LIHTC 2012
News of the Current State of Affairs
“It was the best of times, it was the worst of times.”
Dickens’s famous opening lines to A Tale of Two Cities could have been the unofficial theme of the National Council of State Housing Agencies’ (NCSHA) annual Housing Finance Agency Institute in Washington, DC earlier this month. Several industry experts stated in the conferences’ Opening Plenary that the Low Income Housing Tax Credit (LIHTC) program is facing the gravest threat in its 25-year history: impending tax reform at the federal level. The fear is that the LIHTC program will be jettisoned to achieve a lower corporate tax rate when reform eventually passes Congress. This should be a call to arms for all industry stakeholders to contact their representatives in Washington to lobby for the program’s survival!
So that’s the worst-of-times part. The best-of-times part is that, due to better underwriting standards, LIHTC properties are now performing better than they have in years. Developers are looking more closely at market demand and the strength of management companies before bringing their deals to the state agencies. This increased scrutiny and care in developing properties is helping to strengthen the equity market, which means that the program remains attractive to investors. Hopefully this better performance will help make a strong case for legislators not to sunset LIHTC.
On a more specific level, there were a couple of other items addressed at the workshops worth noting. First off, the report on the Federal Alignment initiatives was positive in that the two pilot programs for aligning physical inspections and subsidy layering reviews appear to be going well. Since they will be running for a year, we won’t know final results until sometime next year, but baby steps are better than none at all so we can hope for a positive outcome and more lasting alignment arrangements between agencies to follow.
The other topic, which turned into an interesting discussion among the state agencies, was NCSHA’s plan to revamp its Recommended Practices in Compliance Monitoring for LIHTC. Since the IRS proposed last summer that it may reopen that section of the regulations for review but has yet to do so, the National Council is taking a wait-and-see approach to its efforts to update the Recommended Practices. In the meantime, several states offered that they are considering going to a risk-based model of monitoring, which would mimic HUD’s methodology more closely and reward properties that are maintaining high levels of compliance by not monitoring them as frequently. Obviously the flip side of this would be that those under-performing properties would be reviewed more closely, more often. That, of course, will be a big change for the program if it comes to pass so we will look forward to hearing more about those ideas later in the year.