NCSHA Updates Recommended Practices for LIHTC Administration

NCSHA Updates Recommended Practices for LIHTC Administration


January 31, 2018

The National Council of State Housing Agencies (NCSHA) recently issued the Task Force on Recommended Practices in Housing Credit Administration’s final report, which updates the organization’s guidance on administering the LIHTC. In 2000, NCSHA published its first recommended practices relative to LIHTC compliance monitoring, and in that same year, provided further updates to recommendations relating to allocation and underwriting, with additional recommendations provided in 2009 and 2010.

The National Council of State Housing Agencies (NCSHA) recently issued the Task Force on Recommended Practices in Housing Credit Administration’s final report, which updates the organization’s guidance on administering the LIHTC. In 2000, NCSHA published its first recommended practices relative to LIHTC compliance monitoring, and in that same year, provided further updates to recommendations relating to allocation and underwriting, with additional recommendations provided in 2009 and 2010. This report represents a comprehensive revision of NCSHA’s previous recommended practices. It consolidates what had been separate policies for compliance monitoring and LIHTC allocation and underwriting, thus covering the breadth of state LIHTC program administration responsibilities.

Over an 18-month period the Task Force revised NSCHA’s previous recommendations to respond to current program challenges and opportunities, and incorporated 13 new practices related to Housing Credit allocation, underwriting, and compliance monitoring. Recommendations include supporting the preservation of affordable housing, promoting choice and opportunity for Housing Credit residents, encouraging fair housing compliance, and ensuring reasonable development costs.

The revision process occurred over an 18-month period under the leadership of Washington State Housing Finance Commission Executive Director Kim Herman and Indiana Housing and Community Development Authority Executive Director Jake Sipe, who co-chaired the task force. The task force included 17 additional HFA executive directors representing large and small states with urban and rural areas in all geographic regions of the country. Collectively, these states allocate nearly 60 percent of LIHTC authority annually.

The recommended practices generally help state housing agencies set their Qualified Action Plans (QAPs). Although the recommended practices are not mandatory, many state housing agencies align their policies to NCSHA’s recommendations. NCSHA expects state housing agencies to begin incorporating the new recommended practices into their LIHTC administration in 2018.

NCSHA’s Recommended Practices for Housing Credit Program Administration can be downloaded at https://www.ncsha.org/system/files/NCSHA-Recommended-Practices-in-Housing-Credit-Administration-Updated-Dec-2017_0.pdf. Here are the new or substantially revised recommended practices in the final report.

Qualified Action Plans

NCSHA recommends housing agencies design their QAPs to encourage the type, location, and tenancy of affordable housing most needed in the state. As agencies consider priorities to encourage through the QAP and/or related public documents, they should also consider the impact of these priorities on upfront development costs and long-term operating costs. Agencies should also ensure that any variations in scoring or threshold criteria between 9 percent and 4 percent credit allocations are clearly documented in either the QAP or related documents.

NCSHA also recommends agencies review their priorities on an annual basis, engage stakeholders as part of the process, provide a reasonable time period for public input, and, after careful consideration of such input, update QAPs and/or related public documents as necessary to reflect current housing priorities. 

Concerted Community Revitalization Plans

The report lists factors agencies should consider when evaluating concerted community revitalization plans. The list is adapted from what the Affordable Housing Credit Improvement Act (AHCIA) would add to Internal Revenue Code Section 42 if enacted. According to NCSHA, housing agencies may consider factors they deem appropriate, including the extent to which the plan: 

  • Is geographically specific and provides a clear direction for implementation;
  • Includes a strategy for obtaining commitments of public and private investment in non-housing infrastructure, amenities, or services beyond the credit development;
  • Demonstrates the need for revitalization; and
  • Includes planning document elements such as setting goals for outcomes, identifying barriers to implementation, establishing timelines and benchmarks, and identifying community partners.

Reducing Local Barriers to Development

This recommended practice involves restricting the role of local approvals and financial support in allocating LIHTCs. It’s another idea from the AHCIA. While inviting local jurisdiction comment on proposed LIHTC sites is required by statute, NCHSA says housing agencies shouldn’t require local approval (for example, a letter of support) as a threshold qualification or allocate points for local approval as part of a competitive scoring system.

Moreover, housing agencies shouldn’t require local financial contributions as a condition for receiving an allocation of LIHTCs. In the course of developing a competitive scoring process, housing agencies may choose to encourage developers to obtain additional funding sources for the project, including local contributions and tax abatement, but the recommended practice is that agencies should not prioritize local contributions over any other source of outside funding.

Promoting Choice and Opportunity for Housing Credit Residents

The report addresses the balance between locating LIHTC sites in “areas of opportunity” and supporting revitalization efforts. NCSHA says housing agencies should consider relevant data when defining opportunity areas, including crime rates, employment opportunities, access to transportation, school performance, and other opportunity indicators as determined by the state. In particular, agencies should facilitate development of a portion of the housing they finance for families with children in areas that provide these types of amenities.  

While developments in areas of opportunity provide important benefits to tenants—in particular children—such investment should be balanced with investment in distressed neighborhoods to ensure diverse housing needs are addressed and that resident choice isn’t limited. In facilitating development in historically distressed areas, NCSHA recommends housing agencies consider community revitalization efforts, prospects for mixed-income housing, and other means of bringing new opportunities to such areas.  

Encouraging Native American Housing Development with the Credit

The report recommends housing agencies analyze impediments to using LIHTCs on tribal land and make appropriate changes to underwriting criteria or other policies to maximize investor interest in these types of developments. NCHSA also says housing agencies should also be attentive to relevant state treaties, executive orders, and other documents that may impact housing development on Native American lands. 

Encouraging Preservation with the Housing Credit

NCSHA substantially expanded its recommended practice on allocating LIHTCs to existing sites. In addition to considering the preservation needs of sites that will soon reach the end of their affordability periods, NCHSA recommends housing agencies to consider the preservation needs of LIHTC sites that are reaching the end of their initial 15-year compliance period. To accomplish this goal, housing agencies should:

  • Proactively assess the physical condition of existing credit developments and any risk of loss or conversion to market rate use during the upcoming extended use period;
  • Communicate with all owners of Housing Credit developments to ensure they’re aware of affordability requirements during the extended use period; 
  • Limit release of the low-income use restrictions on Housing Credit developments to the two circumstances permitted by statute: foreclosure and qualified contract; and
  • Analyze data on Housing Credit qualified contract activity, amendments to extended use agreements, development foreclosures, and early termination of the affordability period to determine trends and inform QAP policies on preservation and resyndication.

Qualified Contracts

To ensure that new LIHTC remain affordable at least throughout the extended use period, NCHSA recommends housing agencies to require all applicants to waive their right to submit a qualified contract as a condition of receiving an allocation. The waiver requirement should apply to applicants for both 9 percent Credits and 4 percent Credits financed with tax-exempt multifamily bonds.  

NCSHA also recommends discouraging owners of existing sites to initiate the qualified contracts process, even if those owners didn’t waive their right to seek a qualified contract at the time of allocation. According to the NCHSA, housing agencies should establish in their QAPs disincentives for owners to undertake the qualified contract process for existing developments, including potentially awarding negative points on future applications. In addition, housing agencies should formulate other policies that will curtail the use of qualified contracts by owners of existing developments, including conditioning the approval of transfers of LIHTC sites or interest in LIHTC property ownership entities on a waiver of the qualified contract option by the purchaser/transferee.  

Construction Monitoring

In addition to visiting proposed LIHTC development sites prior to allocation of LIHTC, NCHSA recommends housing agencies inspect or require an independent third-party inspection of LIHTC developments during the construction period to monitor construction progress, verify application commitments, evaluate compliance with fair housing and accessibility rules, and identify construction delays. To avoid duplication of efforts, housing agencies may coordinate with investors, syndicators, lenders, or other entities to receive copies of construction monitoring reports conducted by these entities.  

Foreclosure Prevention

NCSHA recommends three steps to limit foreclosures. First, agencies should monitor LIHTC developments to identify properties in danger of foreclosure. If a site faces financial challenges, agencies should examine and consider restructuring strategies to prevent foreclosure.

Second, housing agencies should adopt policies requiring that restrictive covenants and other long-term use restriction instruments aren’t automatically terminated upon the execution of a foreclosure or deed in lieu of foreclosure.  

Finally, housing agencies should require documentation from all entities initiating foreclosure to check for the action being an arrangement between the lender and borrower. NCSHA says that some states have reported isolated incidents in which they suspect an owner may have purposely allowed the foreclosure of a property in order to terminate the affordability restrictions on that property. If a development proceeds to foreclosure (or instrument in lieu), housing agencies should try to determine whether the foreclosure is part of an arrangement to terminate the extended use period on the original development.  

Utility Allowances

NCSHA recommends that owners be allowed to use all available options under IRS regulations and for housing agencies to specify requirements for application of alternative utility allowances (that is, agency estimate, utility company estimate, HUD Utility Schedule Model, or energy consumption model) in both new developments and existing developments that seek a change in utility allowance.

Violence Against Women Act (VAWA) Compliance

NCSHA recommends policies be adopted or amended to implement VAWA, the federal law passed in 1994 to protect victims of domestic violence, sexual assault, and stalking. To date, the IRS hasn’t issued VAWA guidance that applies to the LIHTC program. However, housing agencies, developers, and property managers have applied requirements of the final HUD VAWA rule as a safe harbor in LIHTC developments, and have adopted or adapted HUD forms for use in such developments.

NCHSA recommends housing agencies require LIHTC owners to implement the following practices to ensure VAWA compliance:

  • Prohibiting denial of assistance and/or eviction from housing (consistent with state eviction laws) on the basis that an applicant or resident is a victim of domestic violence, dating violence, sexual assault, or stalking, if the applicant or resident otherwise qualifies for admission;
  • Providing notices similar to HUD-5380 (Notice of Occupancy Rights Under VAWA) and HUD-5382 (Certification of Domestic Violence) to all tenants in existing developments;
  • Utilizing a lease addendum to inform tenants they’re in a Housing Credit unit and that they’re protected by VAWA;
  • Allowing bifurcation of tenant leases in order to evict or terminate assistance of the perpetrator and continue housing assistance for the victim;
  • Developing policies on acceptable unit transfers, referencing guidance from HUD-5381 (Model Emergency Transfer Plan) and HUD-5383 (Emergency Transfer Request); and
  • Training property management staff who interact with applicants and tenants on VAWA requirements.

Continued Compliance in the Extended Use Period

NCSHA recommends housing agencies develop policies to regulate and facilitate continued compliance as Housing Credit properties reach Year 15 of the compliance period. Such policies should continue to enforce statutory compliance requirements, including income and rent restrictions, minimum set-aside election, applicable fraction, general public use requirements, Fair Housing Act compliance, habitability standards, utility allowance updates, Section 8 voucher holder acceptance, annual tenant income recertification requirements, and the annual owner certification of compliance.  

After the initial 15-year period agencies may establish different criteria for students, unit transfers, inspections, documentation, and monitoring fees. NCHSA recommends housing agencies develop procedures for handling noncompliance in the extended use period and should require notification from owners in the event of ownership transfers.  

Compliance Issues in Resyndication

Resyndication involves selling a site to a new owner, who will seek a new allocation of LIHTCs. Following IRS guidance, households that were LIHTC income qualified at initial move in should be considered eligible upon the site receiving another allocation. Also, because the extended use agreement on the original development was recorded for a 30-year period, it doesn’t go away at the time of resyndication. For this reason, NCSHA says housing agencies should develop policies on amendment of the original extended use agreement that can be applied in resyndications. 

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