New TCAP, Exchange Program Guidance Issued; Rhode Island Enters First TCAP Projects to Fund
By Caitlin Jones
6 min read
Tax Credit Advisor, August 2009: The federal government has issued additional guidance to states for the Tax Credit Assistance Program (TCAP) and the Section 1602 credit exchange program.
The new guidance is but one of several recent new developments. Others include the first formal funding commitments to projects under TCAP, a legislative expansion of the TCAP program, and the release of a set of principles to guide states in the operation of the two new programs.
The TCAP and exchange programs, established by the American Recovery and Reinvestment Act (ARRA), are designed to provide financial assistance through state housing credit agencies (HCAs) to stalled low-income housing tax credit (LIHTC) projects to help them move forward.
In recent weeks, state HCAs have made significant strides forward in implementing these programs. Many have finalized their guidelines and requirements for the two programs, and taken steps to decide which particular projects will receive aid.
“Some states are moving forward with making awards,” said Garth Rieman, of the National Council of State Housing Agencies. “We know that there are exchange deals, in particular, going forward in a handful of states. We think that there are some TCAP projects that are getting funded and underway now.”
He added, “I think we are really ramping us, and we’re getting to the point where the process is accelerating.” He anticipated that the flow of state funding awards to projects is likely to ramp up significantly “as we get into September.”
First State to Commit
In an interview on 7/16/09, HUD official Cliff Taffet reported that the first TCAP funding commitments for specific projects had been entered into the Department’s accounting and reporting system for the program, by Rhode Island Housing, the state HCA. Rhode Island committed some $10.2 million of its $11.9 million in total TCAP funds to four projects that will contain a total 259 units à two deals in Providence and one each in Newport and Kingston.
In a progress report, Taffet noted all 52 eligible HCAs (the 50 states, District of Columbia, and Puerto Rico) have submitted plans seeking to participate in the TCAP program. Of these 52 plans, HUD has approved 49, and executed grant agreements for 45. Of these 45 agreements, 29 have been signed by states and returned to HUD, and HUD has entered 16 of the 29 à representing $765 million in TCAP funds à into the Department’s accounting and reporting system. With this step these state HCAs, like Rhode Island, now have access to their TCAP funds and can disburse funds to individual housing projects. These 16 states “have the capacity to enter projects when they’re ready to,” said Taffet.
Meanwhile, HUD on 7/17/09 issued the first of a series of additional new guidance for the TCAP program. Among the first few pieces was an updated Q&A document regarding the applicability of federal Davis-Bacon wage requirements to TCAP-assisted projects. Taffet anticipated the release the additional guidance within the next week. He said the new guidance will include revised “Q&As” on a “number of topics,” as well as a revised version of the original May 4th program notice by HUD. (TCAP documents are posted at http://www.hud.gov/recovery)
The revised program notice will incorporate an amendment made to the TCAP program by the Fiscal Year 2009 supplemental appropriation act, signed by President Obama on 6/24/09 (H.R. 2346, P.L. 111-32). One provision extends eligibility for TCAP assistance to projects that have received awards of “GO Zone” or Midwestern Disaster Area low-income housing credits.
Pending bills recently introduced in Congress (S. 1326, H.R. 2995) would modify the credit exchange program to permit states to exchange unused GO Zone and disaster area housing credits for cash grants from the U.S. Treasury, the same as they can do with “regular” housing credits.
Treasury Announcements, New Guidance
In other developments, Treasury announced the approval of an additional $754 billion in credit exchange funds to 16 state HCAs, bringing the total funds approved so far to more than $1 billion.
In addition, Treasury on 7/9/09 released extensive additional guidance for the credit exchange program, in the form of an eight-page Frequently Asked Questions (FAQ) document containing 34 questions with answers. Much of the new guidance is in response to questions about the program that Treasury has received from HCAs and others. (New guidance: http://www.treas. gov/recovery/docs/FAQs.pdf)
One answer in the new guidance indicates that states may provide exchange funds to projects in the form of loans. However, the guidance says that cash assistance loans must be non-interest bearing and must be non-repayable (except in the event of noncompliance during the 15-year Section 1602 compliance period).
Another question, the answer to which has stirred concern and confusion among LIHTC program participants, asks which project costs can be paid for with Section 1602 funds. The guidance says Section 1602 funds “may pay for development costs” to the same extent as allowed under the LIHTC program. “For example, the acquisition of land is ineligible…,” it notes. The answer suggests that only costs includible in LIHTC eligible basis may be funded with Section 1602 dollars. However, sources noted the guidance is at odds with common industry practices in LIHTC projects. For example, they noted that while credits can’t be claimed for land acquisition costs, tax credit equity is often used upfront to help pay for land acquisition costs for a project.
The new guidance also defines what constitutes a recapture event under the Section 1602 program, and provides two examples.
Other guidance and clarification by Treasury in the new FAQ document includes that:
- Treasury will leave it to state HCAs to establish and implement a process for determining that applicants have made a good-faith effort to find tax credit equity investment.
- ARRA’s “Buy American” requirements don’t apply to Section 1602.
- Recipients of exchange fund assistance don’t have to trace the use of these dollars in their project.
- Section 1602 funds may be provided to projects that are substantially completed but not yet placed in service.
- The state HCA and recipient must file IRS Form 8609 for a building even if it hasn’t received an LIHTC allocation.
Set of Principles
Meanwhile, the National Council of State Housing Agencies (NCSHA) in July adopted a set of eight recommended principles for state HCAs for their administration of the TCAP and credit exchange programs. The principles, developed by an NCSHA task force, have been distributed to state HCAs.
Among these recommended principles are for state HCAs to: retain housing credit equity investments in developments whenever possible; tailor a response to the needs of the current development pipeline; prioritize developments that can proceed quickly to construction and spend federal funds within the programs’ prescribed timeframes; maximize affordable housing production; and limit awards based on financial feasibility analysis.
