State Agencies Move Toward Awarding Funds Under TCAP, Exchange Programs
By Caitlin Jones
10 min read
Tax Credit Advisor, July 2009: State allocating agencies, faced with a hefty pipeline of stalled low-income housing tax credit (LIHTC) projects, are moving toward accepting applications and awarding financial assistance to these deals to move them forward under the new “TCAP” and “credit exchange” programs. Some agencies have begun accepting applications and at least one has made a few awards, according to responses to a survey by the Tax Credit Advisor.
Meanwhile, the U.S. Treasury Department has announced initial awards of exchange program funds to multiple states, the U.S. Department of Housing and Urban Development (HUD) provided new information, and a key lawmaker is pressing for changes to the exchange program.
At a recent conference, six state housing credit agencies (HCAs) described their stalled pipelines and plans for using the TCAP and exchange funds.
State HCAs are anxious to begin awarding funds under the Tax Credit Assistance Program (TCAP), administered by HUD, and the credit exchange (Section 1602) program, administered by Treasury. Established by the American Recovery and Reinvestment Act (ARRA), the programs will provide, though state HCAs, federal funds to projects with housing credit awards that are stalled because they haven’t been able to find any or sufficient LIHTC equity.
State HCAs had to apply to HUD by 6/3/09 to participate in the TCAP program. State HCAs can also apply to Treasury to participate in the credit exchange program, and request cash grants from turning in unused housing credits.
HUD Webcast
On a Webcast held 6/10/09, HUD official Cliff Taffet said the Department had received applications to participate in the TCAP program from all 52 eligible state HCAs (50 states, District of Columbia, Puerto Rico), requesting the full $2.25 billion available nationwide.
He noted HUD had already issued an approval letter to Ohio’s agency, and expected to send approval letters to another 11 state agencies (i.e. grantees) within days.
HUD officials said once grantees receive an approval letter from HUD stating their submission is complete and acceptable, they can begin their competitive selection process. But grantees can’t begin to commit TCAP funds to individual projects until after they have received, signed, and returned a grant agreement from HUD, and their account is activated so they can access TCAP funds. Taffet expected HUD to begin sending out grant agreements the week of June 15th. “Unless there’s a problem with a specific submission, everyone should have their funds by the middle of July,” he predicted. “We’re seeing that many states are on the cusp of approving a significant number of projects within the next several months.”
HUD officials said a project is eligible for TCAP assistance only if it has an “award” of low-income housing tax credits (9% or 4%), and the tax credits are “sold” to a syndicator or another third party (e.g., investor), or else used by the developer. HUD officials purposely avoiding defining the minimum size of a tax credit award that a project must have to be eligible for TCAP funds. Said Taffet, “We’re talking about the amount of credit necessary as originally intended to carry out the project, and that which the market allows…We want the most credits possible in a deal.”
Taffet said HUD’s desire is that each grantee describe the meaning of award under its LIHTC program. “It has to be an award specific to the credits and it has to be a formal action, has to be binding, has to be public,” and be made by 9/30/09, he noted.
HUD officials stressed that there must also be official evidence of the award of 4% credits, that it isn’t sufficient to presume that an award of 4% credits has or will be made just because the project has been approved for tax-exempt bond financing.
HUD official Jade Banks reported on the applicability of federal Davis-Bacon prevailing wage and reporting requirements and labor standards to TCAP-assisted projects. She noted the U.S. Department of Labor recently issued a memorandum (No. 207) clarifying the applicability of Davis-Bacon to projects assisted with ARRA funds. (Memo: http:// www.dol.gov/esa/whd/recovery/ AAM207.pdf.)
As a general rule, projects receiving TCAP assistance will be subject to Davis-Bacon requirements. Davis-Bacon requirements, though, won’t apply, if a project has been completed by the date that the state HCA issues a notice announcing the availability of TCAP assistance and soliciting applications for TCAP assistance from project sponsors.
For projects not completed by this notice date, including projects not started or those under construction, Davis-Bacon requirements will apply beginning on the date that the state HCA approves TCAP assistance for that specific project.
Treasury Awards of Funds
The Treasury Department announced awards of $736.7 million in credit exchange program grants to the District of Columbia, Puerto Rico, and 12 states (Indiana, Iowa, Kansas, Maine, Michigan, Missouri, New Hampshire, Ohio, Rhode Island, Tennessee, Washington, Wisconsin).
The Kansas Housing Resources Corporation (KHRC), as of 6/22/09, had already signed agreements to make initial payments of exchange program grants to two projects, and was close to signing awards for another four. KHRC official Fred Bentley said the agency has received $23 million in exchange funds from redeeming 40% of its 2009 housing credits.
The initial two projects, each 24 units, are Woodland Hills Estates, in Osawatomie, and Clyde Family Housing, in Clyde. The former, now completed, received a 2008 award of 9% credits and was 75% finished when the sponsor was told by the equity provider it couldn’t raise the equity. The sponsor returned the credits to KHRC, and is getting a grant of $2.3 million. Other funding sources for the $3.4 million project are infrastructure money and a $525,000 loan from a private lender.
Clyde Family Housing is getting a grant of nearly $2 million, roughly 80% of the more than $2.4 million total project cost. The development involves the rehabilitation and conversion of an historic former schoolhouse, and the preservation of a small existing USDA rural rental housing project. The developer got an award of 9% credits, began construction without equity, tried but couldn’t find an equity partner, and returned the credits. “There just isn’t anybody who wants to invest in a small rural Kansas town right now,” says Bentley.
Program Changes Sought
Meanwhile, U.S. Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, recently wrote to Treasury Secretary Timothy Geithner requesting specific changes to the credit exchange program rules.
He requested: that the deadline for full disbursement by grantees of exchange program funds be extended to 12/31/11, but the current deadline of 12/31/10 be kept as the deadline for disbursing a certain percentage of funds (e.g., 30%); that grantees be able to provide exchange program assistance to projects as loans; and, that the program’s recapture requirements be made more flexible.
State Agency Comments
In comments in Los Angeles on 6/16/09 at the National Council of State Housing Agencies’ 2009 housing credit conference, panelists from six state HCAs reported on their stalled project pipelines and how they plan to use the new ARRA funds.
In general, they said they plan to be flexible, to try to meet the needs of stalled projects that already have 2007 and 2008 credit awards, while also trying to help projects that are awarded 2009 credits that have a funding gap. Similarly, they expect to be flexible in deciding whether to assist individual projects with TCAP or credit exchange funds.
“Our vision is to develop a system where the TCAP and exchange funds go into a bucket, and we deliver one or the other as suits the project,” said Bill Pav”¹o, executive director of the California Tax Credit Allocation Committee (CTCAC). For instance, he said a project already invoking Davis-Bacon prevailing wage provisions or dealing with federal environmental review requirements might be a “good candidate” for TCAP funds, while CTCAC would probably try to deliver exchange funds to a project not addressing these requirements. These specific requirements are required of projects for TCAP funds but not credit exchange dollars.
Pav”¹o, who noted California rules for the two programs were being finalized, indicated the plan is either to provide gap fillers to projects, such as projects that do have an equity partner, or to retrieve the credits, exchange them for cash, and provide cash to the sponsor, for projects unable to get equity. Pav”¹o noted CTCAC has already received applications from 30 sponsors in the latter situation, asking to return their 2007 and 2008 credits and get cash.
He said CTCAC’s current 2009 credit application round also permits applicants to seek gap funds as well as 9% credits. He said 241 applications were received by the deadline, and expected that CTCAC will fund about 60 deals.
California plans to provide ARRA assistance to both 9% and 4% stalled credit deals.
Stephen Auger, executive director of the Florida Housing Finance Corporation (FHFC), said about thirty 9% credit projects, most with 2008 awards, hadn’t found equity as of April 30th. He said another 20 or 30 bond deals “don’t work” because of the de-obligation of state funds previously committed to them.
He expected FHFC will exchange up to 40% of its 2009 credits and “pretty much all” of its returned credits, and provide exchange assistance to 2007 and 2008 9% credit deals “in markets where we’ve got a strong need.” Auger anticipated that the de-obligated bond deals will be aided with some of the non-exchangeable 2009 9% housing credits, in the hope this will help them attract investors. He hoped that exchange funds will be left to provide gap assistance to deals awarded 2009 and 2010 credits in FHFC’s current LIHTC application cycle. Auger didn’t mention FHFC’s plans for TCAP funds.
Bob Kucab, executive director of the North Carolina Housing Finance Agency, said, “We have 25 to 35 developments that were originally awarded credits in 2007 or 2008, where there’s either no investor, a tepid investor, or an investor where there may be a gap that requires some kind of closure.”
He added, “We think the exchange program is a good situation for a lot of the 2007, 2008 projects. TCAP more for the 2009s, looking at some of the timing issues and some of the cross-cutting issues. Each state is going to come at this a little bit differently.”
Brian Hudson, executive director of the Pennsylvania Housing Finance Agency (PHFA), said he has 33 stalled projects with 2007 and 2008 credit awards, and expected that the agency will award 2009 housing credits to about another 38 projects of the 60 applications received in the current funding round. He anticipated PHFA will provide TCAP or credit exchange assistance to these deals. “Our mission is to complete these projects,” Hudson said.
Kate Racer, of the Massachusetts Department of Housing and Community Development (DHCD), said the agency’s first competition for ARRA assistance will be in July, and hoped the first awards will be made two weeks after the applications are received.
She said Massachusetts has between 40 and 45 stalled 9% and 4% projects, and that DHCD is receiving applications seeking 9% credits in its current 2009 LIHTC funding cycle.
Racer said DHCD has decided to make TCAP funds first available – it will have about $60 million – to projects that have already been bid out to meet Davis-Bacon standards. She indicated DHCD is focusing first on taking care of its stalled 2007 and 2008 projects, and wasn’t sure if there will be ARRA funds left to help deals getting 2009 credit awards.
Douglas Garver, executive director of the Ohio Housing Finance Agency (OHFA), estimated he has 40 stalled projects with 2007 and 2008 credits that need help. He noted another 9 or 10 had been stalled but were able to close after OHFA assisted them by making use of some of the LIHTC program amendments made by the Housing and Economic Recovery Act of 2008 (e.g., flat 9% credit, state-designated 30% basis boost). Several state officials also said they have used the HERA changes to help projects, and anticipated that these will be part of the solution to save projects going forward.
Garver said OHFA is completing review of 123 applications requesting 2009 housing credits in its current LIHTC application round, and will be announcing awards – perhaps as many as 35 – in the first week of July.
Garver reported that OHFA opened its application window for ARRA assistance on 6/15/09, and expected as many as 10 applications in the first week.
