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Presentation, discussion, and possible action regarding awards to 2024 9% Competitive Housing Tax Credit Applicants and approval of the waiting list for the 2024 Competitive Housing Tax Credit Application Round
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RECOMMENDED ACTION
recommendation
WHEREAS, the Board is required by Tex. Gov't Code §2306.6724(f) to “issue final commitments for allocations of housing tax credits each year in accordance with the qualified allocation plan not later than July 31;” and
WHEREAS, the Board is required by Tex. Gov't Code §2306.6711(c) to “establish a waiting list of additional Applications ranked by score in descending order of priority based on set-aside categories and regional allocation goals” concurrently with the initial issuance of commitments for Competitive Housing Tax Credits;
NOW, therefore, it is hereby
RESOLVED, that the list of recommended Applications for Final Commitments of Housing Tax Credits from the 2024 State Competitive Housing Credit Ceiling and the 2024 Housing Tax Credit Waiting List are hereby approved in the form presented at this meeting, and as amended by the Board for appeals previously heard and determined; and
FURTHER RESOLVED, that the Board’s approval is conditioned upon the completion of underwriting and program review, the imposing of all conditions of underwriting, the imposing of the conditions recommended as part of the Previous Participation Review process and those resulting from staff review, the completion of any other reviews required to ensure compliance with the applicable rules and requirements for the Competitive Housing Tax Credit Program, and any other special conditions the Board may consider appropriate.
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BACKGROUND
The Competitive Housing Tax Credit awards and waiting list recommendations for July 25, 2024, are presented in the Board materials. The applications recommended on the lists are required to be cleared for award, or award with conditions, by Compliance for Previous Participation Review purposes. To the extent that some applications do not yet have a final underwriting, program assessment, or Previous Participation Review, those applications will be considered conditionally recommended, with the condition being the completion of those reviews and recommendation of award, or award with conditions. For any awards made by the Board by this item that subsequently are recommended by underwriting with conditions, these conditions will be considered to be the Board’s conditions of the award.
Reports located in the Board Book
Ø Report 1: Recommended Applications from the At-Risk, USDA, and Nonprofit Set-Asides and the Rural and Urban Regional Allocations (complete list of Applications recommended for an award of Competitive Housing Tax Credits)
Ø Report 2: Active Applications from the At-Risk, USDA, and Nonprofit Set-Asides and the Rural and Urban Regional Allocations (complete list of all Applications recommended for an award and the waiting list of all active Applications not recommended for an award including tie breaker analysis)
Ø Report 3: Commitments under 10 TAC §11.9(c)(4)(B) Continuum of Care Commitments
Ø Report 4: Credit Ceiling Summary, which includes funding amounts for the At-Risk, USDA, and Nonprofit Set-Asides and consistent with 10 TAC §11.6(3)(C)(i) the Elderly Development maximum percentages
Ø Report 5: Real Estate Analysis Summaries, including conditions to be placed on awards
Ø Report 6: Summary of conditions to be placed on awards recommended by EARAC as a result of previous participation reviews and by staff as a result of application review
Ø Report 7: Similar to Report 1, a list of Applications recommended for an award of Competitive Housing Tax Credits in the event that the Board grants the appeal to be heard at this meeting related to Application #24178 - Reserve at Woodland Heights
Ø Report 8: Similar to Report 2, a complete list of all Applications recommended for an award and the waiting list of all active Applications not recommended for an award in the event that the Board grants the appeal to be heard at this meeting related to Application #24178 - Reserve at Woodland Heights
Ø Report 9: Public Input (provided in Development number order for all active/eligible Applications). These items are solely to represent the Department’s acceptance of the items as public comment received and in no way reflect the scoring determination of those items.
REGIONAL ALLOCATION FORMULA AND SET-ASIDES
The total amount of Competitive Housing Tax Credits available for the State of Texas to allocate in 2024 is currently $97,304,982 (see Report 4). This figure includes the amount of annual allocation authorized to the state, based on population, of $88,459,573, the amount of credits carried over from 2023 of $2,667,789, and returned credits from previously awarded applications of $6,167,626. The state may receive additional credits to allocate prior to the end of the calendar year from the National Pool or from credits returned from previously awarded applicants. These credits will be allocated to applications on the waiting list as described below. Report 4 depicts the allocation of credits.
As required by Tex. Gov't Code §2306.6714, the Department set aside not less than 15% of the housing tax credits available for allocation in the calendar year for eligible at-risk developments. In accordance with Tex. Gov’t Code §2306.111(d-2), 5% of the housing tax credits are allocated to developments that receive federal financial assistance through the Texas Rural Development Office of the U.S. Department of Agriculture (USDA). Any funds allocated to USDA developments that involve rehabilitation must come from the funds set aside for at-risk developments.
As required by Tex. Gov't Code §2306.111, the Department utilizes a regional allocation formula to distribute the remaining housing tax credits from the credit ceiling. There are 13 Uniform State Service Regions that receive varying portions of the credit ceiling based on need in those regions. Each region is further divided into two allocations: a Rural Regional Allocation and an Urban Regional Allocation, as required. Based on the regional allocation formula, each of these 26 geographic areas, or “sub-regions,” is to have available a specific amount of tax credits; however, the amount of tax credits ultimately allocated within a given sub-region may vary from this amount due to various factors, such as credit returns made during the calendar year, the final amount of funding awarded in the At-Risk set-aside so that not less than 15% of the housing tax credits are allocated to those developments, and the flow of credits through the “collapse” methodology.
APPLICATION SUBMISSIONS
There are currently 97 applications eligible for consideration, which are collectively requesting approximately $150 million in credits. Originally, 105 full applications requesting more than $162 million were received. There have been 8 applications withdrawn, terminated, or not recommended for award by the Real Estate Analysis Division. Pursuant to Tex. Gov’t Code §2306.6711(a), the director shall provide the application scores to the board before the 30th day preceding the date the board begins to issue commitments for housing tax credits in the allocation round. Staff presented the application scores in the form of “the list” at the board meeting of June 13, 2024. 10 TAC §11.4, related to Tax Credit Request and Award Limits, requires that prior to the posting of the agenda for the last Board meeting in June, an Applicant that has Applications pending for more than $6 million in credit may notify staff in writing or by email of the Application(s) they will not pursue in order to bring their request within the $6 million cap. If the Applicant has not made this self-selection by this date, staff may make the selection. At this time, no Applications are ineligible for an award due to the $6 million cap as required by Tex. Gov’t Code §2306.6711(b). There is one Application this is not currently eligible due to the limitation on credits allocated to elderly developments within certain sub-regions described in Tex. Gov’t Code §2306.6711(h).
There are 63 applications being recommended for award as reflected in Report 1, attached All eligible applications are reflected in Report 2. Those recommended for awards are reflected in the “Recommendation” column of this report. 60applications made commitments to set aside at least an additional 2% of the total Units to Persons referred from the Continuum of Care or local homeless service providers to be made available for those experiencing homelessness under 10 TAC §11.9(c)(6) related to Residents with Special Housing Needs. Those applications are listed in Report 3. Nothing herein obligates a property to uphold the commitment if it sought and was awarded one point for such commitment but does not receive a competitive low income housing tax credit award in this application round (including an award by way of the Board approved waiting list).
Please note that an appeal related to Application #24178, Reserve at Woodland Heights, is to be heard at this meeting. In the event that the Board grants this appeal, the Award and Waiting Lists presented in Reports 7 and 8 of this item will replace the Lists presented in Reports 1 and 2.
All applications recommended have been cleared for award, or award with conditions, by Compliance staff for Previous Participation Review purposes. To the extent that some applications do not yet have clearance for their underwriting or program assessment, those applications will only be considered cleared for award when the assessment is completed and results in an underwriting and program recommendation of award, or award with conditions. Any applications subject to this conditional award that subsequently fail a pending underwriting or program assessment maintain their ability to appeal under the QAP.
STAFF RECOMMENDATION PROCESS
In making recommendations, staff relied on regional allocations, set-aside requirements and scores, and the allocation methodology as set out in 10 TAC §11.6 of the 2024 Qualified Allocation Plan (QAP). The recommendations reflect commitments of $ $95,746,857, which leaves $1,558,125 available. Report 4 is the Ceiling Summary, and it gives a visual representation of the selection process. Summaries of the completed underwriting reports are included in Report 5. On the Recommended Awards List and the Award and Waiting List, the Real Estate Analysis (REA) status is noted with a “C” if the REA Division has completed underwriting. Otherwise, the credit amount reflected is the credit amount requested by the applicant after a Multifamily Finance Division review. If an underwriting report has not been completed for an application, the application may still be found to be infeasible, have the credit amount reduced and/or may have additional conditions placed on the allocation, but the credit award will not exceed the requested amount. All recommendations made by staff are subject to underwriting conditions, application review conditions, and any other special conditions the Board may specify, or as reflected in the document. Staff will review and confirm that such conditions are met unless otherwise directed by the Board. It is critical to note that the final outcome of an Application’s underwriting may have cascading effects throughout the award list. For example, if an Application is found to be infeasible and is replaced within its sub-region with an Application that requests a lower amount of tax credits, then additional credits may be available to flow through the collapse. Similarly, if an infeasible Application is replaced within its subregion with one that requests more tax credits, then fewer credits will be available for the collapse. Staff may delay the issuance of a Commitment Notice for Applications that are identified as being susceptible to these changes until all necessary underwriting is finalized.
A previous participation review has been completed for all applications recommended for an award; some of those reviews resulted in a recommendation that conditions be placed upon the award. Those conditions, as well as any conditions required as a result of staff review, are presented in Report 6.
WAITING LIST
Consistent with Tex. Gov't Code §2306.6711, “…the Board shall generate, concurrently with the issuance of commitments, a Waiting List of additional Applications ranked by score in descending order of priority based on Set-Aside categories and regional allocation goals…”
Staff recommends that the Board consider the Waiting List to be composed of all Applications that have not been approved by the Board for a commitment of 2024 Competitive Housing Tax Credits, and have not been terminated by the Department or withdrawn by the Applicant. Staff further recommends that the applications that remain be approved (or amended and approved) by the Board today be accepted as the Waiting List “ranked by score in descending order of priority” and subject to the same allocation process as set out in 10 TAC §11.6 of the QAP.
Applications will be awarded from the waiting list as follows:
• If tax credits are returned from the Nonprofit Set-Aside, and the return of tax credits causes the Department to achieve less than the required 10% Set-Aside, the next highest scoring Qualified Nonprofit Development will be recommended for a commitment to the Board, regardless of the region in which it is located. Alternatively, if tax credits are returned from the Nonprofit Set-Aside, and the return of tax credits does not cause the Department to go below the required 10% Set-Aside, then the next highest scoring Application in the sub-region of the returned tax credits will be recommended for a commitment to the Board, regardless of Set-Aside. If no other Application exists in the sub-region or if the amount of the credit return is not sufficient to fund the next highest scoring Application in the sub-region of the returned credits, then the credits will go to the statewide collapse and fund the next eligible Application from the Waiting List, as long as the Department still achieves the 10% required set-aside.
• In accordance with Tex. Gov’t Code §2306.6711(g), except as necessary to comply with the Nonprofit Set-Aside, in an urban subregion of a uniform state service region that contains a county with a population of more than 1.7 million, the board shall allocate housing tax credits to the highest scoring development, if any, that is part of a concerted plan of revitalization and is located in that urban subregion in a municipality with a population of 500,000 or more. If tax credits are returned from such an Application, and the return causes the Department to not meet this requirement, then the next highest-scoring Application in the sub-region that would meet this requirement will be recommended for commitment.
• For all other Applications, if tax credits are returned from an Application not associated with any set-aside, the next highest scoring Application from that sub-region’s waiting list will be recommended for a commitment to the Board, presuming that all required set-asides and priorities will continue to be met when that award is made. If no other Application exists in the sub-region or if the amount of the credit return is not sufficient to fund the next highest scoring Application in the sub-region of the returned credits, then the credits will go to the statewide collapse and fund the next eligible Application from the Waiting List.
• The Department shall hold all credit available after the awards approved at this meeting until September 30 in order to collect credit that may become available when tax credit Commitments are submitted. For credit returned after September 30, awards from the waiting list will be made when the remaining balance is sufficient to award the next Application on the waiting list based on the date(s) of returned credit.
In the event that returned credits are insufficient to fund the next appropriate application, staff may wait to determine if other returned credits would make the application whole or offer the applicant an opportunity to adjust the size of their credit request (subject to underwriting) while still accomplishing their proposed development with no material changes. If the applicant declines the offer, staff will contact the next appropriate applicant on the Waiting List, continuing in this manner until the Waiting List is exhausted. Staff will also review to ensure that no awards from the Waiting List would cause a violation of any sections of the 2024 QAP (for example, the $6 million credit limitation, the housing de-concentration factors, etc.).
All applications on the Waiting List not yet reviewed by the Multifamily Finance or Real Estate Analysis divisions must still be found to meet the applicable requirements. Credit amounts and conditions are subject to change based on underwriting and underwriting appeals. Awards from the Waiting List are also subject to a Previous Participation Review.