LIHTC Update

California developers request time to consider LIHTC changes

By Donna Kimura

(Affordable Housing Finance, Jan. 17, 2005) Sacramento – For-profit and nonprofit developers called for more discussion of a series of proposed changes to the state’s low-income housing tax credit (LIHTC) program.

During a Jan. 12 public hearing here, they urged staff members of the California Tax Credit Allocation Committee (CTCAC) to hold off on implementing any changes for the first allocation round. More time is needed to discuss and understand the potential impact of the proposed moves, said several developers and others in the LIHTC industry.

Many of proposals revolve around three themes – rehabilitation, underwriting and points, said Lynn Wehrli, CTCAC executive director. Wehrli, who was appointed to her post in 2004, said the public comments would be considered before a decision is made.

Some of the proposed changes are:

• The minimum rehab cost per unit (hard-cost expenditures) would be raised from $15,000 to $20,000 to accommodate cost increases and to help to ensure that high-quality projects are produced. This is for 9% credit projects. For bond-financed projects, the minimum hard construction cost per unit for rehab is proposed to increase from $7,500 to $10,000.
• Maximum fees for acquisition/rehab projects would be adjusted from 15% of construction basis plus 5% of acquisition basis to 20% of rehabilitation basis only. This is to encourage more rehab and discourage inflation of acquisition costs and financing of projects that are not improved in the process. Some developers, however, say this change would have a negative impact on preservation.
• The minimum debt-service-coverage ratio for underwriting would be increased from 1.10x to 1.15x.
• A new appeal fee of $2,500 is proposed. This fee is for appeals to the executive director and the committee. Developers are not charged a fee for the first step of writing an appeal letter to agency staff. Wehrli said she hoped that most issues could be resolved at this early stage.
• Rural projects would be allowed to obtain credits from the apportionment for their geographic region, but only in cases where no other project is funded under that apportionment in the round.

For more information, visit www.treasurer.ca.gov/ctcac/ctcac.htm.

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