TCAP and Credit Exchange: States Take Different Approaches
By Caitlin Jones
6 min read
Tax Credit Advisor, September 2009: At the National Housing & Rehabilitation Association’s 2009 Summer Institute conference in late July, five state agencies – New York, New Jersey, Massachusetts, Vermont, New Hampshire – sent representatives who described where they are in implementing the new federal Tax Credit Assistance Program (TCAP) and credit exchange program.
Each state has considerable flexibility in both programs regarding eligibility criteria, priorities in selecting projects for funding awards, the process it uses, and the form in which it provides assistance (i.e., loans, grants).
“We’re all doing this differently,” said Kate Racer, of the Massachusetts Department of Housing and Community Development (DHCD). “That makes it interesting, but also awfully complex for all of you. It means you have to learn 50 states’ programs.”
DHCD guidelines allow up to two application cycles for Massachusetts’s $59.6 million in TCAP funds. DHCR received 17 applications in the first round by the July 30 application deadline. Racer said the aggregate requested exceeds the amount available by 2 to 2-1/2 to 1. “Which means we can’t do all the deals,” she said. “Obviously some will have to go to the exchange.”
DHCD limited consideration for first-round TCAP funds to projects that bid out construction contracts by May 4 that would pay federal Davis-Bacon prevailing wages.
Racer said DHCD currently is requiring developers getting TCAP assistance to keep at least $15,000 per year of housing credits in the deal.
Massachusetts guidelines require sponsors to close all of the project’s financing within 120 days after receiving a TCAP award, and to begin construction within 45 days thereafter.
Racer anticipated that DHCD will accept applications for exchange funds in the second half of August. DHCD has applied to Treasury to exchange 40% of its 2009 credits.
Racer indicated that DHCD has numerous financially challenged projects awarded 2007 and 2008 credits, and some challenged 2009 credit deals.
The New York State Division of Housing and Community Renewal (DHCR) is participating in the TCAP program but not in credit exchange. DHCR received $253 million in TCAP funds, of which it is provided $50 million to the New York State Housing Finance Agency and $85 million to the New York City Department of Housing Preservation and Development (HPD).
On July 27, DHCR approved TCAP grants totaling about $30 million to eight projects in Upstate New York, ranging from $1.1 million to $7.6 million. The projects, from 24 to 193 affordable units, received credit awards in 2007 and 2008. As of August 7, HPD had made awards ranging up to $26.4 million to four projects in the New York City area.
DHCR Commissioner Deborah VanAmerongen explained that DHCR doesn’t expect to participate in the credit exchange program because all projects receiving credit awards in 2007 and 2008 have closed, there are no unused credits from those rounds, and DHCR plans to fully utilize its 2009 credits. She also said very few deals in DHCR’s credit pipeline could meet the December 2010 federal completion deadline.
DHCR forward commits credits. This means it awarded 2010 credits in this year’s application cycle.
In New Jersey, the state’s Housing and Mortgage Finance Agency (HMFA) is administering the TCAP and credit exchange programs.
On July 21, New Jersey’s governor announced the award of $16.2 million in 2009 housing credits and $22.6 million in TCAP funds to seven projects, all but one of which of which received both credits and TCAP. TCAP funds are being provided as loans repayable from available cash flow.
The governor’s office was supposed to sign off on HMFA’s proposed plans for the exchange program on August 3.
HMFA Executive Director Marge DellaVecchia wasn’t sure if the state will exchange the maximum 40% of its 2009 credits. “New Jersey is still a very competitive state so there’s still a strong market for tax credits,” she noted.
HMFA’s first priority for assistance with exchange funds is 9% credit deals. Exchange funds will be awarded as a grant or zero-interest loan.
DellaVecchia indicated that HMFA won’t accept an exchange of 100% of the previously awarded tax credits for any project from developers wishing to return credits.
At the same time, though, she noted HMFA is asking developers with 2007 and 2008 credit awards to consider asking their syndicator to agree to an exchange of a portion of their previously awarded credits. HMFA wants to leverage the proceeds generated by such exchanges to assist 4% credit deals.
The Vermont Housing Finance Agency (VHFA) has exchanged about $1.2 million in 2007-09 credits so far, and has another $450,000 in 2009 credits that can be monetized. Treasury has announced the award of $10.3 million in exchange funds to Vermont.
VHFA so far has made exchange fund assistance awards to three projects; VHFA’s Joe Erdelyi anticipated one more project receiving an award. Two of the four will have tax credits.
VHFA requires a developer to submit two rejection letters from equity providers to be eligible for exchange program assistance. Erdelyi said VHFA intends to provide exchange fund assistance as long-term, zero-interest deferred loans.
Vermont has awarded its full $5.4 million in TCAP funds to six projects – five 4% deals and one 9% project. All have investors and “fairly significant” amounts of tax credits in them, said Erdelyi. One project is under construction.
Chris Miller, of the New Hampshire Housing Finance Authority, touched on the challenges and complexity his agency has encountered in trying to coordinate the award of TCAP and exchange funds with its regular 2009 LIHTC application cycles. The agency delayed its first round credit awards by two months, to June; the second cycle is unchanged.
New Hampshire has received two rounds of exchange funds from Treasury totaling $27.7 million. According to the agency’s Web site, exchange fund awards totaling more than $18 million have been made so far to five projects.
Miller said early 2009 talks by the agency with the Maine-New Hampshire state equity fund and other equity providers active in the state pointed to a likely equity shortage in 2009.
New Hampshire immediately exchanged 40% of its 2009 credits for cash, and made a subsequent exchange. The exchange funds were used to replace equity previously committed by the state equity fund to projects in the agency’s 2008 credit pipeline. The equity fund, in turn, is shifting this equity to projects in New Hampshire’s 2009 credit pipeline.
New Hampshire has doubled points to applicants for readiness to proceed, and provided 50 bonus points for having an equity investor.
New Hampshire will award exchange and TCAP funds as deferred loans. Miller said projects to which the agency is appending TCAP funds so far have “fairly significant” equity commitments.
