Good Evening -
A reader submitted a question on how compliance works for an LIHTC project financed through the private activity tax-exempt bond program. They asked if there are any additional requirements a property manager must apply at an LIHTC project with bond financing. So let’s review how compliance works at these properties.
First, know that all the same compliance requirements that apply to any LIHTC project apply to one that is bond-financed. The same rules that govern how to calculate a household’s gross annual income, how to apply the LIHTC student rule, how to determine a household’s income limit, how to calculate maximum allowable rent, how to apply the LIHTC available unit rule, vacant unit and transfer rules, etc… govern LIHTC compliance when the project is bond-financed. The monitoring agency will expect an owner to follow the same rules for a unit they want to produce an LIHTC as they do for any other project governed by Section 42 of the federal tax code.
Second, for the tax-exempt bond program an owner has the same options for committing to a minimum set aside as in the LIHTC program, but there is no incentive built into the bond program to have more low income units than required by the minimum set aside. The more LIHTC-qualified units an owner has, the larger the tax credit the project produces, the larger capital contribution it attracts from the LIHTC investor. But an owner gets the full benefit of the tax-exempt financing available through the bond program just by having enough low income units to meet their minimum set aside. It is possible, however, for the bond-issuing agency to require additional low income units in the project’s bond regulatory agreement.
Third, there are no rules established at the federal level that limit how much rent an owner can charge for a low income unit within the tax-exempt bond program. It is possible for the bond-issuing agency to limit how much rent an owner charges in the project’s bond regulatory agreement. There is also the practical limitation that if an owner rents a unit to a household with income below 60 percent or 50 percent of the AMI, the resident will be limited as to how much rent they can afford to pay by virtue of their low income. Additionally, an owner is limited as to how much rent they may charge for any low income unit for the bond program that is also an LIHTC unit by the regulations for the LIHTC program.
Fourth, HERA 2008 streamlined the additional compliance requirements that come with bond financing.
- Prior to July 2008, the tax-exempt bond program required an owner to apply a more restrictive student rule than required by the LIHTC program. Thankfully, HERA saved managers of bond-financed projects from needing to know two student rules. Since HERA, all bond-financed projects, rather they have LIHTC or not, follow the LIHTC student rule.
- The available unit rule is the key to maintaining long-term compliance at all LIHTC projects. What has been confusing for managers of bond-financed projects is that the rule is applied by building for the LIHTC program but by project for the bond program. Again thankfully, HERA saved owners and managers from chasing their tales from trying to apply the available unit rule both by building and by project. Since HERA, an owner of a bond-financed project with LIHTC is only required to apply the LIHTC available unit rule while for a project without LIHTC, they continue to follow the bond available unit rule.
Send me your questions at liz@lizbramletconsulting.com. Follow me on Twitter at www.twitter.com/lizbramlet. Check out our current training calendar by going to www.lbctrainingcenter.com and clicking on Current Calendar.
