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Presentation, discussion, and possible action regarding waivers of certain provisions of 10 TAC Chapter 13 in response to the Department’s National Housing Trust Fund expenditure deadline
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RECOMMENDED ACTION
recommendation
WHEREAS, the Department receives annual grants of National Housing Trust Fund from the U.S. Department of Housing and Urban Development (HUD) that include a deadline by which those funds must be expended;
WHEREAS, the expenditure deadline for the Department’s 2019 NHTF grant is July 12, 2024, and two Developments, Manor Town Apartments Phase II and Burnet Place Apartments, have undrawn balances of those funds totaling $939,562.72;
WHEREAS, both Developments have accumulated sufficient expenditures to draw down those funds, but certain waivers of 10 TAC Chapter 13 are necessary in order for those disbursements of funding to be approved; and
WHEREAS, the Department is not exposed to elevated risk by granting these waivers;
NOW, therefore, it is hereby
RESOLVED, that the necessary provisions of 10 TAC §13.11 related to the disbursement of funds are hereby waived for Manor Town Apartments Phase II and Burnet Place as described below.
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BACKGROUND
The Department annually receives grants of National Housing Trust Fund (NHTF) from HUD, which include strict deadlines by which the funds must be expended. For the 2019 NHTF grant, this deadline is July 12, 2024. When a Development is awarded funding from this source, the funds are not paid to the borrower up-front - instead, the borrower is able to request periodic disbursements of those funds as eligible expenses are accrued. Department staff has worked diligently with the recipients of these 2019 NHTF funds to have them expended and drawn down timely, but two developments currently have remaining balances of this grant. They are:
• Manor Town Phase II $494,829.93 remaining
• Burnet Place Apartments $444,732.79 remaining
Both of these developments have accrued a sufficient amount of federally-eligible expenses for the disbursement of these remaining balances; however, Department rules establish certain requirements that must be met prior to the funding being disbursed. Staff is requesting a waiver of these provisions in order to disburse these funds in advance of the federal deadline. Development Owners will still be required to achieve Project Completion with 120 days of the final NHTF draw.
For Burnet Place, construction is substantially complete, and the final construction inspection has been requested as of May 30, 2024. While the borrower anticipates having the Certificates of Occupancy in early June, much of the documentation required by 10 TAC Chapter 13 for the release of the final disbursement of funds is not yet available. These documents include, among other things, the closed final inspection letter from the Department, a Certificate of Substantial Completion (AIA Form G704), and a down date endorsement to the Direct Loan title policy. It is functionally impossible that these will be available in time for the borrower to compile them, submit the request, and have the funds disbursed by the deadline.
Manor Town Phase II’s situation is, for all intents and purposes, the consequence of an accounting peculiarity. This Development was provided federal funds from both the 2019 and 2020 NHTF grants, following a “first in, first out” allocation process within HUD’s Integrated Disbursement and Information System (IDIS). The Development is comfortably on track to be completed by the deadline for the 2020 funds; however, the portion of the funding that is soured from the 2019 grant must be expended by the deadline regardless. As eligible hard costs accrue and are requested for reimbursement, the Department retains 10% of each cost to be disbursed with the final funding request. This Development has accrued enough eligible expenses to draw down the entire portion of the 2019 grant, but only if a portion of the retainage is released.
The Department’s rules that dictate when funds may be released are important, because they provide a necessary means to insure that construction progresses timely and in accordance with program requirements. For the two subject Developments, Department staff is comfortable recommending that the Board grant the necessary waivers to allow the disbursement of the 2019 NHTF funds, as the Department’s other enforcement mechanisms such as the Enforcement Committee are still available in the extraordinarily unlikely event that it becomes necessary in either case. While it would be impractical for this to be the only means of insuring construction timeliness for all NHTF-funded Developments, staff believes the extenuating circumstances of the expenditure deadline, as well as the specific state of each Development, result in these waivers being particularly low-risk to the Department.