LIHTC Changes Draw Praise; Implementation Phase Begins
By A. J. Johnson & Caitlin Jones
8 min read
Program participants have praised the numerous provisions in the new housing act enhancing the federal low-income housing tax credit (LIHTC) and tax-exempt bonds. Now the industry’s eyes are turned toward implementation.
“State HFAs are ready and eager to put to work the new resources and authorities Congress and the Administration have entrusted to them under this landmark legislation,” said Barbara Thompson, executive director of the National Council of State Housing Agencies (NCSHA), whose member state housing finance agencies allocate housing tax credits and issue tax-exempt bonds to fund single-family home mortgages and low-income rental housing. “The really tough work lies ahead,” Thompson added in a news release. “State HFAs must now quickly deploy these new resources in ways that have the greatest impact on some of the toughest housing challenges our country has ever faced.”
LIHTC program participants interviewed by the Tax Credit Advisor universally hailed the LIHTC amendments in the new act, among them representatives of NCSHA, the Affordable Housing Tax Credit Coalition (AHTCC), Housing Advisory Group (HAG), and the Housing Credit Group of the National Association of Home Builders (NAHB).
Kerrville, TX developer Justin MacDonald of The MacDonald Companies, and current chairman of the NAHB Housing Credit Group, described the package of changes as a “very positive step.” He indicated the changes will allow his company to continue developing new tax credit projects, which he said it had seriously considered curtailing to develop other product instead.
Industry officials David Gasson, Ronne Thielen, Richard Goldstein, and corporate investor Patrick Nash lauded the new provisions and particularly two amendments they said should make housing credit investments more attractive to corporate and institutional investors. These two permit housing credits to offset federal income tax liability under the alternative minimum tax for corporate taxpayers, and repeal the prior requirement for investors to post a recapture bond if disposing of a housing credit investment during the 15-year tax credit compliance period.
Thielen and most others didn’t feel these changes will significantly boost corporate housing credit investments in the near future, but believed they will immediately help bolster marketing of these investments to inactive and prospective new investors and over time generate higher volume, after the current credit and capital woes afflicting the markets dissipate. Thielen is with syndicator Centerline Capital Group; Gasson with syndicator Boston Capital Partners; and Nash is managing director of JPMorgan Capital Corporation and current vice president of the Affordable Housing Investors Council. Goldstein is counsel to AHTCC and a partner in Nixon Peabody LLP.
NCSHA’s Garth Rieman said the law’s LIHTC amendments will “give states more resources and more flexibility to help the credit program achieve even more success in delivering affordable housing help to those who need it.” Specifically, he said they should “enable some developments to go forward that wouldn’t have gone forward otherwise,” and facilitate projects serving populations and areas that have traditionally been tough to serve, such as extremely low-income renters and rural areas.
Implementation Phase
State housing credit agencies (HCAs) now must interpret the LIHTC amendments and decide how and when to incorporate them in their housing credit programs.
Rieman said NCSHA hasn’t recommended to states how to implement the new credit, bond, and other provisions, but instead is trying to “help them understand the new law” and “convene forums where they can discuss those issues.” He noted state agencies have significant discretion in operating the LIHTC and housing program programs in their states. Rieman said state agencies are trying to figure how to quickly “put to the best use as quickly as possible” the extra housing credit and tax-exempt housing bond authority they’ve received under the new law. States are likely to try to award all these extra 2008 housing credits by year-end to be eligible to participate in next year’s LIHTC “national pool.”
Washington, DC attorney Anthony Freedman, a partner in Holland & Knight, LLP and counsel to a number of state tax credit agencies, said the initial questions he’s fielded from agencies on the law’s LIHTC provisions have been to ask which are “self-implementing” and therefore can be immediately acted on by the agency, and which are not, including those for which states will need guidance from the IRS. “There’s a host of technical and procedural questions that they’re wrestling with, largely having to do with what they can do without guidance from the Service,” Freedman said.
State allocating agencies are taking different steps as they seek to implement the new LIHTC amendments, according to responses by some state agencies to a quick survey by the Tax Credit Advisor, and other information. Many states have held forums to educate stakeholders on the LIHTC changes and solicit their comments on how to implement, and some states have begun to amend their qualified allocation plan. (For complete details of the actions and plans of state agencies responding to the survey, go to http://www.housingonline.com/ Documents/TCA Issues/ stateactions.pdf.)
Pennsylvania Plans
Pennsylvania Housing Finance Agency executive David Evans told TCA that PHFA will be amending its already adopted 2009 QAP to reflect some of the new LIHTC amendments, such as to provide a 30% boost to designated projects that need the extra help for financial feasibility.
He said PHFA has and will be accepting requests for extra credits from developers with past credit awards with projects that have funding gaps and need additional credits to be restored to viability. Evans said the extra credits could be provided by raising the credit rate up to the minimum 9% rate, as established by the new law, and/or through supplemental awards from the extra per capita credits Pennsylvania has for 2008 and 2009. He noted PHFA plans to try to award all its extra 2008 credits (nearly $2.5 million) by year-end to qualify for next year’s national pool. The application deadline for PHFA’s 2009 credit funding round is 10/3/08.
Evans said the extra tax-exempt housing bond authority provided by the new law to Pennsylvania will enable PHFA to resume accepting applications from developers for tax-exempt multifamily bond financing.
Clarification or official tax guidance from the IRS may be required for some of the new law’s LIHTC amendments. Goldstein on 8/8/08 told TCA that a coalition of various national organizations was trying to reach consensus on a list of such items for inclusion in a joint letter to the Service requesting guidance. He expected this to flag a “handful” of issues, including whether a project that has already locked in its credit rate can unlock it and utilize the minimum 9% credit rate.
Another question sources noted is what are the steps that investors must take to retire an outstanding recapture bond that they’ve already posted.
IRS officials reportedly are reviewing the new LIHTC amendments and haven’t yet decided which amendments and issues that the Service will likely need to issue guidance on.
Sources advised LIHTC developers and owners to contact their state allocating agency to find out how they plan to implement the new amendments, provide their input, and remind the agencies they have a pending project in need of extra assistance if this is the case.
LIHTC compliance expert A. J. Johnson, of A. J. Johnson, Consulting Services, Inc., advised developers, owners, and property managers to proceed carefully, however, as far as trying to immediately take advantage of or implement the law’s new LIHTC amendments, such as the repeal of tenant income recertification requirements for 100% low-income projects. “Slow down,” recommends Johnson. “Wait until the state gives guidance; wait until your advisors guide you – your attorneys, accountants, consultants – on the ramifications.”
In the meantime, developers may want to sift through past potential deals that didn’t pencil out, in light of the new LIHTC changes. “It’s a whole new day for those deals potentially,” says Washington, DC attorney Kristin Neun, a partner in Hessel, Aluise and Neun, P.C. She noted a number of her clients are taking a fresh look at deals that didn’t work before but might now with the new changes.
