit ceiling.
Treasury has come under growing pressures regarding exchange program guidance. In a late March letter, key congressional committee chairmen Barney Frank (D-MA) and Charles Rangel (D-NY) asked Treasury to “promptly” issue a revenue procedure to enable states to begin exchanging credits for cash. “Time is of the essence,” they wrote.
More recently, six housing organizations and seven U.S. senators in separate letters asked that Treasury’s guidance clarify the eligibility for credit exchange of unused GO Zone housing credits (authorized by 2005 legislation) and unused disaster housing credits (for seven Midwestern states, Texas, and Louisiana, as a result of the 2007 financial rescue act). In a letter to the Louisiana HCA dated 4/27/09, Treasury said GO Zone credits can’t be exchanged.
LIHTC program participants hope the forthcoming guidance will clarify areas such as the specific federal cross-cutting requirements applicable to each of the two programs, whether Davis-Bacon prevailing wage requirements also apply to the credit exchange program, and permissible forms of assistance to projects (i.e., loans, grants, both).
State Plans, Activities
Rieman said many state HCAs have begun issuing preliminary guidance for public review and comment on how they propose to implement the TCAP and credit exchange programs. He said some states “have a pretty good idea of how they expect to use the funds,” but added the plans are subject to change based on public comments received and the specifics of the forthcoming federal guidance.
Among the state HCAs that have issued tentative plans so far are California, Ohio, Michigan, Tennessee, Indiana, and Minnesota. A few states have opted not to issue plans until after the release of federal guidance. State plans issued so far vary significantly regarding the types of projects that will be eligible for assistance, the projects that will be able to return credits for assistance, how the state will coordinate the award of TCAP and exchange funds, and timetables. [Novogradac & Company LLP has created a Web page with links to state implementation plans and memos, http://www.novoco.com/ low_income_housing/news/hot_topics/recovery.php#state]
In New York State, Gov. David Patterson on 4/6/09 announced nine specific projects (1,400 total units) that will be the first to receive TCAP assistance from the New York State Division of Housing & Community Renewal (DHCR). Two received credit awards in June 2008. DHCR Commissioner Deborah VanAmerongen has previously said DHCR plans to participate in TCAP – New York’s allocation is $253 million – but not to exchange credits except on a case-by-case basis and then only as a last resort.
In California, “we’re still maintaining a very accelerated schedule,” said William Pav”¹o, executive director of the California Tax Credit Allocation Committee (CTCAC). Pav”¹o spoke 4/6/09 along with six other state HCAs on a panel during a Washington conference of the National Council of Affordable Housing Market Analysts. He anticipated CTCAC’s board on 4/30/09 will adopt draft regulations published for comment 3/17/09 to facilitate California’s implementation of the TCAP and credit exchange programs. “We’re proposing a variety of methods, of getting cash in these deals. Some of those methods are competitive, but some of those are simply going to be exchanging cash in for credits.”
Pav”¹o said CTCAC plans to assist both 4% bond-financed and 9% credit projects. He said many 4% deals in California are “stuck,” and a number of 9% deals have been hard-pressed to find equity or have found equity at pricing well below original expectations.
CTCAC because of time constraints has decided to hold one competitive credit funding round in 2009 instead of the usual two – the application deadline is 6/9/09.
