The American Recovery and Reinvestment Act (ARRA) of 2009 provided funding for several affordable housing programs, including homelessness prevention funds, Community Development Block Grant funds, and project-based rental assistance.
But for low-income housing tax credit (LIHTC) developers struggling to find investors, the most significant provision of the act is the Tax Credit Assistance Program (TCAP). TCAP provides funds directly to state housing finance agencies (HFAs) to disperse to existing tax credit developments in need of additional gap funding.
Projects awarded credits in 2007, 2008, and 2009 are eligible for the gap funding, but priority must be given to developments expected to be completed by February 2012. The biggest TCAP awards were for California (more than $325 million) and New York (more than $252 million).
The Ohio Housing Finance Agency (OHFA) was allotted about $83 million in TCAP funds through the act. There are 58 projects in Ohio that were awarded tax credits in 2007 and 2008 but have yet to close on their equity. Plus, OHFA anticipates that some of the developers receiving 2009 tax credit awards will receive TCAP funds as well.
“We do have a large number of existing tax credit projects that have not closed yet from 2007 and 2008,” said Sean Thomas, OHFA’s director of planning, preservation, and development. “A lot of those are ready to go right now, they just can’t get an investor to close on the project, so their construction lender won’t close on the loan.”
OHFA hasn’t yet determined whether the soft funding will be in the form of a second loan that’s paid off over the 30-year permanent period, or a short-term bridge loan that would be larger than the second loan but paid off in two or three years by the equity investor.
Another provision of the act gives HFAs the option of monetizing unused tax credits. Up to 40 percent of the 2009 tax credit allocation and all of the returned credits from 2007 and 2008 can be monetized at a rate of 85 percent of the 10-year tax credit amount. The problem with that option is that the HFA becomes the tax credit investor and is on the hook for due diligence during construction and asset management during the 15-year compliance period.
“We really want to encourage keeping the public/private investment partnership on these projects,” said Thomas. Still, for some developments in rural areas that have received no investor interest, it’s possible that OHFA would monetize unused credits and become the investor.
The awarding of TCAP funds must be a competitive process, meaning all 2007 and 2008 developments in need of additional funding need to re-apply for a separate TCAP funding round. OHFA hopes to issue policy guidance for public comment later this month, with the policy finalized by the end of April and a new funding round coming in May. Projects applying for 2009 awards in Ohio should proceed as they normally would, Thomas said.
The awarding of TCAP funds must be a competitive process, meaning all 2007 and 2008 developments in need of additional funding need to re-apply for a separate TCAP funding round. OHFA hopes to issue policy guidance for public comment later this month, with the policy finalized by the end of April and a new funding round coming in May. Projects applying for 2009 awards in Ohio should proceed as they normally would, Thomas said.
Other states are also eager to incorporate the new legislation into their tax credit programs.
"The nearly $27 million that the Colorado Housing and Finance Authority (CHFA) will receive through ARRA to fund the TCAP will allow CHFA to provide some assistance to LIHTC developers in Colorado who might be facing funding gaps,” said Executive Director and CEO Milroy A. Alexander. “By enabling these projects to move forward, we will not only build new and preserve existing affordable housing for Coloradans, we will also create jobs to support our economy.”
As CHFA awaits final rules from the Department of Housing and Urban Development, the agency has started preliminary discussions with its LIHTC advisory committee to begin designing processes for TCAP fund allocation and exploring the tax credit exchange program, said Alexander.
The National Equity Fund, a longtime LIHTC syndicator, announced that it is offering a range of advisory services to HFAs to help them design and manage implementation of the tax credit exchange and other provisions of the recent legislation.
To find out how much your state received, visit www.hud.gov/recovery/tcap.cfm.
