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Presentation, discussion, and possible action on a request for return and reallocation of tax credits under 10 TAC §11.6(5) related to Credit Returns Resulting from Force Majeure Events for multiple housing tax credit awardees from the USDA Set-Aside
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RECOMMENDED ACTION
recommendation
WHEREAS, the Department is required each year to allocate 5% of available 9% housing tax credits to Developments that receive federal financial assistance through the U.S. Department of Agriculture (USDA);
WHEREAS, Developments that received credits as part of the set-aside in 2023 and 2024 are experiencing delays in closing and commencing construction due to the shutdown of the federal government;
WHEREAS, the Development Owners have requested an extension to the placement in service deadline under 10 TAC §11.6(5), related to Credit Returns Resulting from Force Majeure Events;
WHEREAS, the Department lacks authority to extend federal placement-in-service deadlines and may only reset such deadlines by requiring the credits to be returned and immediately reallocated to the Development, as permitted solely under the force majeure provision of the Qualified Allocation Plan (QAP); and
WHEREAS, the Development Owners have submitted documentation demonstrating that a qualifying force majeure event has occurred;
NOW, therefore, it is hereby
RESOLVED, that the requests to treat the matter under the force majeure provisions of 10 TAC §11.6(5) are approved, and that the Qualified Allocation Plan and Uniform Multifamily Rules from the initial year of award and the 2025 Program Calendar shall be applicable to the Developments.
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BACKGROUND
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Developments |
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Brownfield Estates |
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Candlewood Village |
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Corrigan Square Apartments |
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Country Villa |
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Emerald Park Apartments |
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Freestone Apartments |
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Golden Oaks Apartments |
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Hereford Estates |
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Navasota Manor |
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Sherwood Arms Apartments |
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Spring Creek Villas |
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The Willows Apartments |
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West Family Apartments |
The above-listed Developments were awarded 9% housing tax credits during the 2023 or 2024 competitive rounds. The two Developments that were awarded in 2023 were previously approved for force majeure treatment in 2024. As a result, the current deadline to place in service for all listed Developments is December 31, 2026.
The Developments all propose the rehabilitation of existing housing. Commencement of rehabilitation activities cannot begin until financing is closed with USDA, which has been delayed due to the ongoing shutdown of the federal government. Most of the affected Owners requested a 12-month extension of the deadline to place in service; however, a few requested six-month extensions. Staff appreciates that those Owners intend to move as quickly as possible once the shutdown ends, but questions whether this timeline will be realistic given the backlog of closings that will need to occur. Because of this, staff recommends the full 12-month extension for each Development covered by this item.
APPLICABLE RULE
Under 10 TAC §11.6(5), a Development Owner may return credits and receive a reallocation outside the standard allocation process if the return is the result of a qualifying force majeure event occurring prior to issuance of IRS Form(s) 8609. Pursuant to 10 TAC §11.6(5), the Department’s Governing Board may approve execution of a Carryover Allocation Agreement for the current program year with the Development Owner that returned the credits, but only if the following conditions are met:
(A) The credits were returned as a result of "Force Majeure" events that occurred before issuance of Forms 8609. Force Majeure events are the following sudden and unforeseen circumstances outside the control of the Development Owner: acts of God such as fire, tornado, flooding, significant and unusual rainfall or subfreezing temperatures, or loss of access to necessary water or utilities as a direct result of significant weather events; explosion; vandalism; orders or acts of military authority; unrelated party litigation; changes in law, rules, or regulations; national emergency or insurrection; riot; acts of terrorism; supplier failures; or materials or labor shortages. If a Force Majeure event is also a presidentially declared disaster, the Department may treat the matter under the applicable federal provisions. Force Majeure events must make construction activity impossible or materially impede its progress.
Staff has reviewed this request and determined that the ongoing federal government shutdown constitutes a force majeure event under the rules.
IMPACT OF BOARD DECISION
If the Board approves the request:
• The credits will be returned and reallocated, with the Qualified Allocation Plan and Uniform Multifamily Rules from the initial year of award, and the 2025 Program Calendar applicable to the Developments.
• A new Carryover Allocation Agreement will be executed.
• The new 10% Test deadline will be July 1, 2026.
• The new placed-in-service deadline will be December 31, 2027.
If the Board denies the request:
• The current placed-in-service deadline of December 31, 2026, remains in place.
• The Development Owners may either meet the existing deadline, return the credits, or have the award terminated for failing to meet the deadline.
• Returned credits will first be reallocated within the original subregion in accordance with 10 TAC §11.6(2). If no pending applications are eligible within the subregion, the credits will be added to the statewide collapse for reallocation.
For The Willows, depending on the ultimate closing date, this extension could reduce the number of remaining Housing Trust Fund loan payments that could be eligible to be assigned to Development Owner. Otherwise, this request has no impact on any funding source other than the Low Income Housing Tax Credit program.
RECOMMENDATION
Staff recommends approval of the request to return and reallocate tax credits for the affected Developments under the force majeure provisions of 10 TAC §11.6(5).