Congress has approved an increase in low-income housing tax credit and tax-exempt bond authority as part of a package of tax incentives (H.R. 4440) to promote recovery from the devastation of Hurricane Katrina.
The legislation creates a Gulf Opportunity Zone (GOZ) consisting of the Alabama, Louisiana and Mississippi areas designated as eligible for individual or individual and public assistance because of Katrina.
The bill also provides many limited incentives for recovery in the areas hit by Hurricanes Rita and Wilma, including Rita and Wilma Gulf Opportunity (GO) Zones, which are the portions of the disaster areas from those hurricanes designated as eligible for individual or individual and public assistance.
For the housing tax credit, the bill provides special annual allocations of $18 per capita to Alabama, Louisiana and Mississippi for their GOZ populations for 2006 through 2008.
In addition, Florida and Texas will each receive an additional $3.5 million allocation for 2006 only.
Alabama, Louisiana and Mississippi won’t be able to carry forward any additional GOZ credits that aren’t used in the year of allocation, but those credits will be treated as the first credits allocated in each year, maximizing the carryforward of other credits. The regular carryforward rules will apply to the additional credits for Florida and Texas.
For properties placed in service in a nonmetropolitan GOZ area in 2006 through 2008, income-targeting requirements will be based on national nonmetropolitan median gross income, rather than area median income (AMI). This change will apply to buildings supported by credits from the regular state allocations, as well as the special GOZ allocations. There is no change in the income targeting for metropolitan areas.
In addition, the entire GOZ, as well as the Rita and Wilma GO zones, will be treated as high-cost areas for properties placed in service from 2006 through 2008, making these properties eligible for the 30% increase in tax credit basis. The population limitation on areas eligible for the basis increase will be waived.
The bill also authorizes Alabama, Louisiana and Mississippi to issue additional tax-exempt private activity bonds in an aggregate amount equal to $2,500 times their GOZ population. Activities that can be financed by the bonds include residential rental and owner-occupied housing.
For rental housing, the normal low-income targeting requirements will be relaxed so that at least 20% of the units must be occupied by households with incomes no higher than 60% of AMI, or at least 40% must be occupied by households with incomes no higher than 70% of AMI.
For owner-occupied housing, the normal mortgage revenue bond rules will apply, with some exceptions. All GOZ homes will be treated as targeted area residences for purposes of the higher purchase price limits and the waiver of the first-time homebuyer requirement. In addition, all of the GOZ mortgages must be made to homebuyers with incomes no higher than 140% of the applicable median family income. Also, the home improvement loan limit will be raised from $15,000 to $150,000.
The special mortgage revenue bond rules will also apply to financing in the Rita and Wilma GO zones. In addition, the waiver of the first-time homebuyer requirement in the Hurricane Katrina disaster area initially enacted in the Katrina Emergency Tax Relief Act has been extended through Dec. 31, 2010.
Operators of bond-financed residential rental projects may rely on the income eligibility representations of prospective tenants displaced by Hurricane Katrina, provided that they move in within six months of their displacement.
The bill also raises the rehabilitation tax credit rates for GOZ buildings from 20% to 26% for historic buildings and from 10% to 13% for other buildings for qualified rehab expenditures incurred on or after Aug. 28, 2005, and before Jan. 1, 2009.
In addition, the bill provides additional New Markets Tax Credit investment allocations of $300 million annually for 2005 and 2006 and $400 million for 2007 for qualified low-income community investments within the GOZ. To be eligible for these allocations, community development entities must have as a significant mission the recovery and redevelopment of the GOZ.
Hurricane recovery funds added to defense appropriations bill
Congress added housing and development funding to support recovery from the 2005 hurricanes to the fiscal 2006 defense appropriations bill (H.R. 2863).
The Department of Housing and Urban Development (HUD) funding includes $390.3 million in Sec. 8 voucher funds and $11.5 billion in community development money.
The voucher funds are limited to households that, before Hurricanes Katrina and Rita, were receiving assistance under Sec. 8, public housing, Sec. 202, Sec. 811, Housing Opportunities for Persons with AIDS (HOPWA), or homeless assistance programs, or who were homeless or in emergency shelters.
In administering these emergency voucher funds, HUD may waive Sec. 8 income eligibility and tenant contribution requirements for up to 18 months.
The community development funds are available to support recovery in states where major disasters were declared because of Hurricanes Katrina, Rita or Wilma. No state can receive more than 54% of the money.
The bill also directs HUD, to the extent feasible, to preserve all housing in the Katrina and Rita disaster areas that were receiving project-based assistance under Sec. 8, public housing, Sec. 202, Sec. 811, HOPWA or homeless-assistance programs.
For rural housing, the bill provides $1.293 billion for Sec. 502 unsubsidized guaranteed home loans, $176 million for Sec. 502 direct loans, $34 million for Sec. 504 housing repair loans and $20 million for Sec. 504 housing repair grants.
The bill also authorizes the Rural Housing Service (RHS) to convert rural rental assistance allocated to housing that is no longer decent, safe and sanitary to rural housing vouchers. The RHS can also issue vouchers to low-income families whose residence has become uninhabitable without regard to the fiscal year volume limits and the requirement that vouchers be used in connection with Sec. 515 or rural housing preservation grants.
HUD proposes changes in metropolitan area definitions
HUD has proposed changes in the metropolitan area definitions that will be used to calculate median family income estimates and program income limits for fiscal 2006.
The revised income limits would be based on current Office of Management and Budget (OMB) metropolitan statistical area definitions, which in turn are based on 2000 Census data. HUD has been using old OMB definitions based on the 1990 Census.
HUD has issued fiscal 2006 Sec. 8 fair market rents (FMRs) using the new OMB metro area definitions, but with modifications to permit subareas based on the old area definitions when FMRs based on the new definitions differed significantly from the new area-wide FMRs.
HUD is considering whether a hold-harmless provision of some kind should be applied in cases where the new area definitions would produce decreases in estimates of median family income and/or income limits.
Rule implements restrictionon Sec. 8 aid to students
HUD has issued a final regulation implementing a restriction on Sec. 8 assistance to students that was enacted in the department’s fiscal 2006 appropriations act.
Under the statute and regulation, Sec. 8 assistance can’t be provided to any college student who is younger than 24, not a veteran, not married, does not have a dependent child, and is not otherwise individually eligible, or has parents who aren’t Sec. 8 income-eligible.
Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.