Alabama officials have become the latest to create a state low-income housing tax credit (LIHTC) program to help finance the development of needed affordable housing.

Ruth Kelso Sorrell
Ruth Kelso Sorrell

Signed by Gov. Kay Ivey in May, H.B. 346 establishes the Alabama Workforce Housing Tax Credit with a $5 million annual statewide cap.

Alabama becomes the 30th state to have its own credit program in addition to the federal LIHTC, says Ruth Kelso Sorrell, counsel at the Polsinelli law firm.

“It is similar to many of the others. It is essentially an overlay of the federal LIHTC program with some tweaks around the edges,” says Sorrell, an authority on the housing credit and affordable housing.

The new program will be administered by the Alabama Housing Finance Authority (AHFA), which also allocates the federal LIHTC in the state. There will be a $2 million cap on a project.

Some of the unique features of the state program include a requirement that 20% to 25% of the $5 million cap be awarded to rural community projects each allocation round, if there are enough rural applications.

In addition, only projects that are financed with tax-exempt bonds and 4% LIHTCs will be eligible, according to Sorrell, noting the exception would be some 9% credit deals if they are rural projects.

In another unique move, Alabama will give preference to applicants who commit to after-school programs for students living in the property. Developers can do this in one of two ways—either by providing a furnished space at no cost to a licensed organization to deliver services for children in grades kindergarten through eighth grade or subsidizing the cost of the after-school care for children living at the property by the lesser of $1,000 per year per unit occupied by a participating household or $50,000 annually, explains Sorrell.

"Overall, it's a well-structured program and should work very well," she says.

The legislation goes into effect Oct. 1, which allows AHFA officials time to work on creating a qualified allocation plan for awarding the credits this year. Applications would then be accepted starting next year with a sunset application date of Sept. 30, 2027.