TAX CREDITS & TAX-EXEMPT BONDS: STATE-BY-STATE PREVIEW

COLORADO

BY MARTHA BRIDEGAM

AFFORDABLE HOUSING FINANCE • DECEMBER 2007

DENVER—Colorado’s low-income housing tax credit (LIHTC) program for 2008 is likely to include a 5 percent increase in basis caps and some green building incentives, but otherwise hold to existing priorities. It would continue directing 9 percent LIHTCs primarily to new projects with low-income targeting, while pushing most preservation deals to use tax-exempt bonds with noncompetitive 4 percent tax credits.

For its 2008 qualified allocation plan (QAP), which becomes final in December, the Colorado Housing and Finance Authority (CHFA) proposed not only increasing all basis caps, but also allowing case-by-case waivers of the new caps for projects using green building measures. The QAP proposals reflected a loss of $300,000 in state energy efficiency funds.

CHFA proposed tighter verification requirements for its year-old rule that developers must offer relocation funds to tenants displaced when acquisitionrehabs impose new income restrictions. Other QAP changes would stop requiring “population-specific” experience from analysts conducting market studies; would require advance notice of intent to re-apply for credits, and would increase minimum operating expenses per unit to $3,700 from $3,600 per year.

Tax credit program manager Ron LaFollette said CHFA reserved $11 million in 9 percent tax credits for 19 projects in 2007, with just two of those involving existing buildings. For comparison, out of CHFA’s last 20 multifamily private-activity bond deals in 2006 and 2007, just one was for new construction and the rest were mostly Sec. 8 preservation. LaFollette said the two acquisitionrehabs that did earn 9 percent credits did not preserve existing subsidies, but brought market-rate projects into the tax credit system.

Under CHFA’s standard practice, the 19 new LIHTC projects received reservations during 2007 for allocations of 9 percent credits in 2008. The credits will support 947 tax credit units, up from 833 in 2006 and 911 in 2005. CHFA expects to have $10.4 million of new LIHTC authority in 2008.

Seniors projects received 32 percent of the credits, up from zero in 2006. Five percent went to a 51-unit Denver project that will be Colorado’s first tax credit building dedicated entirely to serving recently homeless tenants. Public housing authorities received 38 percent of all credits: $1.1 million for a Denver HOPE VI project, plus some other multifamily projects. Income targeting was on the low side, with most units serving those earning up to either 50 percent or 40 percent of the area median income.

Qualified contracts were not in demand. Although federal law entitles investors in aging projects to demand a “qualified contract” relieving them of extended affordability responsibilities, Colorado’s tax credit program has mainly required developers to give up that right in advance. “We only had a few years where we weren’t requiring the waiver of that section,” LaFollette said.

Tax-exempt bonds
Colorado’s housing bond issuers produced massive quantities of homeownership bonds and had a banner year in multifamily bond-financed housing. Ann Watts, private-activity bond program manager with the Colorado Department of Local Affairs (DOLA), reported that CHFA, two Denver municipal agencies, and the Aurora Housing Authority together closed more than $68.1 million worth of multifamily bond deals in 2007. They also assigned, but had not yet closed, additional deals worth more than $49.1 million, putting the multifamily total in 2007 above $117.2 million. Watts expected that some projects with assignments would receive more bonds before they closed. She noted, however, that some projects start out with more than 50 percent bond financing to qualify for 4 percent tax credits, and then pay down some of the bonds after construction is completed.

Watts said three authorities issued mortgage-revenue bonds for fixed-rate home mortgages with downpayment assistance: CHFA, Denver’s municipal government, and El Paso County, home of Colorado Springs. The three together issued more than $214.3 million using new bond authority from 2007 and carryover from the previous two years. They additionally produced more than $145.5 million in homeownership bonds using recycled proceeds. At the year’s start, DOLA handed its $26 million share of bond authority to the two local authorities for homeownership bonds. In the fall it received $40 million in relinquished authority from local agencies and was considering applications for it at press time. Watts said DOLA got no definite applications for multifamily bonds in 2007, though there was "one pretty serious inquiry."

Developers may apply to DOLA for bonds the first day of any month from February through October, but Watts said Feb. 1 applications can use up DOLA’s starting bond authority. In that case, it will next have something to distribute when local agencies relinquish unused authority on Sept. 15. Oct. 1 is hence an important deadline. Watts advised developers to “call early” and discuss deals before the application date. She said, "We do invite conversation about projects."

2008 LIHTC PROGRAM: