Arizona is the 1st state to create low-income housing tax credits and then kill them
Gage Skidmore
Arizona is the first state to establish and then abolish a low-income housing tax credit program.
- In 2021, a bipartisan coalition of lawmakers established the state program, known as LIHTC, under former Republican Gov. Doug Ducey. It gives tax breaks to developers as an incentive to build affordable housing.
But opponents of LIHTC blocked an expansion plan from advancing in the state legislature this year. Now, the program is set to expire in December.
“It is extremely disappointing, and you know developers and projects will pull out of Arizona and that pipeline will shrink in bringing affordable units online,” Rep. Sarah Liguori (D-Phoenix) said.
Including Arizona, 31 states and the District of Columbia have their own LIHTC programs. That’s about twice as many states as had their own LIHTC programs when Arizona established one.
In order to qualify for Arizona’s tax credits,
a development must either put aside at least 40% of the housing units
as rent-restricted to go to to tenants with income 60% or below the area
median gross income or put aside at least 20% of units as
rent-restricted for tenants making 50% or under the area median gross
income.
- Although there was some bipartisan support for LIHTC this year, Gov. Katie Hobbs said she couldn't get a Republican champion for the extension and expansion of the program.
“LIHTC has been a priority. We've seen the huge impact that those investments have had across the state and it's something important that we'll keep fighting for. Quite frankly, we need a Republican to champion it, and there wasn't anyone that was willing to - even Republicans who had supported it in the first iteration that was passed in the state. So not something that we're giving up on, we'll continue to fight for it,” Hobbs said.
One of the most important opponents of LIHTC expansion in the state Legislature is Senate President Warren Petersen (R-Gilbert).
- He said in January that he would not support LIHTC and prefers broad tax cuts that help everyone.
Liguori said there was an overall trend in this year’s legislative session of inaction on housing.
“My
frustration lies in Arizona not understanding the importance of this
program and the continuation of constructing affordable units across the
state. We had a number of bills that addressed affordability and
creation of units across the state … and none successfully made it over
the finish line,” she said.
- “It sets us up for potentially more housing insecurity in the next few years.”
Federally, LIHTC was established in 1986 by President Ronald Reagan. The federal program still exists and can still be utilized in Arizona.
However, the state program had about $4 million a year to spend on affordable housing. It has resulted in more than 1,500 homes statewide, with some of the money earmarked for rural Arizona specifically, according to a report by economic consulting service Elliott D. Pollack & Company.
========================================================================AI Overview
Yes, the Arizona State Low-Income Housing Tax Credit (LIHTC) program is
set to expire on December 31, 2025, unless lawmakers take action to renew it. Key Points:
- Current Status: The program is set to expire at the end of FY2025.
- Proposed Extension: Legislators have introduced bills to extend the program's expiration date, potentially to 2030 or 2031.
- Advocacy Efforts: The Arizona Multihousing Association and other organizations are advocating for the program's extension and expansion to continue incentivizing affordable housing development.
- Potential Consequences: Without renewal, Arizona would become the only state to let a state LIHTC program expire, potentially hindering affordable housing projects and exacerbating housing insecurity.
It
is important to note that whether the Arizona LIHTC program will
ultimately be extended or allowed to expire depends on the ongoing
legislative process and budget negotiations in the Arizona Legislature
=======================================================================
3 RELATED EARLIER UPLOADED POSTS ON THIS BLOG:
IMPORTANT Mesa Council Study Session Thu 15 Nov 2018
YouTube
LINK https://mesazona.blogspot.com/2018/11/important-mesa-council-study-session.html
Members
of the City Council are definitely 'sending signals' and messages what
they are looking for . . . they're looking for partners to provide
solutions.
LISTEN TO what the active members have to say (Chris Glover absent again)
LISTEN TO what the active members have to say (Chris Glover absent again)
The City is a designated entitlement
community and receives annual grants on a formula basis to provide
funding to be used towards affordable housing, a suitable living
environment, and expansion of economic opportunities, all principally
for low- and moderate–income persons.
H&CD holds an annual application process in which non-profits and developers may apply for funds to support eligible activities under the respective programs.
The annual application process culminates with the City Council determining the funding awards, subject to approval by HUD.
The Arizona Department of Housing (ADOH) also conducts an annual process to receive and review proposals for the LIHTC Program.
The role of the City Council in the LIHTC process is to provide a letter indicating support or non-support for proposed projects in Mesa applying for LIHTC credits.
H&CD will review the proposed LIHTC projects and provide City Council with a report that identifies project merits, as well as compliance with requirements established in the City’s Consolidated Plan and the City’s Housing Master Plan.
Timeline Application Process, Submission Deadline to City, Technical Review by Staff 12/21,
(H & CD Advisory Board - Community & Cultural Development (CCD) Committee)
30-Day Public Comment N/A TBD
Published: 15 Nov 2018
H&CD holds an annual application process in which non-profits and developers may apply for funds to support eligible activities under the respective programs.
The annual application process culminates with the City Council determining the funding awards, subject to approval by HUD.
The Arizona Department of Housing (ADOH) also conducts an annual process to receive and review proposals for the LIHTC Program.
The role of the City Council in the LIHTC process is to provide a letter indicating support or non-support for proposed projects in Mesa applying for LIHTC credits.
H&CD will review the proposed LIHTC projects and provide City Council with a report that identifies project merits, as well as compliance with requirements established in the City’s Consolidated Plan and the City’s Housing Master Plan.
Timeline Application Process, Submission Deadline to City, Technical Review by Staff 12/21,
(H & CD Advisory Board - Community & Cultural Development (CCD) Committee)
30-Day Public Comment N/A TBD
Published: 15 Nov 2018
Thursday, February 16, 2017
It's More Than Local > Big Changes Jolt LIHTC Market
Big Changes Jolt LIHTC Market
Syndicators share 2016 results and advice for weathering the turbulence.
The
specter of tax reform hangs over the low-income housing tax credit
(LIHTC) market, threatening a slowdown in affordable housing production
this year.
“Within
a two-week period (after the election), the LIHTC market experienced
the most dramatic change this industry has ever seen,” says Mark McDaniel, president and CEO of Cinnaire. “Investors reacted immediately to the possibility of tax reform that would result in significantly lower corporate tax rates.”
Some
investors pulled out of funds they had verbally committed, others
stayed in but indicated that it would be their last investment assuming a
35% tax rate, and others modified their investment parameters,
according to McDaniel, a veteran housing credit syndicator.
Syndicators overwhelming expect pricing to developers to decrease in the first half of 2017, according to an Affordable Housing Finance magazine survey in January.
Several market veterans estimate prices will be 10 to 15 cents less per dollar of credit compared with a year ago.
The LIHTC is the nation’s primary tool for creating affordable housing, and any drop in the production of housing credit developments is alarming.
“The need for affordable housing is at an all-time high, and the production of units will not come near to meeting demand,” says Tammy Thiessen, director of equity sales, at RBC Capital Markets. “The current market disruption only exacerbates this problem.”
The
more than 20 syndicators surveyed by AHF paid an average of $1.02 per
dollar of credit in the fourth quarter of 2016 compared with 99 cents a
year earlier. Yields to investors averaged 4.47% in the fourth quarter, a
drop from the 5.3% average at the end of 2015, according to the survey.
The recent fourth-quarter prices aren’t expected to last and have been coming down.
“Pricing for deals in 2017 will be much lower than deals in 2016,” says Jeff Weiss, president of Alden Capital Partners. “However,
these deals will have adjusters to take into account differences in
assumptions made at closing and actual tax reform legislation. LIHTC
deals will also be envisioned with lesser amenities or the deletion of
costs in excess of the amount necessary to support the allocation of
credits.
Others agree that the developments themselves may begin to look different.
- "Going forward, LIHTC projects will likely be scaled back with ‘no frills’ design elements and will include more cost-saving measures,” McDaniel says, adding that mixed-income projects in strong communities may become more popular because they can support more debt and are a little less dependent on LIHTC equity.
- John Wiechmann, president and CEO of Midwest Housing Equity Group, also expects “a return to plain-vanilla transactions.”
What developers can do
While
some syndicators expect investor apprehension to remain as long as tax
reform remains unsettled, a few are optimistic that many of the concerns
will begin to lift in the coming months for several reasons, including
the strong bipartisan support that the program has built in Congress,
Community Reinvestment Act investors’ continuation to invest in housing
credits, and the creativity of the LIHTC industry.
In
mid-January, housing finance agencies in Colorado, Illinois, North
Carolina, Ohio, and other states were pursuing ways to assist struggling
2016 deals. The ideas include helping fill funding gaps with 2017 tax
credits and rescheduling allocation rounds and extending deadlines.
Syndicators also recommend other steps to get through this turbulent time.
- “Developers need to be cautious about acquisition prices of properties intended for LIHTC development,” says Todd Crow, executive vice president at PNC Real Estate. “With LIHTC prices decreasing, larger gaps in financing will be created and therefore some developments will have gaps too big to fill. Lowering acquisition prices of land and or existing properties will help to fill some of the gap.
- The next six months will be “choppy,” says Christine Cormier, senior vice president at WNC.“To the extent deals are in the closing process, there is a high likelihood that they are being repriced based a tax rate of between 20% and 25%,” she says. “Adjusters are being agreed to that would adjust equity up or down based on where we finally land from a corporate tax rate perspective. The key for a developer that is looking to move forward will be to get a good understanding of the ultimate home for the deal and ensuring that there is committed equity to the deal from an end investor at a price point that works for the deal.”
Other syndicators also stress the importance of closing deals quickly, especially remaining 2016 transactions.
- “Developers should focus on getting committed deals closed as soon as possible as investors appear to be honoring short-term commitments,” says Tony Bertoldi, executive vice president at CREA. “The outlook beyond the next couple of months and into the second quarter is less clear. Developers should remain in close contact with their syndicator partners and state allocating agencies over the next several months and obtain timing extensions, if possible, or seek additional soft dollars or additional credit awards on deals that have an immediate requirement to close.”
- While investors may remain on the sidelines, clear guidance from the administration may result in an avalanche of demand for new deals, so the market could move very quickly. The economy appears to be very healthy, and once the dust settles, investors should continue to have a strong demand for credits, Bertoldi says.
- “Do not delay in closing transactions to the extent a viable investor commitment is in hand,” says Stephen Daley, executive vice president at The Richman Group Affordable Housing Corp.
- If you need to close soon, push hard to do so, adds Hal Keller, president of Ohio Capital Corporation for Housing. “If you can, wait until things calm down,” he says.
In addition, developers should be conservative when estimating LIHTC pricing.
“Expect lower prices regardless of tax reform clarity due to higher interest rates and looming threat of tax reform,” says Steve Kropf, president and CEO of Raymond James Tax Credit Funds.
“Expect lower prices regardless of tax reform clarity due to higher interest rates and looming threat of tax reform,” says Steve Kropf, president and CEO of Raymond James Tax Credit Funds.
Being
cautious on pricing expectations in the 2017 allocation rounds, agrees
Mark Gipner, manager, fund development, at Community Affordable Housing
Equity Corp., often known as CAHEC. “The magnitude of the pricing
reduction is unknown at this point,” he says.
Staying in touch with your financial partners will also be critical in the coming months.
“It’s
going to be an uncomfortable adjustment period to adapt to this new
pricing environment, especially given the unprecedented speed at which
it has occurred,” says Ryan Sfreddo, managing director at Red Stone
Equity Partners. “Now, more than ever, is the time to be communicating
early and often with your financial partners and other project
stakeholders.”
2016 Tax Credit Activity
| Company | Capital Closed (in $ millions) | LIHTC Projects Acquired |
|---|---|---|
| Alden Capital Partners | 280 | 24 |
| Alliant Capital | 416 | 42 |
| Boston Capital | 655 | 76 |
| Boston Financial Investment Management | 589.5 | 51 |
| Cinnaire | 214.2 | 35 |
| Community Affordable Housing Equity Corp. | 178 | 33 |
| CREA | 547 | 70 |
| Enterprise Community Investment | 811 | 70 |
| Housing Vermont | 17 | 4 |
| Hudson Housing Capital | 367 | 30 |
| Massachusetts Housing Investment Corp. | 47.9 | 8 |
| Midwest Housing Equity Group | 190 | 42 |
| National Equity Fund | 947.6 | 88 |
| Ohio Capital Corporation for Housing | 376 | 45 |
| PNC Real Estate | 608.4 | 50 |
| R4 Capital | 389.5 | 49 |
| RBC Capital Markets—Tax Credit Equity Group | 897 | 72 |
| Raymond James Tax Credit Funds | 1,007 | 104 |
| Red Stone Equity Partners | 556 | 46 |
| The Richman Group Affordable Housing Corp. | 810 | 59 |
| Stratford Capital Group | 286 | 31 |
| WNC | 413 | 33 |
About the Author
Donna Kimura
Donna Kimura is deputy editor of Affordable
Housing Finance. She has covered the industry for more than a decade.
Before that, she worked at an Internet company and several daily
newspapers. Connect with Donna at dkimura@hanleywood.com or follow her @DKimura_AHF.
Tuesday, December 04, 2018
2 Updates: Market Changes in LIHTC Financing > Impact on Mesa TBD
_________________________________________________________________________
To keep it "local" first, here's a
report from Gary Nelson writing in Monday December 3rd's online edition
of the East Valley Tribune:
East Valley Tribune-Dec 3, 2018
Primarily, according to a report prepared by a prominent Valley economist, Mesa faces a growing need for low-cost housing as a hefty portion of its population . . .
A sea of challenges awaits Mesa as it seeks to guide the development of its housing stock over the next decade.Primarily, according to a report prepared by a prominent Valley economist, Mesa faces a growing need for low-cost housing as a hefty portion of its population struggles with low incomes.
The city is gathering data and public feedback for its next housing master plan, which will go to the City Council in early 2019. The document will serve as Mesa’s framework for evaluating proposed housing projects across all income spectrums. . .
The new policies will be guided in large part by an extensive study of Mesa’s economic and housing conditions conducted by Elliott D. Pollack & Co., a leading Arizona economic analysis firm.
Despite Mesa’s relative affordability, according to the Pollack analysis, underlying economic conditions suggest many residents will continue to struggle on the housing front.
Based on numbers dating from the middle of this decade, Pollack said:
> Mesa’s household incomes are lagging - READ THE DATA
In 2000, Mesa’s average median household income was 5.6 percent higher than the statewide median.
By 2015, Mesa incomes had fallen to 4.5 percent below those of Arizona as a whole and a stunning 12.2% lower than those in Maricopa County.
> More than 81,000 Mesa residents were living in poverty – more than 17.2% of the city’s population.
> Mesa had lower percentages of residents with college degrees, and of residents with jobs in higher-paying fields, than its neighboring cities.
> While the overall cost of living rose 12 percent between 2010 and 2015, the cost of rent went up more than 21 percent.
A very low vacancy rate was pushing rents even higher.
Those factors spell trouble, Pollack said, for households earning less than $25,000 a year. As the report was written, Mesa needed about 30,000 more units to accommodate that cohort.
While the private sector meets the demand for Mesa’s middle-income and executive-level housing, government is left with the task of filling the gaps in its low-income stock. . .
NEXT CHANCE FOR PUBLIC INPUT: December 11, 2018
_________________________________________________________________________________
AFFORDABLE HOUSING FINANCE
Industry Rides LIHTC Market Changes
Syndicators, investors discuss market changes, income averaging, costs
By Donna Kimura Published 27 Nov 2018
Source: https://www.housingfinance.com
Activity
in the low-income housing tax credit (LIHTC) market gained momentum in
the second half of 2018 after a sluggish start caused by the uncertainty
created by the tax reform legislation.“After people did figure out what their tax liability was they sort of came back into the market in a stronger way,” said Tony Bertoldi, executive vice president of CREA. However, there’s still a big separation between pricing expectations in terms of what investors are expecting and what developers need to make deals work, he said at AHF Live: The Affordable Housing Developers Summit in November.
Despite the market changes, a number of investors and syndicators reported being on pace to have their best year, including Bank of America Merrill Lynch, CREA, and WNC.
The reason for this is the lion’s share of the investments continue to be driven by the need for banks to meet Community Reinvestment Act obligations. In addition, banks continue to be profitable and still have tax liability, which is contributing to the competitive market, said Scott Hoekman, president and CEO of Enterprise Housing Credit Investments. “The question is what happens next year,” he added, noting that some investors are expecting their yields to rise because interest rates are going up.
However, Hoekman does not expect to see a big dip in pricing at the deal level going into 2019.
Several syndicators and investors noted being very active in 4% LIHTC deals with tax-exempt bonds even though these transactions are more highly leveraged than 9% LIHTC transactions.
“Having been in the business as long as we have been, and we have a lot of deals that have gone through the 15-year compliance (period), we don’t find the 4s any more risky than the 9s,” said Christine Cormier, senior vice president at WNC.
Fannie, Freddie return
A few economic LIHTC investors, such as insurance companies, retreated from the market after tax reform and have not come back.
A few economic LIHTC investors, such as insurance companies, retreated from the market after tax reform and have not come back.
However,
the return of Fannie Mae and Freddie Mac has helped fill that hole,
said Bertoldi during the Tax Credit Equity Outlook Power Panel at AHF
Live.
The
government-sponsored enterprises were out of the LIHTC market for about
a decade while under conservatorship but returned as housing credit
investors in 2018. 
So far, their re-emergence has not had a big impact on the overall LIHTC market, according to several syndicators.
"I think we’re going to have plenty of investors and plenty of deals,” said Ronne Thielen, executive vice president at R4 Capital.
Income-averaging option
One of the biggest changes to hit the LIHTC program recently is the addition of the income-averaging option.
The Consolidated Appropriations Act of 2018 established income averaging as a third minimum set-aside election. One of the biggest changes to hit the LIHTC program recently is the addition of the income-averaging option.
Income averaging allows LIHTC-qualified units to serve households earning as much as 80% of the area median income (AMI) as long as the average income limit at the property is no more than 60% of the AMI.
> A project using the income-averaging option must make at least 40% of its units affordable to eligible households.
Previously, housing credit units were restricted to households earning no more than 60% of the AMI. The prior minimum set-asides called for having 20% of the units targeted to no more than 50% of the AMI or 40% of the units at no more than 60% of the AMI, and these options remain part of the federal program. However, income averaging offers another alternative for developments.
“From a social, policy (perspective), it makes so much sense. The real issue for us is the underwriting,” said Hal Keller, president of the Ohio Capital Corporation for Housing.
“... The devil is in the details. We’re in favor it, but we’re very curious about the financial impact.”
> A few income-averaging deals have closed in California, but many developers, investors, and housing finance agencies are still figuring out specifics, especially around compliance issues.
> Another hitch is that each housing finance agency is putting a slightly different spin on income averaging, so the option is not uniform from state to state.
Overall, investors have not wanted to see a lot of market-rate units in their LIHTC deals because they do not receive housing credits for those units and they bring market risk to the properties.
Now, with the option for some LIHTC units to go up to 80% of the AMI, everyone will need to test those rents against market-rate apartments in the area and make sure there’s a discount, said Hoekman, noting that he thinks investors will accept the option as long as there’s strong underwriting in place.
Income averaging could be a good tool for not only making deals work but for also accomplishing what the industry wants to do in the greater communities, Hoekman said.
Cost containment
The LIHTC industry is also trying to figure out how to contain rising development costs.Thielen said R4 Capital recently closed on the financing for an 84-unit development in downtown Los Angeles that will be constructed with purpose-built shipping containers from China. This design is expected to significantly reduce the hard costs of constructing the community, which will be home to people who have been homeless.
“It’s something that’s new, and it’s very unique at this point,” Thielen said.
Victoria O’Brien, senior vice president at Key Community Development Corp., added that KeyBank invested in a deal that had a modular construction component. “A lot of the risk in that is making sure that the off-storage materials are secured,” she said.
In that instance, the developer was able to avoid the Davis-Bacon wage requirements, which helped keep costs down, according to O’Brien.
Session moderator Michelle Norris, executive vice president at National Church Residences, noted that a recent study prepared by Abt Associates for the National Council of State Housing Agencies found that the development for a housing credit development was only slightly higher than for a market-rate property.
“This is a social program as well as a real estate program,” Norris said.
“That’s a hard thing to try to explain to people—that there is cost for that social program.”
New moves
The panel also discussed the LIHTC program’s role in preserving affordable housing as well as in bolstering the health-and-housing connection.
CREA is working on closing its first assisted-living LIHTC deal.The panel also discussed the LIHTC program’s role in preserving affordable housing as well as in bolstering the health-and-housing connection.
“I think it’s a product that we’ll be seeing much more of particularly with the aging population,” Bertoldi said, noting that these are very complex projects, and operating an assisted-living development is a different business than that of managing conventional affordable housing properties.
Bank of America Merrill Lynch has been involved in financing supportive housing developments for a number of years, said Susan Moro, senior vice president at the bank.
"These deals have evolved to serve more integrated populations and do carry hard debt. As a result, it’s important to understand the funding streams, project reserves, and service providers, she said.
Longtime syndicator WNC recently closed a California preservation fund, Cormier said.
Preservation also continues to be high on Bank of America Merrill Lynch’s radar, with the company completing a number of notable Rental Assistance Demonstration deals, according to Moro.
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