A Variety of Approaches New England State Agencies Differ in Needs, Priorities in Their Housing Credit Programs

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The six state housing finance agencies in New England are at different stages in their federal low-income housing tax credit programs this year and have differing priorities and available gap funds.

All, though, will be underwriting new projects at the floating credit percentage rather than the flat 9% rate, given that the current authorization for the minimum 9% rate doesn’t apply to allocations of 2014 credits, unless Congress approves an extension this fall.

Massachusetts Housing Credit Program

The Massachusetts Department of Housing and Community Development (DHCD) is reviewing and scoring applications for 9% housing credits and other gap funds received in its latest annual funding round and hopes to announce the credit awards in early November, says Kate Racer, DHCD Associate Director, Housing Development.

“We’re anticipating awarding somewhere between eight and ten million [in housing credits],” she said. This will include a little bit of remaining 2013 credits, remaining 2014 credits, and a large chunk of 2015 credits.

In the current round, sponsors could request on one application 9% housing credits and/or nine other state gap sources, all of which can be paired with housing credits. These include state housing tax credits and state funds for soft subordinate loans.

For the second year in a row, DHCD required sponsors to submit pre-applications, by May 15. Racer said the 80 pre-applications seeking 9% housing credits were reviewed against certain criteria and whittled down to about 40 proposals given the green light to submit full applications by the August 2 deadline. These are the applications the agency is currently reviewing.

Also, for the second year, the agency has established four priority categories for funding, one or more of which applications must fall into in order to be eligible for a 9% credit award. These are:

  • Extremely low-income projects, in which at least 20% of the units are reserved for individuals or households at or below 30% of the area median income, particularly those who are homeless or at risk of homelessness;
  • Projects in certain distressed neighborhoods where there is a neighborhood revitalization plan. These are projects in qualified census tracts or in Massachusetts’ 26 “Gateway Cities,” such as Lowell and Springfield;
  • Preservation projects; and,
  • Family projects in areas of opportunity. These are communities that have traits such as high-performing schools and excellent access to transit, jobs, retail opportunities, and services.

Tax credit applications are evaluated and scored against competitive criteria totaling 182 possible points, after being reviewed and scored against threshold criteria.

DHCD’s 2013 QAP has three set-asides for 9% housing credits: production or creation of new units (50% of available credits); preservation projects (30% of available credits); and HOPE VI projects (up to 20% of available credits). The standard 10% nonprofit set-aside can be filled within these three set-asides.

The agency’s 2013 QAP contains “recommended” per-unit cost limits for projects. There are separate limits for the Boston metro area and for the rest of the state and also for different types of projects.

One of Racer’s biggest current concerns in Massachusetts’ credit program is rising construction costs. “That’s a regional trend, and it’s very clearly true in metropolitan Boston,” she says. “We’re seeing construction bids come in higher than expected.”

She added “a second issue for us is that the demand for the credit and for gap subsidy always exceeds the supply.” Racer says DHCD gets applications for many worthy projects and “it’s simply not possible to fund all of the projects. And that’s despite having a very housing-friendly governor and legislature.”

Racer indicated that there’s substantial need for additional tax credit units in the Boston metropolitan area. “But there’s also significant demand in other parts of the state,” she says.

DHCD doesn’t issue tax-exempt multifamily housing bonds. The state issuers of such bonds are MassHousing and MassDevelopment. But DHCD must approve 4% credits for projects for which the two agencies propose to issue bonds. Racer said the two agencies have issued multifamily bonds in the last couple of years for a number of large preservation transactions. She said DHCD strongly encourages developers of preservation projects to seek 4% credits and tax-exempt financing “rather than come through the 9% door.”

Connecticut Housing Credit Program

The Connecticut Housing Finance Authority (CHFA) is soliciting applications by November 18 for $5.7 million in remaining 2014 housing credits and may also forward commit some 2015 credits as well. Awards are expected to be announced next February or March. CHFA has already awarded all of its 2013 credits ($8.1 million) and $2.3 million in 2014 credits to finance 10 projects containing 693 housing units.

CHFA typically gets requests for twice as many credits as it has available, according to CHFA President & Executive Director Eric Chatman.

The agency doesn’t favor any particular types of projects in its 9% LIHTC program, but rather tries to select a variety of projects to meet diverse housing needs across Connecticut. “We typically have a balanced approach when we establish our point schedule,” says Delbe Spath, CHFA Manager of Tax Credit Programs and Multifamily Housing Underwriting. “If you look at our overall needs it’s really a diversity of needs throughout the state,” says Chatman. “Our approach is to try and make sure that we get the best projects done as we possibly can to meet the state’s needs.”

That said, the point system in CHFA’s current qualified allocation plan (QAP) gives greater points for transit-oriented, supportive housing, mixed-income, and deep income-targeted projects.

Proposed projects compete in two categories: public housing revitalization projects; and a general category. The annual credit allocation is split equally between those two classifications. In rehab projects, hard rehab costs must be at least $25,000 per unit.

Connecticut’s LIHTC program has no set-asides other than the minimum 10% set-aside for projects with nonprofit sponsors.

CHFA has a maximum credit award of approximately $1.6 million per project, and has no explicit development cost limits. Chatman and Spath, however, said CHFA compares the construction costs of each proposed project to similar projects and provides extra points to those with per-square-foot constructions costs within certain parameters.

CHFA’s scoring system allows up to a maximum 104 points in five categories: rental affordability (41 points); financial sustainability (23); municipal commitment and impact (24); qualifications and experience (13); and, if applicable, CDBG-Disaster Recover (i.e. projects eligible for federal Hurricane Sandy financing (3).

The agency generally made minor changes to its QAP for 2014.

LIHTC projects in Connecticut generally don’t have problems getting tax credit equity. According to Spath, “The pricing that we see right now is in the mid-90s (cents per dollar of tax credit). Chatman said the fastest-growing part of the state is Fairfield County, which includes Stamford and Bridgeport.

Chatman said CHFA’s LIHTC program differs from those in some other states in that there is a significant amount of state gap funds to award to projects receiving credits. “The governor has decided over the last couple of years that he really wants to support affordable housing with gap funding,” says Chatman, noting about $500 million in state funds has been committed over the last few years to affordable housing. “That allows us to generate the gap funding for 9% and 4% credits and do a lot more activity than we have been able to do in the past.”

CHFA works closely with the state Department of Housing (DOH), which controls the state gap funds and administers the HOME program. In fact, sponsors use a consolidated application this year to request 9% credits from CHFA and gap funds (grants or soft loans) from DOH.

CHFA accepts applications year-round for 4% credits and tax-exempt bond financing. CHFA expects to issue tax-exempt bonds to be used with 4% credits to finance several multifamily developments by year-end. Chatman and Spath expect activity to pick up, in part due to the available state soft dollars and because of a significant change in this year’s QAP meant to steer Year 15 LIHTC properties seeking to resyndicate to bonds and 4% credits. This change makes projects that received a LIHTC award in the past 20 years ineligible for a new award of 9% credits.

New Hampshire Housing Credit Program

The New Hampshire Housing Finance Authority (NHHFA) is reviewing and scoring applications for 9% housing credits received in its latest annual funding round and expects to make awards on October 25. The agency is offering all of its 2014 housing credits, expected to be just below $2.9 million, and a tiny amount of remaining 2013 credits.

According to LIHTC Manager Terry Perkins and Director of Housing Development Jim Menihane, the agency received 12 applications by the August 29 deadline requesting a little over $6 million in credits for eight family and four senior properties – a demand to supply ratio of about 2 to 1. Perkins says the ratio generally averages 2.5 to 1 to 3 to 1.

In its 2013 round, the agency awarded $2.9 million in 2013 credits to two senior and four family projects.

NHHFA, like some other states, requires sponsors to submit a pre-application beforehand. “We use that to flush out any problems that the staff here sees with a potential project that will be coming in for an application,” says Menihane. “We do a cursory underwriting and that’s the point where we screen them for the threshold [criteria].”

The agency’s 2014 QAP is a streamlined version of its 2013 plan; the agency removed provisions also in the separate program regulation.

New Hampshire’s priorities in this year’s LIHTC round, as far as types of projects and units, are:

  • New construction (adding new units to housing markets)
  • Non-age restricted housing
  • Readiness to proceed (i.e. ability to get to construction in a relatively short period) • Nonprofit sponsored housing
  • High quality of construction, including energy efficiency • Projects that achieve broad community develop- ment objectives, including “smart growth” and neighborhood revitalization
  • Cost containment

Preservation projects (i.e. existing properties with Section 8 contracts) aren’t eligible for 9% credits. But other kinds of rehabilitation projects are eligible if they will create new units, such as from adaptive re-use of an existing building or a new construction component.

Set-asides include the standard 10% nonprofit set-aside; a $900,000 set-aside for “age-restricted” projects (i.e. housing for persons 62 or older); and a $60,000 supplemental set-aside. Caps on individual credit awards are $800,000 for non-age restricted projects and $30,000 from the supplemental set-aside.

The 2014 QAP says applications will be rejected that propose total development costs greater than $235,000 per unit.

The agency uses a scoring system to evaluate and rank applications. Line items offering the greatest points (20 each) are for certain service-enriched senior projects and for developments with at least $30,000 per unit in funding from sources other than NHHFA, LIHTC equity, or developer fee loans. This year’s QAP offers points for the first time (15) for supportive housing projects for veterans.

Menihane and Perkins said one trend they are seeing are sponsors having to find more outside money due to limited subsidy funds. NHHFA doesn’t have any state appropriated funds it can provide as gap funds to tax credit projects and its federal HOME funds have been cut.

They indicated their biggest concern is the loss of the minimum 9% credit rate.

NHHFA accepts applications year-round for 4% credits and tax-exempt financing, but volume has been light due to the shortage of subsidies needed to make deals work.

Maine Housing Credit Program

The Maine State Housing Authority (MSHA) is in the midst of its sole funding round this year for 9% housing credits.

MSHA received 21 pre-applications for site review by the August 12 deadline and all were cleared to submit full applications by September 26. The agency is offering about $3.2 million in 2014 credits and expects to announce award by year-end.

Bill Glover, MSHA Manager of Lending, said the ratio of requested to available credits in the previous (2013) funding round was about 3 to 1. “We took in 19 applications and funded six,” he said. MSHA awarded all its 2013 housing credits ($3.1 million) to six projects containing 292 units, all low-income.

Glover estimates that average current pricing for credit deals in Maine is about 84 to 85 cents per dollar of credit.

He said the agency made major changes to its qualified allocation plan (QAP) for 2013, including the introduction of cost containment measures. But it mostly “tweaked a few things” in the QAP for 2014. One significant change modified the affordability requirements. In projects receiving 9% credits in the current round, at least 60% of the units must be reserved for households earning 50% or less of the area median income (AMI), and the units must be rent-restricted for a minimum 45 years. (In the previous QAP, the set-aside requirement was 60% at 50% and the restricted use period 90 years.) The 2014 QAP also expanded the requirements for acquisition/rehabilitation projects and mandates that existing properties have hard rehab costs of at least $30,000 per unit.

MSHA’s 2014 QAP lists eight housing priorities. A new one is for projects contributing to economically diverse communities. The priority for preservation projects omits prior language about adding new units.

The agency has two set-asides: the 10% nonprofit set-aside and a set-aside for preservation projects of up to $500,000 in credits.

Glover’s biggest concern today in Maine’s LIHTC program is a shortage of other subsidies for new tax credit projects. MSHA, which also administers the HOME program, has seen cuts in these dollars, as it has in its supply of gap funds from a share of state real estate transfer tax revenues. Maine also has a state historic tax credit.

MSHA is reactivating its program for issuing tax-exempt multifamily bonds and approving 4% credits for projects, after not issuing bonds since 2011 because of statewide policy limiting new tax-exempt bond issues. In July, MSHA was given authority to start issuing bonds again. “We anticipate doing a bond sale sometime in early 2014 for some number of projects,” says Glover. “There’s a huge pent-up demand for 4% credit deals. Hopefully there’ll be equity available as well.”

Rhode Island Housing Credit Program

While it reserves the right to hold multiple funding rounds each year for its 9% housing credits, Rhode Island Housing typically holds just one, and this year is no different. The agency is preparing to receive applications by an October 11 deadline for about $2.1 million in 2014 housing credits, with awards announced by mid-February 2014 at the latest, according to Rhode Island Housing Director of Development Carol Ventura. The agency previously awarded all its 2013 housing credits ($2.9 million) to five projects with 274 units.

“Generally we receive 10 to 12 applications,” says Ventura. “We’re probably oversubscribed 7 to 1 in every round.”

“In terms of housing types,” she says, “consistent with the state consolidated plan and housing needs, we prioritize family housing and housing for persons with special needs – that would be something like veterans housing or housing for persons with physical disabilities.”

She adds, “Recently the state of Rhode Island adopted a plan to end homelessness called Opening Doors RI. So we also prioritize the development of housing for homeless and chronically homeless persons in the state.”

Ventura says one program goal is awarding credits for projects in communities in which less than 10% of the housing is affordable. “That’s our rural and suburban areas. So we prioritize those communities as well.” She said the agency encourages developers to designate up to 25% of the units in their projects for very low-income, homeless, or special needs households.

“Typically the developments we finance are family housing and anywhere between 10 and 20 percent for special needs or homeless,” Ventura says. “And 75% of the construction is rehab-related and 25% is new construction.”

Rhode Island’s only set-aside is the 10% nonprofit set-aside.

Unlike most other states, Rhode Island Housing doesn’t use a scoring system to evaluate and rank LIHTC applications. Instead, the agency ranks applications based on criteria spelled out in its qualified allocation plan. In the 2014 QAP, these include the capacity of the development team; the marketability of the project; addressing specified housing needs or objectives; production or preservation of units; site and building design; cost effectiveness; leveraging of outside resources; and adherence to the principles of Rhode Island’s KeepSpace Communities initiative.

Ventura said one trend is LIHTC projects reaching the end of their affordability period applying for 9% credits. “That is not a priority for our program, which focuses on the creation of new affordable homes,” she says. Instead these developments are encouraged to apply for the less competitive 4% credits.

As for state gap funding, Ventura says Rhode Island Housing can provide deferred payment soft loans to tax credit projects but has limited funds for this. However, the state has funding from a $25 million bond issue that can be awarded over the next two years as gap filler for tax credit projects.

Ventura said LIHTC properties in the state generally can’t charge tax credit rents greater than 50% of the area median income, due to market conditions. “It’s very hard to achieve a 60% tax credit rent in Rhode Island,” she says.

Ventura said pricing for housing credits in Rhode Island has ranged from 88 cents to $1.04 per dollar of tax credit over the past two years.

The agency accepts applications for 4% credits and tax-exempt financing year-round. Priority for these resources is given to projects that will preserve existing affordable housing and use Rhode Island Housing as the permanent lender.

In 2013, as of early August, Rhode Island Housing had issued about $42 million in tax-exempt multifamily bonds to preserve the affordability of five developments with 536 affordable apartments.

The agency has filed an application with HUD to become a Multifamily Accelerated Processing (MAP) lender, and is also exploring whether to move to a point scoring system in its 9% credit program.

According to Ventura, areas of the state with the greatest percentage population growth are the towns of Coventry and West Greenwich and the Chariho Region (comprised of the towns of Charlestown, Richmond, and Hopkinton).

Vermont Housing Credit Program

The Vermont Housing Finance Agency (VHFA) in theory has an open process – not holding 9% housing credit funding rounds but rather accepting applications anytime. In practice, though, the agency once a year, generally around February, sends a notice to developers that it has credits available and solicits applications. The agency then processes the submitted applications at the same time and usually announces the awards in April or May, says VHFA Director of Development Joe Erdelyi.

He said the agency tries to have no more than two years’ worth of credits awarded at any given time.

Erdelyi said VHFA won’t be accepting applications next until early 2014, when it will offer 2015 credits. The agency has already awarded all of its 2013 credits ($2.59 million to 6 projects with 135 units) and all of its 2014 credits ($2.65 million to 5 projects with 157 units).

“We don’t do a QAP every year,” says Erdelyi. “Sometimes we’ll go to a two-year period under the same plan.” The agency’s qualified allocation plan was last revised in February 2012, so Erdelyi expects the agency later this year to begin the process of revising the QAP. He indicated he doesn’t have any proposed changes in mind at this point, but noted one recurring change some people have pressed for is to ban smoking in housing tax credit projects and units.

Vermont’s QAP has only one set-aside: the 10% nonprofit. Unless waived for a project, no credit award can exceed 30% of VHFA’s annual per capita credit amount. There are no per-unit development cost limits.

According to Erdelyi, VHFA doesn’t use a numerical scoring system to evaluate applications and select which should receive a credit award. Rather, applications are ranked according to certain specific evaluation criteria, from those meeting the largest number of criteria down to those meeting the fewest.

The QAP’s priorities include a number of housing priorities from the state’s consolidated plan. “The state has some very strong preferences for doing downtown redevelopment and growth centers over far flung, perimeter-type development,” says Erdelyi. “They favor rehab and historic rehab over new construction generally.” He said the plan also favors communities that have very low rental vacancy rates and not very much housing stock that can be rehabilitated.

“We have a lot of criteria that steer towards town and village and city infill and downtown redevelopment,” says Erdelyi. “So a lot of the projects that come in are like that.”

He said there is a need for affordable housing of all types throughout Vermont. Erdelyi indicated, though, that senior projects don’t fare as well as family or special needs projects in the competition for 9% credits. Some senior projects seek 4% credits and tax-exempt financing from VHFA since the evaluation criteria governing 9% applications don’t apply to bond deals.

Erdelyi said the fastest-growing parts of the state are the Burlington area and the Hartford/ White River Junction, which is across the river from Hanover, N.H., home to Dartmouth Hitchcock Medical Center, a large regional employer.

Erdleyi’s main concern is the falling production level in VHFA’s 9% credit program – fewer and fewer units are funded each year. “The fact that we’re not seeing significant increases in credit ceiling to keep pace with increases of costs, and the evaporation of other subsidies, means that we’re just seeing great drop-offs in production,” says Erdelyi. “And it’s troubling, because the need for affordable housing is great.”

VHFA’s only multifamily gap source is the state housing tax credit, which the agency awards. The tax credit is provided in a dollar amount rather than percentage; is claimed over five years; and can be bifurcated from the federal housing credit. But the annual funding level for this incentive is relatively small, roughly $400,000. Other agencies in the state can provide federal HOME and CDBG dollars and state housing trust fund monies.

VHFA accepts applications for 4% credits and tax-exempt bond financing year-round. In 2013, as of August 2, it has issued $975,000 in multifamily housing bonds to finance two projects with 40 units.