In the last issue of Good Company (Spring 2009), Lyndsee Paskalis and I wrote a brief article on the provisions of The American Recovery and Reinvestment Act of 2009 (the "Act"), which is designed to stimulate the affordable housing industry. As I reported in that article, there are two portions of the Act that are designed to jump-start the affordable housing industry. More specifically: (i) the Act allows State housing agencies to exchange a portion of their housing credits for cash grants from the Treasury Department (the "Exchange Program"); and (ii) the Act appropriates $2.25 billion dollars in additional HOME funds ("HOME Funds") to provide funds for additional capital investments in Low Income Housing Tax Credit ("LIHTC") projects. The portion of the Act dealing with the additional HOME Funds has become know as the Tax Credit Assistance Program or "TCAP".
At the time I wrote the article, state housing agencies were waiting for guidance on how to get the funds out of the Act and in to the hands of developers. The state housing agencies were awaiting guidance from the Treasury on how to utilize the Exchange Funds and from the Department of Housing and Urban Development ("HUD") on how to get the TCAP funds into the hands of developers. After the April publication date of my prior article, HUD issued Notice: CPD-09-03 (the "Notice") on May 4, 2009, dealing with the disbursement of the TCAP funds. The remainder of this article will focus on the requirements and guidance set forth in the Notice.
I. Background
As stated above, the Act appropriated additional HOME Funds in an attempt to jump-start a stalled low income housing industry. The Act requires TCAP funds to be allocated to each state based on the percentage of fiscal year 2008 HOME Funds received by the state (and local participating jurisdictions). The purpose of TCAP funds is to support development of LIHTC projects that received or will receive LIHTC awards between October 1, 2006 and September 30, 2009. If a particular state declines its percentage amount of TCAP Funds, those funds will be re-allocated to other eligible state housing credit agencies. Interestingly, the Notice states that although TCAP Funds were appropriated under the "HOME" heading of the Act, "HOME program requirements found in 24 CFR Part 92" (the part of the Code of the Federal Regulations which implements and governs the HOME program) …… "do not apply to TCAP funds," with the exception of limited carve-outs.
II. State Agency/Recipient Requirements
The only eligible grantees of TCAP funds are the state housing credit agencies of the fifty states, the District of Columbia and Puerto Rico.
Within thirty (30) days of the Notice, any state housing credit agency wanting to receive TCAP funds was required to submit to HUD a "TCAP Submission Packet", which was to include the following information:
A. A Statement of Intent to accept TCAP funds which includes:
1. A statement indicating if the grantee wants to accept the total amount it is due pursuant to the TCAP formula allocation;
2. A statement detailing which other federal grants the state housing agency is administering;
3. A statement regarding the status of the its 2009 allocation process; and
4. Contact information for a designated person at the agency.
B. Description of Competitive Selection Criteria.
The state housing credit agency must distribute the funds competitively and in accordance with the States Qualified Allocation Plan ("QAP").
C. Deadlines.
One of the main themes of the Notice is that HUD wants to get the TCAP funds into the hands of developers as quickly as possible. The state housing credit agency must describe the procedures it will use to utilize and expend TCAP funds within the stringent deadlines established by the Act. More specifically:
1. At least seventy five percent (75%) of the TCAP funds must be committed within one year of the enactment of the Act (February 16, 2010).
2. At least seventy five percent (75%) of the TCAP funds must be expended by Project owners within two years of the enactment of the Act (February 16, 2011).
3. One hundred percent (100%) of the TCAP funds must be expended within three years of enactment of the Act (February 16, 2012).
In addition, the state housing credit agency must describe how it will "redistribute funds to more deserving projects" if projects that originally receive the funds are not in compliance.
D. Additional Requirements
There are also other requirements involving accountability and transparency, forms to use and manner of submission. Any state housing credit agency which fails to submit an application following the criteria set forth in the Notice will be considered to have declined the receipt of TCAP funds.
III. Eligible Projects and Distribution of TCAP Funds
Rental housing projects that: (i) received or will receive an award of LIHTCs under section 42(h) of the Internal Revenue Code (the "Code") during the period October 1, 2006 through September 30, 2009; and (ii) require additional funding to be completed and placed in service are eligible to receive TCAP funds. Originally there was some question as to whether only 9% LIHTC deals were eligible to receive TCAP funds, but the Notice states that "[p]rojects awarded LIHTCs that will also receive bond financing are eligible to receive TCAP funds." TCAP funds may be used for costs that are included in "eligible basis," as that term is used in Section 42 of the Code.
State housing credit agencies must distribute the funds competitively, and pursuant to their QAP. The state housing credit agency is required to give priority to projects that are expected to be completed within three years from the enactment of the Act. The Notice goes on to say that "this standard must be the main selection criterion in any TCAP competition." The New Hampshire Housing Finance Authority ("NHHFA") has indicated that it will provide enhanced scoring to projects that have demonstrated "readiness to proceed" in its next competitive round of LIHTC applications.
The TCAP funds can be brought into the Project as either a grant of a loan. HUD added a cautionary note and alerted state housing credit agencies to the fact that if TCAP funds are provided as a loan, any repayment of principal or interest received during the three year grant period is considered TCAP "program income," and must be expended before appropriated TCAP funds.
After TCAP funds are awarded to a project, the project owner and the state housing credit agency must execute a legally binding agreement. The written agreement must set forth all applicable TCAP requirements, and the agreement must be recorded so as to become a covenant running with the land and binding on the project. Interestingly, funds cannot be drawn from the Treasury in advance; i.e. the total amount of the TCAP award can't be drawn and placed in escrow. Funds must be requisitioned on an "as-needed" basis, and expended for eligible TCAP costs within three days.
IV. Federal Funds
The Notice also points out that TCAP funds are federal funds, and, therefore, are subject to requirements binding on recipients of federal funds. The Notice then goes on to specify particular federal requirements that will affect the use of TCAP funds. More specifically:
- Fair Housing Act
- Title VI of the Civil Rights Act of 1964
- The Age Discrimination Act of 1975
- Affirmatively Furthering Fair Housing
- Section 504 of the Rehabilitation Act of 1973
- National Environmental Policy Act and Related Laws
- The Lead-Based Paint Poisoning Act and the Residential Lead-Based Paint Hazard Reduction Act of 1992
- Davis Bacon Prevailing Wages
- Anti-Lobbying Restrictions
- The Drug-Free Workplace Act of 1988
- OMB Regulations and Circulars
V. Summary
Hopefully, the guidance set forth in the Notice will be the first step in getting the TCAP fund into the hands of developers. Here in New Hampshire NHHFA appears to be on top of the TCAP issue, and since it held a meeting in early May, is actively working to help developers structure their projects to get into the ground as soon as possible. In these uncertain economic times there is a continuing need for clean, safe and affordable housing.
There are also other specific and technical requirements of the Act, and I would urge anyone interested in receiving TCAP funds to review the Notice in detail and consult with their legal and tax experts.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice. Your receipt of Good Company or any of its individual articles does not create an attorney-client relationship between you and Sheehan Phinney Bass + Green or the Sheehan Phinney Capitol Group. The opinions expressed in Good Company are those of the authors of the specific articles.
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