Affordable housing investors have a new tool to help assess the long-term viability of a low-income housing tax credit (LIHTC) project supported with public operating subsidies.

Most operating subsidies are from federal, state, or local government sources, which can create challenges. LIHTC developments are underwritten for 15 years, but operating subsidies are usually appropriated annually. That means they are often the function of government budgets and the political environment, says the Affordable Housing Investors Council (AHIC).

To help affordable housing investors evaluate the risks related to the legislative and budgetary environment, AHIC has prepared the Operating Subsidy Review Guidelines. The guidelines help assess the likelihood that a property can weather a financial transition should subsidies be lost and a developer’s capacity to aid that transition.

It includes options for structuring a deal to protect the affordable housing, and the equity investment in it, if funds are eliminated. Investors can also fill an analysis grid that delves into key factors, including the extent of the property's reliance on subsidies, market and building conditions, and financial resources available to mitigate subsidy loss.

“Investors understand how important rental assistance is to fulfilling the mission of providing decent, safe, and affordable housing to very low and extremely low income residents,” says Adam Galowitz, co-chair of AHIC’s Acquisitions and Underwriting Committee in a statement. “Operating subsidies are critically necessary to enable quality developments, particularly for vulnerable populations.  However, given our uncertain world—with fiscal cliffs, ongoing budget battles, the threat of municipal bankruptcies, and federal sequestration –the time seemed right to provide investors with a comprehensive look at the credit risks associated with public subsidies.”

AHIC hopes this resource will be a catalyst for discussing best practices for structuring affordable housing developments in which rental income relies on long-term government funding.

Find the new guidelines at under Acquisitions.