A set of ideas to address high-cost projects has been released by the heads of the California Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC).

The eight suggestions are outlined in a memo from Mark Stivers, executive director of TCAC, and Jeree Glasser-Hedrick, executive director of CDLAC. They include:

· Omit the value of donated land and improvements, fee waivers, and any other donated costs excluded from basis from the sources and uses budget and total cost calculation for 4% low-income housing tax credit projects. Whereas TCAC needs this data for purposes of determining the tiebreaker in 9% projects [it figures into the numerator and denominator for the tiebreaker], there is no such value to including these imaginary costs in 4% calculations given that they are never paid and do not figure into eligible basis. The idea is for the total costs and costs per unit to be more accurate of true costs, says the memo.

· Add a line to staff reports calculating a project’s lifetime rent benefit. We would suggest having the market analyst calculate this number based on market rents – targeted rents * 55 years. The idea is to put cost data into the context of public benefit.

· Limit CDLAC bond allocation on a per unit basis (adjusted by the number of bedrooms) in the general and rural multifamily pools as follows:

Studio and SRO: $382,500
One-bedroom: $400,000
Two-bedroom: $427,500
Three-bedroom: $472,500
Four or more bedroom: $497,500

This concept does not limit costs outright but does limit the amount of tax-exempt bonds and 4% tax credits that would be available to high-cost projects. Because bonds must finance at least 50% of aggregate basis (land plus depreciable assets), the effective limit on costs would be twice the figures listed above. A project with higher costs could come under the basis limit by making some units non-tax-credit units. Those units could be subsidized by other public sources or paid for with market-rate rents, according to the housing officials.

· Provide a developer fee incentive to minimize costs for 9% new construction projects. First, raise the base cash-out developer fee limit on 9% new construction projects to $2.2 million then apply the incentive such that the cash-out fee equals the base cash-out fee (15% of basis or $2.2 million) plus or minus a 1% increase/decrease to the base cash-out fee for each 1% that the high-cost test (eligible basis/threshold basis limit) is below/above 100%.

For example, a project that has a high-cost percentage of 90% would have a cash-out developer fee limit of 16.5% of basis or $2.42 million. A project with a high-cost test of 120% would have a cash-out developer fee limit of 12% or $1.76 million.

The developer fee limit would be “trued up” at placed-in service based on actual costs. The idea is to give developers a financial incentive to reduce costs in a way that does not affect the competitiveness of the project, says the memo. In all cases, the maximum amount of developer fee in basis would remain at $1.4 million so as not to award more credits per unit. The concept is not applied to 9% rehab projects because costs are easily altered by reducing acquisition prices or the scope of work, neither of which the agency leaders want to encourage. Also, the concept is not applied to 4% projects, which already have an incentive to reduce costs to minimize financing gaps.

· Eliminate the ability for high-cost projects (those with a high-cost test percentage greater than 130%) to proceed in competitive tax credits rounds with approval of committee. In the event that the committee were ever to consider approving such a project to be considered, it is not clear what standards the committee would use to differentiate between high-cost projects, says the recommendation, according to the agencies.

The full set of ideas can be read in the memo.