Industry Insights
Optimism Abounds
By Kaitlyn Snyder
4 min read
In July, the U.S. Department of the Treasury released updated frequently asked questions and an Affordable Housing How-To Guide surrounding the use of Coronavirus State and Local Fiscal Recovery Funds (SLFRF) from the American Rescue Plan (ARP) for the construction and preservation of affordable housing. This welcome news expands the list of activities that are presumptively eligible to include: Low Income Housing Tax Credits, most Department of Housing and Urban Development-administered programs and units serving households at or below 65 percent of Area Median Income for a minimum of 20 years.
And that’s just the presumptively eligible list. Treasury officials have repeatedly said the list is illustrative, but not exhaustive. The uses must fall under the so-called ‘public health and negative economic impacts (PH-NEI) of the pandemic’ (DC is great at easily pronounceable acronyms that roll right off the tongue).
Now that Treasury has cleared one major hurdle by allowing these funds to better align with housing development and preservation, another remains: state, local and tribal governments actually using the funds for affordable housing among a myriad of competing needs as they address the economic fallout from COVID-19.
Advocacy around changing the rules got us this far and more advocacy is still needed. Make sure your government officials are (a) aware of the changes, and (b) aware of how desperately this money is needed to fill gaps and help normalize what are incredibly difficult housing, labor and construction markets.
Our collective ability to deploy these funds for affordable housing will no doubt serve as a measuring stick when considering future federal investments in affordable housing. (See Utilizing State and Local Recovery Funds for Affordable Housing.)
More good news came from Congress in August, when it passed the Inflation Reduction Act. It is significantly pared down from the Build Back Better legislation proposed last year and does not include direct affordable housing provisions. However, it does include several energy-efficient measures that will make investments in clean energy easier to pair with affordable housing.
Specifically, the Investment Tax Credit (ITC), which is used to finance renewable energy technologies, such as solar panels, and the Section 45L new energy-efficient home credit would no longer reduce basis when used in conjunction with LIHTC properties. Moreover, the bill provides a 20 percent bonus for ITC facilities used in conjunction with covered affordable housing programs and a ten percent bonus for ITC facilities in low-income communities. It also appropriates $837.5 million through HUD to provide direct loans and grants to improve the energy and water efficiency and climate resilience of HUD-financed affordable housing properties. Additionally, the bill establishes a 15 percent alternative minimum tax for certain corporations, against which LIHTCs can be taken.
Our Congressional allies fought to get affordable housing included in the Inflation Reduction Act. Leaders in Congress and the administration are disappointed housing was left out of this round and are eager to include in another legislative vehicle. The National Housing & Rehabilitation Association and our partners will continue to push to have provisions from the Affordable Housing Credit Improvement Act enacted into law. We’re optimistic more good news is on the horizon with Treasury’s (hopefully) imminent release of Average Income regulations and a year-end tax extenders bill.
In practice, that means the use of SLFRF must be “related and are reasonably proportional to addressing the negative economic impacts of the pandemic and otherwise meet the final rule’s requirements. Depending on the needs of the local rental market, it may be reasonably proportional to address the negative economic impacts of the pandemic by funding units (e.g., up to 80 percent Area Median Income) that do not fall into the presumptively eligible categories listed above.”
And there’s more good news: SLFRF can “now be used to fund the full principal amount of certain loans that finance long-term affordable housing investments. Among other requirements, the loans must have maturity and affordability covenants of 20 years or longer, including but not limited to loans that fund LIHTC projects.” LIHTC owners must agree to waive their right to a qualified contract as a condition of accepting these funds.
The funds are considered spent at disbursement to the borrower for the purpose of meeting statutory expenditure deadlines and repayments on these types of loans are not subject to program income rules, meaning that state, local and tribal governments can redeploy those funds for affordable housing. Funds can also be layered with HUD financing, FHA Risk Share or used for construction gaps, land acquisition, predevelopment and site work.
Confused? I encourage you to read the eight-page How-To Guide in its entirety and watch the recording of Treasury’s webinar on Affordable Housing & SLFRF.
