Treasury, HUD Issue Materials, Instructions for TCAP, Credit Exchange Programs

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Tax Credit Advisor Content: Two federal agencies have issued long-awaited initial guidance and instructions needed by states to access and start distributing new funds provided by the American Recovery and Reinvestment Act (ARRA) to facilitate completion of stalled low-income housing tax credit (LIHTC) projects.

On May 4, the U.S. Department of Housing and Urban Development (HUD) released a notice, application, and other materials for the Tax Credit Assistance Program (TCAP), while the U.S. Treasury Department issued the application and other materials for the LIHTC credit exchange program. HUD issued further materials on May 5.

HUD’s guidance is much more comprehensive, providing not only instructions to state housing credit agencies (HCAs) on how to access and award TCAP funds, but also clarification on key program details and requirements. Treasury’s guidance, on the other hand, provides the forms and procedures to enable state HCAs to begin exchanging credits for cash grants, but doesn’t elaborate much beyond the program’s statutory language to clarify “gray” areas. The IRS is expected to issue separate additional guidance in the future.

HUD held a Webcast on the TCAP and credit exchange programs on May 6. (To see archived Webcast, go to http://www.hud.gov/webcasts/index.cfm.) HUD’s TCAP guidance is posted at http://www.hud.gov/recovery/tax-credit.cfm. Treasury’s materials on the credit exchange program are located at http://www.treas.gov/recovery/LIH-grants.shtml.

ARRA provides $2.25 billion for the TCAP program for allocation through the HUD to state HCAs in 50 states, the District of Columbia, and Puerto Rico. HCAs will be able to use these dollars to make competitive funding awards to projects with housing credit awards received during the three-year period ending 9/30/09. HUD in February specified the dollar amount of TCAP funds allocated to each state.

Under the exchange program, state HCAs will be able to elect to exchange a portion of certain unused housing credits to the U.S. Treasury for cash grants, and use these dollars to make “subawards” to new construction or acquisition/rehabilitation projects — with or without a credit allocation — that have a funding gap. States will be able to exchange up to 40% of their 2009 per capita and national pool credits, and up to 100% of unused 2008 housing credits and of credits returned in 2009. Subawards may not be made nor funds disbursed to projects after 12/31/10.

HUD Materials

HUD’s initial materials include a Notice (CPD-09-03), plus four companion documents with questions and answers about the program. The Q&As are both general and about the applicability of other federal “cross-cutting” requirements (e.g., environmental reviews, accessibility, program income).

The notice describes the requirements of the TCAP program, including the obligations of state HCAs and project owners; other applicable federal requirements; the procedures that state HCAs must follow to access, award, and disburse TCAP funds; what projects are eligible for TCAP assistance; reporting requirements; and funding commitment and expenditure deadlines.

State HCAs must submit a packet to HUD before June 4 containing various items specified in the notice. Among these are a statement of the HCA’s intent to participate in the TCAP program, an indication of how much of the state’s allocated funding amount the HCA intends to accept, the completed application, a description of the HCA’s competitive selection criteria for choosing projects for TCAP assistance, and a description of the procedures the HCA will use to meet the program’s funding commitment and expenditure deadlines.

HUD will review each submission for completeness within 10 days of receipt, and notify the HCA of any deficiencies to permit correction. After determining a submission is complete, HUD will execute a grant agreement with the state HCA that will enable it to draw down TCAP funds and disburse them to projects as needed. HCAs must execute a legally binding written agreement with each project owner before disbursing funds. This agreement can’t be executed until after successful completion of a federal environmental review, and after HUD approval of the release of funds. Projects that already have a completed federal environmental review may not need another.

According to the notice, once an owner applies for TCAP funds, committing TCAP or any other funds to, or undertaking, any “choice-limiting” activity prior to successful completion of the environmental clearance review is prohibited. This includes any activity that will result in a physical change to the property (e.g., acquisition, construction, demolition, rehabilitation, leasing, disposition). The notice says performing a choice-limiting action may disqualify a project from receiving federal funds.

HUD’s guidance provides that TCAP assistance is only available to projects that receive an award of housing credits (9% or 4%) between 10/1/06 and 9/30/09. The state HCA is to define the term “award”; the notice says this can be as early as the date of the public notice of the funding decision for the particular project.

Projects that receive bond financing are eligible for TCAP assistance. State HCAs must give priority in the award of TCAP funds to projects expected to be completed by 2/16/12. But the notice otherwise gives states flexibility regarding their competitive award process and selection criteria. For instance, an HCA could decide to award TCAP funds to projects that: (1) meet a predetermined threshold of “ready-to-go”; and (2) have completed the required environmental review process because the project had already been awarded HUD HOME program funds or other federal financial assistance. States HCAs must solicit public comments for at least five days on their proposed competitive process and selection criteria.

TCAP assistance isn’t available to projects that have received only GO Zone or Midwest Disaster Areas housing credits. But HUD indicated these projects are eligible if they also receive an award of “regular” housing credits, such as 2009 per capita credits.

In other areas, HUD noted that:

  • State HCAs can decide whether to provide TCAP funds to projects as grants or loans.
  • Any “program income” received by the state HCA during the three-year grant period must be expended for eligible TCAP costs before the HCA can draw down any additional TCAP funds. Program income could include repayments of principal or interest on TCAP-funded loans, other income or fees received from project owners in connection with TCAP funds, and interest earned by the HCA on program income.
  • TCAP funds generally can only be used for costs that can be included in eligible basis, as defined in the LIHTC program. However, costs incurred by owners to modify a project to comply with federal accessibility requirements, or to comply with federal grant requirements, are eligible. ARRA prohibits the use of TCAP funds for swimming pools.
  • Davis-Bacon prevailing wages must be paid on projects assisted by TCAP funds. Relief is possible for projects that have been completed or are already under construction.
  • Project owners in marketing TCAP-assisted units must abide by the terms of the affirmative fair housing marketing plan that HUD requires each state HCA to establish for its TCAP projects.
  • The state HCAs may “sub-grant” a portion of its TCAP funds to one or more other housing credit agencies in the state.
  • Other than environmental review requirements, the standard HUD HOME program statutory and regulatory requirements don’t apply to TCAP funds.
  • States aren’t required or expected to amend their qualified allocation plan to distribute TCAP funds.

The notice says HUD will issue further details at some point on written agreements between state HCAs and project owners, and issue additional supplemental or interpretative guidance as it becomes available, including on the process for disbursing funds, recordkeeping, and applicable federal grant requirements.

Treasury Guidance

The Treasury materials for the credit exchange program include an application package, various forms, and a statement of terms and conditions for grantees (i.e. state HCAs).

Eligible to participate in the program are the HCAs for the 50 states, District of Columbia, Puerto Rico, American Samoa, Guam, U.S. Virgin Islands, and Northern Marianas Islands.

The guidance instructs state HCAs on the process and procedures they must follow in order to participate in the exchange program and to exchange unused housing credits for cash grants. The materials identify the maximum dollar amount of cash grant funds each state would receive if it exchanges 40% of its 2009 per capita housing authority.

State HCAs may submit an application in May or June 2009 to make an initial exchange of housing credits for cash grants. Currently, this will be limited to an exchange of up to 40% of the state’s 2009 per capita credits, and up to 100% of its unused 2008 housing credit ceiling amount, since the size of each of the other two eligible components isn’t currently known (2009 national pool credits, credits returned in 2009). State HCAs will be able to make additional future exchanges, through calendar 2010.

Treasury will review each state’s application for eligibility and completeness within 10 days of receipt, and notify HCAs of any deficiencies. After determining an application is complete, Treasury will send a grant agreement to the state HCA and make the grant funds available for drawdown by the agency to disburse to projects. The HCA must execute a legally binding written agreement with each project owner before disbursing funds.

The guidance describes the various requirements that will apply to state HCAs and to project owners receiving assistance. The guidance says a subaward must be in the form of “cash assistance.” While the Treasury guidance doesn’t say so, a Treasury official on the HUD Webcast said loans are not permitted. The official also said that Davis-Bacon and other federal cross-cutting requirements do not apply to the credit exchange program. Before an HCA can make any subawards, it must establish a written process for making determinations that applicants for subawards “have demonstrated a good faith effort to obtain investment commitments for tax credits in lieu of a subaward.” The HCA must also make such a determination for each applicant before providing an award. However, the Treasury guidance doesn’t provide any further details.