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

SOUTH DAKOTA

BY JERRY ASCIERTO

AFFORDABLE HOUSING FINANCE • DECEMBER 2007

PIERRE—Developers working in South Dakota will notice a few significant changes in the state’s 2008 qualified allocation plan (QAP).

The South Dakota Housing Development Authority (SDHDA) is now awarding negative points under the "applicant characteristics" category of its 2008 QAP.

Developers with outstanding compliance issues, or which haven’t met the development standards or cost limits of a previously awarded development, will have their current applications "discounted" at a level set on a case-by-case basis.

SDHDA has also increased development cost limits by 7 percent to keep pace with increased construction costs.

The state is again emphasizing rehabilitation deals in the 2008 QAP, setting aside 60 percent of its total tax credit authority for rehabilitation or acquisition-rehabilitation projects. But there’s an extra requirement in the 2008 QAP. Developers applying for such credits are now required to provide an attorney’s legal opinion stating that the development meets eligibility requirements.

Other changes include mandatory playground areas in multifamily rental developments with 16 or more units, and mandatory installation of Energy Star-qualified appliances.

Additionally, electric baseboard heat systems can no longer be included in new construction developments.

The maximum low-income housing tax credit (LIHTC) award in 2008 will be $575,000.

2007 recap
SDHDA awarded more than $2.35 million in 2007 LIHTCs to 10 projects featuring 282 units. Due to recent increases in land and construction costs, the state has seen a declining number of units financed under its LIHTC program. In 2005, 674 units were funded with about $3 million, and in 2006, 439 units were funded with about $2.7 million.

New construction took the bulk of the awards in 2007, more than $1.4 million, and an overwhelming majority of awards went to rural developments, at nearly $1.9 million.

The median tax credit award was $211,348, and the median project size was 28 units.

Tax-exempt bonds
South Dakota expects to have $260 million available for tax-exempt private- activity bonds in 2008.

SDHDA expects the use of taxexempt bonds to increase next year. "As long-term interest rates increase along with the demand for 9 percent credits, we do anticipate more developers looking for tax-exempt bond financing," said Lorraine Polak, SDHDA’s director of rental housing development.

In 2007, the state didn’t allocate any tax-exempt bond financing to multifamily developments.

2008 LIHTC PROGRAM: