title
Presentation, discussion, and possible action on an order adopting the amended 10 TAC Chapter 10 Subchapter E, Post Award and Asset Management Requirements, and directing its publication for adoption in the Texas Register
end
RECOMMENDED ACTION
recommendation
WHEREAS, at its meeting of December 12, 2024, the Board approved for publication and public comment in the Texas Register the proposed amendments of 10 TAC Chapter 10 Subchapter E concerning the Post Award and Asset Management Requirements;
WHEREAS, the proposed amendments were published in the December 27, 2024, issue of the Texas Register for public comment between December 27, 2024, and January 27, 2025;
WHEREAS, public comment was received from three commenters, and staff has prepared a reasoned response to the comments; and
WHEREAS, in response to comments regarding a proposed amendment in 10 TAC §10.406, staff incorporated further revisions into the final rule for adoption;
NOW, therefore, it is hereby
RESOLVED, that the final order adopting the amendments to 10 TAC Chapter 10 Subchapter E, together with the preambles presented to the meeting, is hereby ordered and approved for publication in the Texas Register; and
FURTHER RESOLVED, that the Executive Director and his designees be and each them hereby are authorized, empowered, and directed, for and on behalf of the Department, to cause the amended 10 TAC Chapter 10 Subchapter E concerning Post Award and Asset Management Requirements in the form presented to this meeting, to be published in the Texas Register for final adoption, and in connection therewith, make such non-substantive technical corrections, or preamble-related corrections, as they may deem necessary to effectuate the foregoing, including the preparation and requested revisions to the subchapter specific preambles.
end
BACKGROUND
Tex. Gov’t Code §2306.053 provides for the Department to administer federal housing, community affairs, and community development programs, including the low-income housing tax credit program. The Asset Management Division and its Rules, as a whole, are an integral part of administering the Department’s federal housing programs, assisting in reviewing and ensuring the long-term affordability and safety of multifamily rental housing Developments in the Department’s portfolio as required under Tex. Gov’t Code §§2306.185 and 2306.186, performing the functions of processing amendments and ownership transfers as required under §§2306.6712 and 2306.6713, and performing essential functions required under various federal program (HOME, HOME-ARP, NSP, NHTF, Exchange, TCAP) rules and under Section 42 of the Internal Revenue Code.
While Tex. Gov’t Code provides for direction and authority for certain specific activities for the Division, it does not provide the administrative specificity necessary to address all of the asset management activities that are necessary to ensure all state and federal program requirements are met. As such, these rules set Department policy to the extent necessary to provide for the administrative implementation of federal and state directives and requirements.
Staff recommends that these rules be retained and that this be accomplished through the adopted amendment of the existing rules. The amendments clarify language or processes, eliminate the requirement to provide an acknowledgment from the lenders and investor when a Development Owner requests to implement a revised election under §42(g) of the Code prior to their submission of IRS Form(s) 8609 to the IRS, and clarify that an Applicant may request to remove Principals from its ownership structure prior to the issuance of the IRS Forms(s) 8609 provided not all controlling Principals identified in the Application will be removed. The amendments also include a requirement for a resolution of support from the municipality or a letter of support from the mayor or city manager, or if the Development is not within a municipality or its Extra Territorial Jurisdiction (ETJ), a resolution of support from the commissioners court or letter of support from the county judge when an ownership transfer will result in a property tax exemption for Competitive Housing Tax Credit Developments prior to issuance of IRS Form(s) 8609.
The Board approved the publication of the proposed amendments to 10 TAC Subchapter E, concerning Post Award and Asset Management Requirements at the meeting on December 12, 2024, to be published in the Texas Register for public comment. The proposed amendments were published in the December 27, 2024, issue of the Texas Register and made available for public comment from December 27, 2024, through January 27, 2025. Staff has reviewed all comments received and provided a reasoned response to these comments in the attached preamble. In response to the public comments, the proposed amendment to 10 TAC §10.406 was revised to identify that the requirement only applies to Competitive Housing Tax Credit Developments for the addition of a public facility corporation, a housing finance corporation, or a public housing authority that will result in a property tax exemption prior to the issuance of IRS Form(s) 8609 and additional language was added to identify that a letter of support from a city manager is also acceptable. Attached is a black-line version of the amended TAC Subchapter E that reflects changes proposed by the Department after consideration of public comment.
Attachment 1: Preamble, including required analysis, for adopting the amendment of 10 TAC Chapter 10, Subchapter E, §§10.400-10.408, Post Award and Asset Management Requirements
The Texas Department of Housing and Community Affairs (the "Department") adopts the amendment, with changes, to 10 TAC Chapter 10, Subchapter E, §§10.400 - 10.408, Post Award and Asset Management Requirements to the proposed text as published in the December 27, 2024, issue of the Texas Register. The purpose of the amendment is to make corrections to gain consistency across other sections of rule, correct references, clarify existing language and processes that will ensure accurate processing of post award activities, and to communicate more effectively with multifamily Development Owners regarding their responsibilities after funding or award by the Department.
Tex. Gov’t Code §2001.0045(b) does not apply to the amended rule because it was determined that no costs are associated with this action, and therefore no costs warrant being offset. In general, most changes were corrective in nature and clarify language or processes to more adequately communicate the language or process. The only substantial change from the proposed amendment, located in §10.406 Ownership Transfers (§2306.6713), is that staff added a requirement that specifies that a change in the ownership structure that results in a property tax exemption will require a resolution of support from the municipality or a letter of support from the mayor, or if the Development is not within a municipality or its Extra Territorial Jurisdiction (ETJ), a resolution of support from the commissioners court or letter of support from the county judge. In response to public comment, §10.406 was further revised to specify that the requirement only pertains to Competitive Housing Tax Credit Developments for the addition of a public facility corporation, a housing finance corporation, or a public housing authority prior to issuance of IRS Form(s) 8609 and to add that a letter of support from a city manager is also acceptable.
The Department has analyzed this rulemaking and the analysis is described below for each category of analysis performed.
a. GOVERNMENT GROWTH IMPACT STATEMENT REQUIRED BY TEX. GOV’T CODE §2001.0221.
1. Mr. Bobby Wilkinson, Executive Director, has determined that, for the first five years the amended rule would be in effect, the amendment does not create or eliminate a government program, but relates to changes to an existing activity, concerning the post award activities of Low-Income Housing Tax Credit (LIHTC) and other Department-funded multifamily Developments.
2. The amendment does not require a change in work that would require the creation of new employee positions, nor are the amendments significant enough to reduce workload to a degree that any existing employee positions are eliminated.
3. The amendment does not require additional future legislative appropriations.
4. The amendment does not result in an increase in fees paid to the Department or in a substantial decrease in fees paid to the Department.
5. The amendment is not creating a new regulation, but are revisions to provide additional clarification.
6. The amendment will not repeal an existing regulation.
7. The amendment will not increase or decrease the number of individuals subject to the rule’s applicability.
8. The amendment will not negatively or positively affect this state’s economy.
b. ADVERSE ECONOMIC IMPACT ON SMALL OR MICRO-BUSINESSES OR RURAL COMMUNITIES AND REGULATORY FLEXIBILITY REQUIRED BY TEX. GOV’T CODE §2006.002.
1. The Department has evaluated this amended rule and determined that none of the adverse effect strategies outlined in Tex. Gov’t Code §2006.002(b) are applicable.
2. This amended rule relates to the procedures for the handling of post award and asset management activities of multifamily developments awarded funds through various Department programs. Other than in the case of a small or micro-business that is an owner or a party to one of the Department’s properties, no small or micro-businesses are subject to the amended rule. If a small or micro-business is such an owner or participant, the amended rule provides for a more clear, transparent process for doing so and do not result in a negative impact for those small or micro-businesses. There are not likely to be any rural communities subject to the amended rule because this amended rule is applicable only to the owners or operators of properties in the Department’s portfolio, not municipalities.
3. The Department has determined that because this amended rule relates only to the process in use for the post award and asset management activities of the Department’s portfolio, there will be no economic effect on small or micro-businesses or rural communities.
c. TAKINGS IMPACT ASSESSMENT REQUIRED BY TEX. GOV’T CODE §2007.043. The amendment does not contemplate nor authorize a taking by the Department, therefore no Takings Impact Assessment is required.
d. LOCAL EMPLOYMENT IMPACT STATEMENTS REQUIRED BY TEX. GOV’T CODE §2001.024(a)(6).
The Department has evaluated the amended rule as to its possible effects on local economies and has determined that for the first five years the amended rule will be in effect, there will be no economic effect on local employment, because the amended rule only provides for administrative processes required of properties in the Department’s portfolio. No program funds are channeled through this amended rule, so no activities under this amended rule would support additional local employment opportunities. Alternatively, the amended rule would also not cause any negative impact on employment. Therefore, no local employment impact statement is required to be prepared for the amended rule.
Texas Gov’t Code §2001.022(a) states that this “impact statement must describe in detail the probable effect of the rule on employment in each geographic region affected by this rule…” Considering that no impact is expected on a statewide basis, there are also no “probable” effects of the amended rule on particular geographic regions.
e. PUBLIC BENEFIT/COST NOTE REQUIRED BY TEX. GOV’T CODE §2001.024(a)(5). Mr. Wilkinson has determined that, for each year of the first five years the amended rule is in effect, the benefit anticipated as a result of the amended sections would be increased clarity and consistency across rule sections. There will not be economic costs to individuals required to comply with the amendment.
f. FISCAL NOTE REQUIRED BY TEX. GOV’T CODE §2001.024(a)(4). Mr. Wilkinson also has determined that for each year of the first five years the amended rule is in effect, enforcing or administering the amended rule does not have any foreseeable implications related to costs or revenues of the state or local governments.
SUMMARY OF PUBLIC COMMENTS AND STAFF REASONED RESPONSE. The Department accepted public comment between December 27, 2024, and January 27, 2025. Comments regarding the amended rule were accepted in writing and e-mail with comments received from: (1) Barry J. Palmer, Director, Coats Rose, (2) Kathryn Saar, QAP Chair, and Karsten Lowe, Co-Chair, Texas Affiliation of Affordable Housing Providers (TAAHP), and (3) Cynthia L. Bast, Partner, BakerHostetler. Comments were received on §10.406 Ownership Transfers (§2306.6713).
§10.406 Ownership Transfers (§2306.6713)
COMMENT SUMMARY: Commenters (1), (2), and (3) recommend that the Department delay action on implementing §10.406(h)(10) until a roundtable is conducted to allow a discussion with nonprofit organizations, housing finance corporations, and housing authorities (Public Bodies) to seek information regarding their use of property tax exemptions.
Commenter (1) expresses concerns with problematic timing issues raised by §10.406(h)(10) for Tax Exempt Bond (4% HTC) transactions and Competitive Housing Tax Credit (9% HTC) application deadlines. Commenter (1) states that the rule should clarify that the rule does not apply to an initial or re-syndication application for a 4% HTC or 9% HTC allocation. Commenter (1) further states that the rule should only apply to proposed Ownership Transfer applications not associated with a tax credit award, but that brings an ad valorem tax exemption to a previously taxable development, such as a 9% HTC development that is not able to close and is restructured with a change in ownership devised to achieve and ad valorem tax exemption.
Commenter (2) requests that §10.406(h)(10) be stricken from the rule.
Commenter (2) and Commenter (3) state there are many ad valorem tax exemptions available for affordable housing that are a matter or right under Texas law; and therefore, TDHCA should not infringe upon those rights, interfere with the Legislative action or intent, or establish criteria that the Legislature does not require. Commenter (2) and Commenter (3) further state that §10.406(h)(10) is detrimental and infringes upon the rights of Public Bodies to acquire an affordable development at the end of the 15-year compliance period by adding additional bureaucratic steps that are counter to the Right of First Refusal (ROFR) process.
Commenter (2) and Commenter (3) also state §10.406(h)(10) introduces into a by-right ad valorem tax exemption the uncertainty of a public hearing that potentially politicizes affordable housing by subjecting it for factors outside the control of Public Bodies and to the decisions of public officials. They express concerns that this could jeopardize the feasibility of a development by requiring public hearings and support from public officials who might not have a pro-affordable housing agenda.
Commenter (3) suggests that if the Department wants to ensure that an ad valorem tax exemption is necessary for financial feasibility, it could conduct an underwriting analysis to determine if a property is economically feasible (including a reasonable return for equity) without the property tax exemption, or alternatively, rely on the financial analysis of third-party lenders and investors to confirm the need for the exemption. It should be noted that Commenter (3) did not define reasonable return for equity.
STAFF RESPONSE: In response to the concerns noted by the Commenters, staff relocated the requirement in §10.406(h)(10) to §10.406(e) and specified that the requirement pertains only to Competitive HTC Developments for the addition of a public facility corporation, a housing finance corporation, or a public housing authority prior to issuance of IRS Form(s) 8609. This change is in line with what has been requested recently by the Department’s Governing Board for Competitive HTC Developments when reviewing a request under Section 2306.6712 of the Tex. Gov’t Code. Staff also added language to state that a letter of support from a city manager would also be acceptable.
The Board adopted the final order adopting the amendment on April 10, 2025.
STATUTORY AUTHORITY. The amendment is adopted pursuant to Tex. Gov’t Code §2306.053, which authorizes the Department to adopt rules. Except as described herein, the amended sections affect no other code, article, or statute. The amended rule, as adopted, has been reviewed by legal counsel and found to be a valid exercise of the Department’s legal authority.