Study of State’s Use of LIHTC Boost

This month the “Novogradac Journal of Tax Credits” included an article examining how different states utilize their ability to offer some Low Income Housing Tax Credit (LIHTC) developments a 30% “boost” in funding. (article link here).

As regular readers know, the LIHTC program is a federal program that supports the production of affordable multifamily housing.  Despite the federal funding source, many rules for this program are set at the state level. In Texas, the Texas Department of Housing and Community Affairs (TDHCA) adopts the program rules, including which developments are eligible for the 30% boost.  These rules are known as the Qualified Allocation Plan (QAP).

Historically, the boost was only available to rent-restricted developments in census tracts with high construction costs vs. projected rental income.  The Housing and Economic Recovery Act of 2008 (HERA) allowed State housing credit agencies to make this boost more broadly available.  Most LIHTC developments are normally eligible for tax credits equivalent to 70% of the construction cost (not including the land cost).  A 30% boost to the credits awarded raises this to 91% of the construction cost (70% x 130% = 91%).

The Novogradac article shows that while many states, such as New Jersey, broadly offer the boost under a loosely defined where “necessary to achieve financial feasibility” rules, most have explicit categories for who can obtain the boost.  Among those states, Texas offers the boost for more categories of developments than any other state.

In turn, the boost is widely claimed by applicants to the Texas program: We calculated that last year (i.e. the 2010 tax credit cycle) 118 of 119 regional allocation applications applied for the boost, or 99.2% of the applications.

Here’s the unfortunate downside of the boost: the Federal government doesn’t give Texas additional tax credits for offering the boost, so increasing the funding to one development reduces the funding available elsewhere in the state.

This makes changes to the boost definition a sensitive subject.  In our comments on the 2011 QAP, we suggested the tightening the definition used for the “High Opportunity Area” boost catagory.  Under the current definition fully 46% of Texans live in “High Opportunity Areas.”  We suggested adjusting the definition such that only 20% of the population of each county would live in “High Opportunity Areas.”  Our change was designed to reserve the boost funding for developments in areas that are meaningfully better than “average.”

Our proposition was not included in the 2011 QAP adopted by the TDHCA board, but TDHCA staff’s response to our comments suggested that changes to the definition of “high income” areas should be considered for 2012.

We look forward to that conversation.  In the meantime, the Novogradac Journal article is an opportunity to compare Texas’s use of this funding tool to that of other states.  Check it out.

Reference:

Shelburne, Mark, “States’ Use of Basis Boost Reflects Their Priorities.” Novogradac Journal of Tax Credits. February 2011, Volume II, Issue II, Internet Source: http://www.novoco.com/journal/2011/02/novogradac_jtc_2011-02_lihtc_pg15.pdf