New TCAP, Exchange Guidance; States Draw Down First Dollars
By Caitlin Jones
6 min read
Tax Credit Advisor, October 2009: The federal government has issued new guidance and a policy change for two new programs designed to assist stalled low-income housing tax credit (LIHTC) projects, as the first dollars prepared to flow to developers from state housing credit agencies.
In a key development, the U.S. Treasury Department modified a key expenditure deadline for the low-income housing credit exchange (Section 1602) program. Meanwhile, the U.S. Department of Housing and Urban Development (HUD) issued new guidance for the Tax Credit Assistance Program (TCAP), and reported the first release of TCAP funds to state housing credit agencies (HCAs) for disbursement to developers of two projects.
Established by the American Recovery and Reinvestment Act (ARRA), the TCAP and credit exchange programs are designed to help stalled LIHTC projects by providing them federal dollars through state HCAs to become viable and get built.
Credit Exchange Policy Shift
In an interim final rule published on August 31, Treasury modified its original deadline for disbursement of credit exchange program funds by state HCAs. (Rule:http://edocket.access.gpo.gov/2009/pdf/E9-20903.pdf)
ARRA requires state agencies to return to Treasury any exchange funds they receive that are not used before 1/1/11 to make “subawards” to projects.
The new rule retains the original requirement that subawards must be made to projects by no later than 12/31/10. But it provides that once a subaward has been made to a project by this deadline, the state agency can continue to disburse funds to the project through 12/31/11, provided that the project is at least 30% completed by the end of 2010.
Previously, no exchange program funds could be disbursed to a project after 12/31/10, effectively requiring projects to be completed by this date. The interim rule’s preamble says the original requirement was overly restrictive and might preclude funding of otherwise eligible projects that might not reach final completion by the end of 2010.
Garth Rieman, of the National Council of State Housing Agencies, said his group is “very pleased” with the change. “We think this will allow states and credit development sponsors to go about a much more normal project development exchange schedule, rather than trying to get all the exchange money in and spent right away to meet that deadline. States will be able to use the money more effectively while still getting developments done as quickly as possible.”
In September, Treasury also released a new set of questions and answers for the credit exchange program (http://www.treas.gov/recovery/docs/FAQs.pdf).
On August 26, Treasury announced the approval of an additional $309 million in exchange funds to Arizona, Connecticut, North Carolina, North Dakota, Pennsylvania, South Carolina, and Vermont. (http://www.treas.gov/ press/releases/tg267.htm)
New TCAP Guidance
On September 18, HUD released long-awaited new guidance to provide clarification to grantees (i.e. state HCAs) regarding fees and asset management. ARRA requires grantees to perform or contract for asset management services for TCAP-assisted projects.
The new guidance addresses TCAP administrative, project compliance, and asset management costs that may occur during the implementation of the TCAP program, to assist grantees in determining which costs are eligible TCAP costs and which costs must be paid through other funding sources. The guidance lists specific activities eligible to be paid for with fees charged for asset management, organized by project stage.
Also in September, HUD issued separate additional information for grantees regarding satisfaction of the requirement for environmental reviews for projects to be eligible for assistance with TCAP funds, for situations where an environmental review was previously conducted by HUD staff for another program.
Both sets of new guidance are posted at http://portal.hud.gov/portal/page/portal/RECOVERY/programs/TAX.
ARRA permits state HCAs to charge a fee to cover their costs for asset management services for TCAP-assisted projects. But ARRA doesn’t authorize state HCAs to use any TCAP or credit exchange program funds to cover their costs to administer the programs.
Rieman said NCSHA has been talking to HUD about this issue, and has “also been asking Congress to allow the states to use some of their money for administrative expenses.”
NCSHA and other LIHTC supporters, including a broad-based new coalition, have also begun conversations with congressional tax committee staff to lobby for specific proposed tax law changes to extend the exchange program by one year, to enhance the housing credit in various ways to make it more attractive to investors, and to make other LIHTC changes. Supporters hope the provisions might be attached to an “extenders” bill Congress is expected to take up before year-end.
First TCAP Expenditures
In an interview on September 18, HUD official Cliff Taffet said Colorado’s housing finance agency, followed by the Missouri agency, have become the first grantees to draw down funds for specific TCAP-assisted projects. The Colorado Housing and Finance Authority drew down $1.8 million, for a project called Denver Gardens. The Missouri Housing Development Commission drew down $816,000, for a project called Rock Ridge Villa.
TCAP funds can’t be drawn down by grantees until they are needed, such as to reimburse the developer for project expenditures already made or if needed for an imminent closing. Grantees must disburse TCAP dollars to a developer within three days of drawing them down.
Taffet said all 52 grantees have executed TCAP grant agreements with HUD, and seven state credit agencies have now set up a total of 30 projects in the Department’s electronic IDIS system à the required step before funds can be drawn down for a project. The seven states are Rhode Island, Colorado, Missouri, Pennsylvania, Ohio, Nevada, and New Jersey.
Taffet confirmed that the TCAP program is getting off the ground and gaining steam in states. “We sense there’s a lot of activity preliminary to setting up projects and drawing down the funds,” he noted. He said grantees are selecting projects for assistance and putting necessary legal documents in place, prior to setting up projects in HUD’s system and drawing down funds. “We think that will begin in earnest in the next couple of weeks,” Taffet said.
Grantees report certain information to HUD on its IDIS system, and will report information on environmental reviews of projects using a second system. A third system has been set up by the federal Office of Management and Budget that grantees will be required to use to make quarterly reports on their TCAP activities during the previous three months. Taffet said this system is scheduled to go live on October 1; grantees will have 10 days after it is live to enter information for their initial report.
