Common Scoring Determinations for LIHTC Applications

The Low-Income Housing Tax Credit (LIHTC) was created by Congress in 1986. Even though the tax credit is Federally allocated, it is administered locally by state housing agencies (HFA).

 

Each housing agency invites applications according to its own priorities and criteria set out in a Qualified Action Plan (QAP). However, some portions of the QAP are common among different states.

 

In this article, I’ll explain the requirements that state agencies use to score competitive bids in the 9% LIHTC round review and some hints to submitting a comprehensive and competitive application

Timelines 

Since the 9% Low-Income Housing Tax Credit round is awarded competitively it is important to be aware of the important dates for the state you are applying for LIHTC in. 

 

The LIHTC application lifecycle is extremely time-sensitive, and the local state bureaucracy has little room for patience.

 

You can get detailed information about the state specific process and timelines for LIHTC applications by state on the website of the Department of Housing and Urban Development.

The Basic Threshold Requirements 

A state’s QAP can often have over 22 threshold requirements which you must meet. And you must match all the threshold requirements for your application to be considered. Also, these must be met in accordance with the criteria outlined in the QAP.

 

Otherwise, your application is at risk of immediately being disqualified by the state housing agency.

 

Often local housing agencies set up preliminary application conferences when applications are submitted. This is a high-level discussion of the proposal, and you can include your development team here.

 

1. Credible financing plan. 
2. Caps on the amount of tax credits allowed as per the QAP per qualified unit. The caps must also be specified according to the population component multiplier that IRS releases for each location. 
3. Proposed financing terms that maximize debt and exclude any non-qualified expenses from being funded by LIHTC (like marketing, developer fees, etc.). 
4. Firm commitments for funding. 
5. Information entered under Sources of funds must match commitment letter and letters of intent. 
6. To count the income, evidence of award of rental subsidies is needed by the state housing agency. 
7. Minimum affordability period. This is usually 30 years. 
8. The percentage of housing units to target AMI (area median income) thresholds outlined in the QAP. 
9. Site control and zoning approvals. 
10. Plans and specification at 40% completion of development.

Developer’s Capability 

The state housing agencies require that the developers you select should have the capacity to deliver the work on time, in case you’re awarded the tax credits.

 

State housing agencies consider the past performance of developers to score your application. In a nutshell, developers should finish work in the agreed time and budget, and they must deliver what they said they would.

 

Selected developers must:

 

1. Meet established timelines. 
2. Stay within proposed costs. 
3. Execute proposal as submitted. 
4. Compliance with funding programs. 
5. Successful operation of past developments.

Underwriting Standards 

To make sure the financials of your LIHTC deals stay strong, most local housing agencies will propose some basic Underwriting Standards for your deal. Operating expense proposals must match the limits set out in the QAP according to the per unit operating expense range guidelines.

 

The trending assumptions for underwriting are 2% for income and 3% for expenses. These change every year, so you should trend the expenses forward according to the location and year.

 

Each state has its own underwriting guidelines, so be sure to check its program guidelines.

Income Averaging Minimum Set Aside 

You can propose using income averaging to calculate the minimum set aside for your LIHTC deal. You’ll have to refer to the program guidelines for the list of documents you need to include in your application.

 

Using this form of set aside may throw up considerable compliance challenges later, so you must make sure your property managers understand what they need to do to meet compliance.  

 

You can find out more details about using AMI in a state’s LIHTC guidelines and IRS guidelines.

Hints to Maximize Your Application’s Score 

Here are some helpful hints that can help you maximize the points your application is awarded during the 9% LIHTC round for new constructions.  

 

Supportive Housing Units

 

Any supportive housing units you have elected to set aside in your application can increase the points your application is awarded.

 

1. Provide a plan for support services prepared or vetted by a qualified service provider for any supportive housing units.  
2. Include a budget for support services. 
3. A sustainable plan to fund supportive services for 15 years. 
4. Any outlays for services must be included in the development budget. 
5. If the support services’ expenses are part of the operating expenses, it must be disclosed in the application. 

 

On-site Resident Service Coordinator

 

Employing an on-site resident service coordinator can help your application earn more points.

 

A Resident Services Coordinator or RSC can improve the quality of life for the tenants in your LIHTC development. They are responsible for coordinating with tenants and offering any support and assistance they require.

 

An RSC can also improve your chances of being awarded LIHTC.

 

To be eligible to earn points for an RSC, your application must contain an Acknowledgment of Guidelines for Resident Serve Coordinators. It’s a form that can be found with the application materials on your housing agency’s website. 

 

Priority Locations & Transit Oriented Development

 

You can earn extra points on your LIHTC applications if you target developments in areas that states mark as priority locations or locations that feature in their Transit-Oriented Development plans. Transit-Oriented Development plans are areas that states consider to be in public transport dense areas.

 

Development in these areas usually fits in with the state’s urban planning strategy.

 

State QAPs set out priority locations for which your application can earn more points for. Proximity to train stations and dedicated busways qualify for points. Local bus stops are not a valid entry to potentially earn this point.

LIHTC Application Scoring Depends on the State 

This is a basic rundown of the broad determinants of scoring that are common across states.

 

However, there are many more opportunities for earning extra points based on a state’s criteria set out in its QAP.

 

Plus, you can also qualify for more points based on experience in LIHTC deals. So, in many states, choosing property managers, developers, or by getting a co-sponsor in your deal who has worked on LIHTC projects earlier can earn your application extra points.