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Report on the Development of the 2026 Qualified Allocation Plan
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BACKGROUND
The Texas Qualified Allocation Plan (QAP) is a document developed by the Department that outlines the policies, procedures, and scoring criteria used to allocate federal Low-Income Housing Tax Credits (LIHTC) in Texas. These tax credits support the development and rehabilitation of affordable rental housing for low-income households.
The QAP establishes:
• Threshold eligibility requirements for Applicants and Developments
• Scoring criteria for Applications based on housing needs and priorities
• Underwriting requirements
The QAP must comply with both federal requirements under Section 42 of the Internal Revenue Code and state housing priorities established by the Texas Legislature and TDHCA’s Governing Board.
Although state law permits a biennial update, TDHCA has traditionally revised the QAP annually. Each spring, the Department gathers input through roundtables, workgroups, and committee meetings. An informal draft is released in the summer, followed by a formal draft presented to the Board in September. After a public comment period, a final version is submitted to the Board in November and then sent to the Governor, who may approve, modify, or reject it. This annual cycle promotes transparency and responsiveness to Texas’s housing needs.
Department staff has identified several key areas of the QAP to propose for revision this year. Suggested revisions are attached to this report for some of the following items.
Concerted Revitalization Plans (Suggested Revisions Attached)
Federal law requires the Department to give preference to projects that contribute to a concerted community revitalization plan, which is accomplished through the Concerted Revitalization Plan (CRP) scoring item. This item is worth seven points, and is not available to Applications that elect points under the Opportunity Index, a separate scoring item that rewards proximity to desirable Census Tracts and community amenities. Practically all applications must maximize points for either Opportunity Index or CRP to be competitive.
CRPs are generally published by municipalities or counties, and outline plans and strategies for revitalization. The review and scoring of CRPs have historically presented challenges. There is no standardized format or language that must be used in CRPs, and so it is essentially impossible to write objective, universal criteria by which they may all be evaluated. For example, a city’s plan may identify a geographic area as being targeted for residential growth or economic development, which leaves staff in the precarious position of making a subjective determination as to whether those activities are truly revitalization.
To eliminate this subjectivity, the scoring criteria was updated in 2024 to defer to the relevant local government. To achieve the maximum points in this category, Applicants must submit a letter from the appropriate local government official that explicitly identifies the proposed Development as contributing to that government’s concerted revitalization plan. While this revision was successful in providing staff with objective criteria by which to evaluate this item, it also resulted in an increased number of Applications scoring CRP points. To help ensure that these Development Sites are still in desirable areas, staff recommends amending the scoring item so that the points are not available in census tracts with a poverty rate above 30%.
Sponsor Characteristics (Suggested Revisions Attached)
This item awards up to two points based on the characteristics of the entity or entities that is sponsoring the Application. These points are currently available to Applications that include either a Non-Profit Organization or a Historically Underutilized Business (HUB) as part of the ownership structure.
HUBs are for-profit entities with its principal place of business in the state, at least 51% owned, operated, and controlled by one or more individuals who are economically disadvantaged due to their identification as members of certain groups. These groups include racial minorities, women, and certain service-disabled veterans. HUBs must be certified by the Texas Comptroller of Public Accounts.
Staff believes that this item could be significantly improved by the following revisions:
• Revising the criteria for HUBs to require that the HUB be a truly independent entity with no members being related parties to or affiliates of other members of the Applicant group.
• Prohibiting HUBs that have participated in five or more previously awarded Applications from qualifying for points.
• Adding the following two categories as options for Sponsor Characteristics points:
o Applications that contain either a local Housing Finance Corporation (HFC) or Housing Authority as part of the ownership structure.
o Applications that do not include a property tax abatement, reduction, or exemption.
Staff is optimistic that these changes would result in positive changes to the Applicant pool, and believes that incentivizing the production of Developments that pay full property taxes is simply responsible public policy.
Tie-Breaker Factors
9% Applications are often tied with one another, and so the QAP establishes that ties will be determined by prioritizing the site that is closest to the following community amenities:
• A public park
• The elementary school of attendance
• A full-service grocery store
• A public library
Applications use the closest three of these amenities, and then are ranked based on that cumulative distance. If two Applications have a cumulative distance that is within one hundred feet of one another, the tie proceeds and is then determined based off the proximity to the nearest tax credit development. A separate tie-breaker is used for Applications in the USDA set-aside, which prioritizes Applications based off of the age of the property being rehabilitated, which is not addressed in this report.
One advantage to this tie-breaker is that the amenities within it can be changed periodically, which helps promote dispersion of development sites. Parks have proven to be the most challenging aspect of this tie-breaker administratively, and because of that, staff proposes that this is the most obvious candidate for replacement. One proposed addition could be healthcare facilities, which one member of the industry suggested could be defined as, “a full service hospital, community health center or general practice that takes walk-in patients.”
Staff also recommends adding a new first tie-breaker that would prioritize Applications in census tracts with a poverty rate below 20% (with Region 11 adding an additional 15% to that value and Region 13 adding an additional 5% to that value). This is similar to language that was used in previous QAPs, and staff believes that it is a simple, effective, policy-driven way to break many ties.
With staff’s recommendations, the order of tie-breakers for a non-USDA Set-Aside Application would be:
1. Prioritizing Applications in low-poverty census tracts
2. Prioritizing Applications in close proximity to valuable community amenities
3. Prioritizing Applications that are the furthest distance from the nearest Tax Credit Development
Quantity of Low-Income Units
The QAP currently includes a scoring item related to the number of Low-Income Units provided in the Application. The thresholds for points are calculated based off the average number of units provided in the subregion in the 2022 and 2023 rounds, with points available to Applicants proposing a number of units that is 5% or 10% over those average. This scoring item has been one of the most prominent topics of discussion since it was introduced, with members of the development community expressing that the numbers are not achievable given the financing that is available.
During the 2022 and 2023 rounds, many cities and counties had access to an unusually high amount of soft funding that was made available through acts such as the American Rescue Plan, and this funding was often used to help supplement affordable housing projects. These funding sources have now been exhausted, and as a result, the number of units produced in those years is no longer achievable. In addition, interest rates have increased over the last several years, and the price that investors are willing to pay for Housing Tax Credits has decreased noticeably. Many Applicants are reporting credit prices of approximately $0.75 per dollar, which is down from approximately $0.90 in recent years.
These factors have created a challenging environment for Tax Credit development. Because of that, staff recommends that the Quantity of Low-Income Units scoring item be either eliminated or suspended for the 2026 QAP.
Force Majeure and Extensions to the Deadline to Place in Service
Federally, Applicants must complete construction and place a development in service no later than the end of the second calendar year after the credits are allocated. Placement in service is generally evidenced by obtaining a Certificate of Occupancy for the Development. For example, an Applicant that is awarded Housing Tax Credits at the late July meeting in 2025 will be required to place the development in service no later than December 31, 2027.
Recognizing that Applicants will sometimes need the full amount of time that is federally available, many states allocate credits as early in the year as possible, and at least one state allocates credits a year in advance. Texas state statute prescribes the annual timeline for the 9% tax credit round, with Applications being due no later than March 1st, and allocations being made no later than July 31st. Because of these statutory limitations, the Department does not have the option to allocate credits earlier.
In the event that a Development experiences unforeseeable delays, the QAP allows for the Board to re-allocate credits to it, which effectively resets the clock on its federal deadlines (this is colloquially known as “force majeure treatment”). The number of requests that the Department has received under this rules has increased dramatically over the past few years, as current conditions are not optimal for expedited closings or construction timelines In addition, staff met with several syndicators earlier this year to identify policies that might result in increased credit prices, and the tight deadline to place in service in Texas was consistently specified as a reason that investors may be hesitant to enter the Texas market.
To help reduce the number of requests that the Board hears, and to help encourage investment in Texas, staff proposes that it may be appropriate for the QAP to allow for a six-month extension to be administratively approved by staff.
Minimum Age for Rehabilitation
Acquisition and Rehabilitation of existing properties is an allowable activity within the LIHTC program. The QAP does not currently contain a minimum age for Developments to be eligible, and some Developments are rehabilitated as early as year 16. Staff proposes that the QAP should include a minimum age of 25 years for existing LIHTC Developments. Applicants proposing to rehabilitate newer Development would be able to request a waiver from the Board should an overwhelming need exist for a specific Development.
Cash-out Refinances
The QAP does not currently prohibit cash-out payments when land or existing Developments are transferred as part of a related-party transaction for a Housing Tax Credit Application. Staff recommends that the QAP prohibit any cash consideration to a seller in a related-party transaction.