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

MASSACHUSETTS

BY BENDIX ANDERSON

AFFORDABLE HOUSING FINANCE • DECEMBER 2007

BOSTON—Officials here may increase the amount of lowincome housing tax credits (LIHTCs) that they set aside to finance projects to preserve existing affordable housing.

In part, that’s because more resources are becoming available to help keep these projects affordable. "That opens the door to more projects being financially feasible," said Laurie Tickle, director of the LIHTC program for the Massachusetts Department of Housing and Community Development (DHCD).

For example, the Capital Improvement and Preservation Fund is once again open for business in 2007 after several years of inactivity. Administered by DHCD, the program uses tax-exempt general obligation bonds to provide soft loans of up to $50,000 per unit to preservation projects. The maximum any project can receive under the program is $2 million. The loans are specifically designed to fill holes in project budgets.

"You can blend it with anything," said Tickle.

The state also set aside 35 percent of its LIHTCs for preservation projects in 2007. "Preservation continues to be a very high priority," said Tickle.

The other 65 percent of the 2007 LIHTCs were set aside for projects that produced new affordable housing units, through new construction or adaptive re-use.

That percentage may drop in 2008, although such projects seem likely to continue to take more than half of the 2008 LIHTCs. "Massachusetts continues to experience a shortage in supply of affordable units, causing [new] production to be our top priority," said Tickle.

Officials plan to finalize the 2008 qualified allocation plan (QAP) in December, after holding meetings with the development community on the proposed changes in November.

The 2008 QAP may also increase the advantage given to green projects, Tickle said. This would follow on moves made in 2007. DHCD increased the points awarded to green projects in its 182-point competition from 16 in 2007’s first round to up to 20 in the second round. That includes five points for projects with an energy efficient building envelope, five points for efficient building systems, four points for healthy indoor air quality, four points for site design, and two points for projects that produce their own renewable energy.

Nearly all of the projects that applied for LIHTCs in 2007 qualified for some of the green building points, Tickle said. "More projects are implementing renewable energy features such as photovoltaic panels," said Tickle.

The green building points are in addition to the 20 points that already rate projects for their design features, including whether the project meets or exceeds federal Energy Star standards of efficiency.

2007 recap
Developers applied for $33.9 million in LIHTCs in 2007, more than three times the $13.3 million DHCD had available to reserve. Roughly half of the LIHTCs will fund new construction projects, while the other half will finance projects that preserve or re-use existing buildings.

Gap financing to the rescue
DHCD will also reserve $4 million in Massachusetts LIHTCs in 2008. Designed to help DHCD stretch its tax credit allocating authority a little farther, the state credits are awarded to projects that have already won federal LIHTCs and that are capable of securing at least 80 cents of investor equity for a dollar of state tax credit.

MassHousing, the state’s housing finance agency, and DHCD jointly administer the Massachusetts Affordable Housing Trust Fund, a revolving trust fund. In 2008, the fund is expected to award $25 million to housing projects and programs that create or preserve housing affordable to people earning no more than 110 percent of the area median income (AMI). The fund provides soft financing to rental projects and rewards local governments that sponsor affordable housing projects with matching funds.

DHCD also offers up to $750,000 in soft, no-interest, 30-year financing to projects located near major mass transit stops through its Commercial Area Transit Node Housing Program.

The Housing Stabilization Fund is another soft financing program for rental housing affordable to tenants earning up to 80 percent of the AMI. The fund typically provides 50-year nointerest loans of up to $750,000.

Bond program turns to preservation
Massachusetts will have a total of more than $550 million in 2008 taxexempt bond volume cap. No formal allocations have been made, but in prior years nearly a quarter of that amount has financed rental housing projects.

In 2007, MassHousing set aside $125 million of its $551 million in 2008 tax-exempt bonds for affordable rental housing through MassHousing.

Another $50 million has been reserved for MassHousing’s home mortgage programs. By the end of the year, officials expect to finance up to 16 properties. Eight deals closed their financing in June. At press time another eight properties were working to close their financing by this November.

About half of these reservations will finance projects to preserve existing affordable housing. Only about a quarter will finance new construction projects. That’s a big change from just a few years ago. In 2005, preservation projects received only about a quarter of the taxexempt bond volume cap.

"The emphasis has changed from new production to preservation," said Chuck Karimbakas, manager of financial and capital planning for MassHousing. The new focus will likely continue into 2008. "The administration really is for preserving affordable housing."

Rising construction costs have also made it difficult to finance new construction projects with taxexempt bonds, said Karimbakas, especially high-rise mixed-income projects in which 80 percent of the apartments rent at market-rate prices and 20 percent are affordable to low-income tenants.

MassHousing also provides grants funded by the Massachusetts Technology Collaborative to help finance developments with green features such as solar panels. In 2007, the agency funded seven projects, with grants ranging from about $30,000 to more than $500,0000.

2008 LIHTC PROGRAM: