Administration’s FY 2013 Budget Release Proposes Changes for LIHTC
The Obama Administration recently released its proposed Federal budget for Fiscal Year 2013 which includes several significant changes for the Low-Income Housing Tax Credit (LIHTC) program. If the budget manages to pass Congress (and given the current political climate we know how difficult that process will be), a couple of the items will present additional complexity for LIHTC management–even as the ultimate intent is to provide incentives to promote regional growth and strengthen the program.
For a number of years, there have been murmurings about increasing the income-targeting requirements at LIHTC properties and even the possibility of changing the program name to the “Moderate to Low-Income Housing Tax Credit Program.” It appears that part of this rumor may become fact if the budget proposal is passed as written as there are changes afoot that will “encourage mixed income occupancy by allowing LIHTC-supported projects to elect a criterion employing a restriction on average income.”
What it boils down to is that a third minimum set-aside option would be available for owners to elect at the end of the first year of the credit period, allowing for at least 40 percent of the units in the project to be qualified by and occupied by households having incomes that average no more than 60 percent of Area Median Income (AMI). The cap on income-targeting would be 80 percent of AMI and any set-asides less than 20 percent AMI would be included in the average as having 20 percent targeting. Of course this will open up the LIHTC applicant pool to a larger portion of qualifying families which will increase the income diversity and hopefully help meet the goal of serving the needs of those “in low-income communities that are being revitalized and in sparsely populated rural areas.”
Even more compelling, at least to some, is that it also proposes a “special rule that would apply to rehabilitation projects that contain units that receive ongoing subsidies.” This portion of the proposal would allow for existing tenants at acquisition/rehab properties to qualify for the LIHTC program as long as their initially qualifying income was no greater than 60 percent AMI and their income at LIHTC qualification is no more than 80% AMI, if it exceeds the 60% limit. Those units falling into this category would not be taken into consideration for averaging purposes, the Next Available Unit Rule would apply and “the tenant’s unit would be treated as rent restricted if the gross rent collected from the unit does not exceed 30 percent of the Credit-Year-1 AMI Percentage times current AMI.” If and when they move out of the unit, then it would revert to the qualifying income level of either 50 percent or 60 percent AMI as determined by its owner’s given election. This, of course, will make it easier for in-place tenants to remain qualified when tax credits are layered onto their property’s existing subsidies, which in turn may make preservation deals more attractive to developers and help in actually preserving more of our nation’s currently aging affordable housing stock.
The other proposal of note in the Administration’s budget is requiring “LIHTC-supported housing to provide appropriate protections to victims of domestic violence.” This would be similar to the Violence Against Women Act (VAWA) protections that are currently in place in other Federal housing programs, such as those at HUD-assisted properties. The reason given for the change is that “no building that has benefited from LIHTCs should fail to provide reasonable protections for victims of domestic abuse.” The provisions include owners being prohibited from refusing to rent to victims of domestic abuse or terminating tenancy for this reason. As with VAWA, owners would be allowed to bifurcate leases to remove the offenders while protecting the tenancy of the victims and preferences for “persons who have experienced domestic abuse” would meet the “special needs” exception to the general public use requirement in the Section 42 regulations.
You may find the document detailing the revenue proposals online at:
http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pdf.) In the meantime, we will anticipate the results of the budget passage along with this year’s presidential election. It should be an interesting year…