Stimulus Bill Provides Some New Bucks For Affordable Rental Housing

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Tax Credit Advisor, March 2009: The new economic stimulus act contains billions of new dollars for affordable rental housing that should be channeled to developers in the near future, including for stalled low-income housing tax credit (LIHTC) projects.

But affordable housing advocates had mixed reactions to the new law, and wondered about specifics regarding the timetable and implementation of some of the new funding sources (see p. 3 for reaction article).

Key pieces of the new American Recovery and Reinvestment Act of 2009 (H.R. 1), signed by President Obama on 2/17/09, include a new credit exchange program and gap financing designed to assist stalled LIHTC projects, and additional monies for public and assisted housing.

In addition, the $787 billion measure provides extra funds for the federal new markets and Neighborhood Stabilization programs, and extends certain energy tax credits.

Credit Exchange Program

One provision will allow state housing credit agencies (HCAs) to exchange unused housing credit authority to the U.S. Treasury Department for cash grants that they can use to provide financial assistance to stalled projects unable to secure tax credit equity.

HCAs will able to exchange up to 40% of their 2009 housing credits (per capita and national pool), and up to 100% of unused 2008 credits and of credits returned in 2009 that were awarded in prior years. The grant amount will be 85 cents per dollar of exchanged credit times 10. A state’s 2009 housing credit ceiling amount will be reduced by the amount of exchanged credits.

HCAs are to use funds received to make “subawards” to finance the construction or the acquisition/ rehabilitation of qualified low-income buildings, as defined under the LIHTC program. Subawards may be made for a building regardless of whether or not it has a credit allocation. If it doesn’t, the HCA must determine that a subaward to the building will increase the total funds available to the state to build and rehabilitate affordable housing.

HCAs must establish a process that requires applicants to demonstrate they have made a good faith effort to obtain investment commitments, before the agency provides a subaward.

Buildings receiving aid from subawards must satisfy the standard LIHTC program requirements (e.g., rent, income, and use restrictions). Grants received under the act won’t reduce the eligible basis of a low-income building.

Treasury will recapture from HCAs any grant funds not provided as subawards before 2011, and any subawards returned after 2010.

HCAs, by themselves or through a contracted third party, will have to perform asset management functions, at the expense of owners, to ensure compliance with the LIHTC rules and the long-term viability of buildings receiving subawards. Conference report language says HCAs may charge reasonable fees to cover the costs of asset management.

The statute and conference report don’t define subawards or say whether they can be provided as loans, grants, or both, and don’t specify the process for how credits are to be exchanged. It’s expected some guidance will be required from the Internal Revenue Service. Details and procedures are expected in the near future.

LIHTC Gap Financing

The act provides $2.25 billion for gap financing for stalled LIHTC projects. These funds will be allocated to state HCAs by the U.S. Department of Housing and Urban Development (HUD) under its HOME Investment Partnerships (HOME) program.
The conference report explanation notes these funds are “provided to coordinate with the Low Income Housing Tax Credit to fill financing gaps caused by the collapse of the tax credit market and to jumpstart stalled housing development projects, thereby creating jobs.”

The share of the new funds apportioned to each state will be equal to the percentage of FY 2008 regular HOME funds apportioned to the state and its participating jurisdictions.

HCAs are to use the monies to make competitive awards of funds, pursuant to their qualified allocation plans, to projects that have already received, or that simultaneously receive, awards of housing credits in Fiscal Years 2007, 2008, or 2009. Federal FY 2009 ends 9/30/09.

Priority must be given to projects expected to be completed by 2/17/12. HCAs must commit at least 75% of their funds by 2/17/10, and demonstrate that project owners have expended at least 75% of the funds by 2/17/11 and 100% by 2/17/12. Owners not meeting expenditure deadlines will forfeit their funds to the HCA for redistribution to other projects. HUD will recapture any funds not expended by an HCA by 2/17/12 and redistribute them to other states that have exhausted their funds.

Assisted projects will be subject to the standard LIHTC requirements, to HOME environmental review requirements, and to certain other requirements, among them environmental, fair housing, non-discrimination, and labor standards. HUD will have authority to waive other restrictions.

Again, HCAs must perform or contract for the performance of asset management functions, at owner’s expense, to ensure compliance with LIHTC rules and the long-term viability of assisted buildings. Similarly, assistance received won’t reduce a building’s eligible basis.

The act requires HCAs to give HUD access upon notice to information relating to awards, and directs HUD to establish a Web site identifying assisted projects and award amounts.

HCAs may provide exchange program or HOME gap financing assistance to both 9% credit and 4% credit tax-exempt bond-financed projects. The act doesn’t contain any prohibition against providing both to a project.

Other Public Housing Funds The act provides an extra $4 billion in public housing capital funds for use by public housing authorities (PHAs) to rehabilitate and retrofit public housing units, including for energy efficiency and safety improvements. Of the $4 billion, $3 billion is to be allocated by standard formula by HUD to PHAs, and $1 billion through competitive awards to PHAs by 9/30/09.

PHAs must give priority consideration to projects involving the rehabilitation of vacant rental units, and to capital projects that can award contracts quickly. The law has deadlines for the obligation and expenditure of funds.

In addition, the act provides $250 million for HUD grants or loans to owners of HUD Section 8, Section 202, or Section 811 properties with project-based rental assistance, to finance energy efficiency “retrofits” to such properties or green investments. The new funds will be provided through HUD’s Office of Affordable Housing Preservation. To be eligible for funds, owners will need to have at least a satisfactory management review rating from HUD and meet certain other criteria, and commit to an additional affordability period of at least 15 years. The act permits HUD to share in the future energy savings produced by funded improvements.

Finally, the act also provides an extra $2 billion for full-year payments to owners for project-based HUD Section 8 rental assistance contracts.

Other Provisions

In another area, the act provides an extra $2 billion for the Neighbor-hood Stabilization Program. This HUD program provides grants to state, regional, and local grantees to acquire, rehabilitate, and recycle foreclosed, vacant, and abandoned properties in designated neighborhoods with high home foreclosure rates. HUD is to publish criteria for a new competition within 75 days from the date of enactment, and have an application deadline within 150 days of enactment.

An additional $3 billion is provided for the federal new markets tax credit program. Half is for the 2008 funding round, and half to be added to the current 2009 funding round. The extra 2008 funds are to be provided to applicants in the 2008 funding round that didn’t receive any allocation or that didn’t receive the full amount requested.

Another $1.5 billion is provided for HUD’s Emergency Shelter Grant program, to fund rental assistance, housing relocation, stabilization services, and certain other eligible activities to aid families and persons who are homeless or at risk of becoming homeless.

The act also extends the Section 45 renewable energy production tax credit (PTC) for electricity derived from wind (facilities placed in service before 2013) and derived from biomass, geothermal, hydropower, landfill gas, waste-to-energy, or marine facilities (facilities placed in service before 2014). In addition, the act repeals the requirement that the Section 48 energy investment tax credit be reduced if the property is financed by tax-exempt private activity bonds or another subsidized financing program, for periods after 12/31/08.

(Text and explanation of conference report, and other details: http:// www.speaker.gov/blog/?p=1694)