Best Practices in LIHTC Policy

1. Best Practices in LIHTC Policy Brian Peters Housing Policy Advocate, IndependenceFirst

2. About the Presenter • Housing Policy Advocate at IndependenceFirst, a non-profit Center for Independent Living serving people with disabilities in 4-county Milwaukee metro area • Chair of National Council on Independent Living’s Housing sub-committee • An expert on LIHTC issues…NOT!

3. Who am I to say what “Best Practices” is? I want YOUR thoughts!

4. Audience Questions • How many are familiar with Low Income Housing Tax Credit Program (Section 42)? • How many know what Qualified Allocation Plans are?

5. The Basics: LIHTC: Low Income Housing Tax Credit Program • Federal tax credits allocated to states through IRS • LIHTC allocations vary annually • In 2014, allocations were calculated at $2.30 per capita (per person) • Small states received a minimum of $2,635,000 • California received $88 million! • Wisconsin received $12,884,395 QAP: Qualified Allocation Plans • How states say they will use the LIHTC funding • Public hearings required as part of process • Typically written with developers as audience • Can be confusing to newbies • Important information often are in appendices • Outlines the criteria by which proposals will be judged

6. Low Income Housing Tax Credit • “Section 42” of the Internal Revenue Code • Two types: • 9% (new construction/ substantial rehab) • 4% (acquisition/new construction/rehab) • Can be combined

7. LIHTC Requirements • Section 42 mandates a preference for: • Projects that serve the lowest income tenants • Projects that are obligated to serve qualified tenants for the longest period of time • Projects that are located in a qualified census tract (as defined in subsection 42(d)(5)(C)) and the development of which contributes to a concentrated community revitalization plan

8. LIHTC ConsiderationsState Housing Finance Agencies have to give consideration to: • Housing Needs Characteristics • Sponsor Characteristics • Project Characteristics, including whether the project includes the use of existing housing as part of a community revitalization plan • Tenant populations of households with children • Targeting of individuals on Public Housing Waiting Lists • Targeting of Populations with Special Housing Needs • Project Location • Projects intended for eventual tenant ownership • The energy efficiency of the project • The historic character of the project Some states add their own requirements and preferences

9. State HFA • Low Income Housing Tax Credits are administered by a State Housing Finance Agency • Wisconsin’s HFA is Wisconsin Housing and Economic Development Authority (New logo!)

10. States and QAPs • Some states view LIHTC program as purely a financial transaction • They do the bare minimum • Very short QAP & application • Not necessarily a blue state/red state thing! • Other states view LIHTC as an opportunity to do some “social good” • Typically have more in-depth QAPs and applications • Many goals involve homelessness and other “special needs” populations as well as energy and sustainability

11. “Social Engineering” • Trying to do some “social good” has been called “social engineering” • But the absence of those actions IS a form of social engineering-particularly if there are countervailing incentives or pressures in community • Example: Pleasantsville enacts zoning ordinances designed to drive up property values. This makes housing unaffordable to low-income families • Is this not social engineering?

12. State Tools How do states use LIHTC as a tool for in communities? • Mandates • “You must do this if you want money” • “You must do this if you want to qualify” • Sometimes developers have options- “You must do something on this list” • Example: Wisconsin has design requirements for buildings on accessibility and sustainability

13. More Tools • Incentives • A popular way to encourage a goal • “If you do this, you’ll get x number of points” • Sometimes additional financing is offered as incentive • Examples: Income targeting, increased accessibility, transportation linkages, family size • Set-asides • Done when state wants to guarantee a type of development WILL happen even if it scores low • “We’ll set aside this pot of money just for developers doing a specific kind of project” • Examples: Rural set-aside, supportive housing set-aside

14. Wisconsin QAP • Wisconsin’s QAPs and other information can be found at www.wheda.com. • Discussing 2013-2014 QAP, available on website • Note that nitty gritty details are in appendices • 2015-2016 QAP finalized last week

15. QAP Best Practices • During this Workshop, we shall: • Look at some of the issues with LIHTC units • Look at specific sections of WHEDA’s QAP and compare with other QAPs • Discuss what we like/dislike • Discuss what we think Best Practices should be

16. Income Targeting • LIHTC Units generally are aimed at 50% or 60% of Area Median Income (AMI) • LIHTC has two income targeting options: • At least 40% of units must be targeted at people at or below 60% AMI (40/60 test) OR • At least 20% of units must be targeted at people at or below 50% AMI (20/50 test) • But typically because of fixed costs, developers will do 100% (or close to it) of units being LIHTC

17. LIHTC Rents • Rent usually is set at 30% of chosen AMI level • Rent is “fixed” and does not change with household’s income • Unit income limitation calculated as: • Studio=1 person • Each bedroom=1.5 individuals

18. Waukesha Rent Limits at 50% AMI Bdrm # Rent Efficiency: 616 One 660 Two 791 Three 914 Four 1,020 Five 1,125 Six 1,231 Source: Wisconsin Standard Multifamily Tax Subsidy Project - Estimated Maximum Income and Rent Limits, Effective December 18, 2013 Extremely Low Income Household • Wisconsin SSI (2013) • Combined Federal & State SSI payments: • Individual: $793.78 • Couple: $1,198.05 • A couple receiving SSI renting an efficiency would be paying 51% of their income-far beyond the 30% rule of thumb. • Many properties require certain threshold of income (3x rent) Source: http://www.dhs.wisconsin.gov/ssi/benefits.htm

19. The Issue: Unaffordable to ELI • LIHTC developments at standard AMI targets are not affordable to ELI households • How can state HFAs reach this population? • What is needed to make it work?

20. Affordability Options • 30% AMI is extremely difficult to reach without rental subsidies; would it be better to have more units at 40%? • Some states offer additional financing to assist with deeper income targeting. But WI cannot use state funds for this. No state tax credits or tax revenue available. • What programs could be used with LIHTC for additional subsidies?

21. 2014 WHEDA QAP-ELI Targeting • 80 (out of 465) for serving Lowest Income Residents • 70 Points on sliding scale • 10 bonus points if 6 or more units • Units with project-based subsidies not eligible unless supportive housing • HOME funds OK

23. Sample ELI Targeting: 58.50 points

24. ELI Targeting in Alaska • Alaska requires at least 5% of any projects with 20 or more units to serve populations with “special needs” (of which ELI is a category) • Cannot be targeted by other funding (i.e. 811) • Offers discretionary basis boost (additional funding) for developers meeting certain conditions for ELI targeting

25. ELI Targeting in Massachusetts • ELI is one of 4 housing priorities developers must choose to qualify. 20% of units must be for ELI. • One of 13 mandatory thresholds • 9% tax credit must have 10% of units for 30% AMI • 4% tax credit and “primarily” affordable must have 10% of units for 30% AMI. IF mixed-income with 50% or more market-rate units, 15% of units must be for 30% AMI.

26. ELI in Illinois • Developers score points (up to 10 out of 100 possible points) for units at 30% AMI as percentage of total projects. Example is for projects with 41 or more units. • 1 pts for 1%-4.99% • 2 pts for 5.0%-9.99% • 4 pts for 10%-14.99% • 7 pts for 15%-19.99 • 10 pts for 20% or more • Projects 40 units or less starts at 4% minimum up to 25% or more, similar to above

27. ELI in Connecticut • 107 possible points in application; • Targeting units at 25% AMI earns up to 7 pts for 25% or more units (sliding scale) • 6 pts for targeting units above 25% AMI to 50% AMI (40% or more units needed for full number of points on a sliding scale)

28. ELI in Delaware • Delaware takes a balanced approach, encouraging developers to mix income target levels (30%, 40%, 50%, 60%)with higher points for targeting lower income levels • Interesting that the chart for 2014 is much less complicated than the one for 2013 (next 2 pages)

29. 2013 Balanced Income Targeting

30. 2014 Balanced Income Targeting

31. ELI in Iowa Category 1. Serves Lowest Income Residents 0 to 20 points • Projects that provide Units that are set aside and occupied by tenants with incomes at or below forty percent (40%) AMGI and are rent restricted. • 1 point for each full one percent (1%) of the total Project Units (20 points maximum) Category 2. Mixed Income Incentive 0 to 25 points • Projects that provide market rate Units (not eligible for Tax Credits). On-site staff Units cannot be counted for points. • 1 point for each full one percent (1%) of the Units (20 points maximum) • And Serve 30% AMGI qualified tenants. • 1 point for each full one percent (1%) of the Units at 30% AMGI (5 points maximum) *Units assisted with vouchers cannot qualify for any of scoring points in this category.

32. ELI in North Carolina State law classifies counties as high, moderate, or low income. • If high income county: • 5 pts if at least 25% targeted at 30% AMI OR; • 2 pts if at least 50% targeted at 40% • If moderate income county: • 5 pts for at least 25% targeted at 40% AMI OR; • 2 pts if at least 50% targeted at 50% AMI

33. ELI in North Carolina • If in a low income county; • 5 pts for at least 40% of units at 50% AMI • This scoring encourages ELI units in high-income counties, and does not incentivize them in low-income counties

34. ELI Best practices • How do we serve the ELI population? ….without using other federal subsidies? • Should ELI units be discouraged in high-poverty areas? Is that not where the “need” or demand is? • Some (14) states have a state tax LIHTC. Wisconsin doesn’t. Does this hurt WI efforts? • You could use market-rate units to subsidize ELI units. What are pros/cons of this? • What did you like/dislike?

35. Accessibility • Section 42 is not considered federal funding, so…Section 504 of the Rehabilitation Act of 1973 does not apply. • In other words, no requirement for increased accessibility • Only Fair Housing Act would apply nation-wide. Wisconsin also has Open Housing Law. • Similar to Fair Housing Act, but lowers unit threshold to 3 or above (FHA is 4 or above), and includes accessibility triggers for rehabs.

36. Fair Housing is…not so fair • Fair Housing Act’s construction standards have accessibility requirements • But they are the minimum requirements • …. • Minimum • Is not very accessible for many • Scooters • Bariatric wheelchairs • Non-mobility/non-sensory disabilities

37. Accessibility Standards/Guidelines • Common standards or guidelines used • Section 504 • Building code requirements (ICC/ANSI) • Universal Design • Visitability • Aging in Place • Don’t forget features for non-mobility disabilities like environmental sensitivities

38. Wisconsin QAP Accessibility • WHEDA has two categories; New Construction/Adaptive Reuse of non-housing structure (NC) and Rehab of existing housing (R) • Design Requirements are listed for both NC & R • WHEDA requires increased accessibility using ICC/ANSI A117.1 and part of ADA Accessibility Guidelines • But only 20% of single-family/duplex/ townhomes required to be Visitable • Offers points for increased accessibility features

39. Mandate Examples • New Mexico-Mandatory Visitability for at least 50% of new multi-family housing units • Colorado has “Healthy Living Environment” with safe biodegradable materials, mold reduction, adequate ventilation, and isolation of garages • Missouri requires all 12+ units to have 5% wheelchair accessibility and 2% sensory accessibility

40. Delaware Accessibility Incentives • Awards additional points for developments that exceed 5% of total unit count being fully accessible units • 10% = 3 extra points • 15% = 4 pts • 20% = 5 pts • Also requires marketing & renting to households that need features. If household has no disability, lease addendum allows management to transfer them if someone else needs accessibility features

41. Illinois Accessibility • Offers points for increased accessibility under ICC/ANSI 117.1-2003 • 1 pt for 10% or more of units for mobility disability, AND 2% for sensory disabilities • 2 pts for 10% mobility, 2% sensory, AND UniversalDesign score of at least 50 • 3 pts for 10% mobility, 2% sensory, and Universal Design score of at least 75

42. Indiana Accessibility • Aging in Place is a housing priority, and points are given for Aging-in-Place related services • Indiana minimum of Section 504 units or similar fully accessible units is 5% for rehab and 6% for new units. • Additional percentages are assigned additional points on sliding scale up to 9% to 11% (depending on type of project) • Also offers incentives for Universal Designs on a sliding scale.

43. Accessibility Approaches • Do you think having accessibility mandates is a good idea? How much should be mandated? • What about incentives? Should we incentivize additional units using existing standards like ADAAG, ICC/ANSI, or use newer approaches like Universal Design? • What should best practices be?

44. Integration • Integration means many things to different people • To fair housing & social justice advocates, it’s inclusion of minorities/economically disadvantaged groups, and access to opportunities • To advocates on disability issues, integration is inclusion of people with disabilities into community in a non-segregated way

45. Integration Examples • Examples we discussed already includes: • North Carolina’s scoring requiring higher % of ELI units in high-income counties, but none in low-income counties • Balanced Income approaches encouraging mixes of units (i.e. Delaware offering points for 20%-50% of units being market-rate) • Affirmatively Furthering Fair Housing, de-segregation, etc. to avoid concentration of developments

46. Alaska Integration • Alaska has an unusual scoring system that encourages high # of LI units in high-income tracts, but does the reverse in census tracts with low income, giving scoring incentives for high number of market-rate units.

47. Alaska Project Mix

48. Colorado Scoring Incentive Colorado provides scoring incentives for mixed-income projects that have no more than 80% market-rate units (the max allowed under 20/50 Rule).

49. INDIANA

50. Indiana Matrix (really!) • Encourages a mix of units from 30%, 40%, 50%, 60%+ Market Rate (Similar to Delaware’s 2013 Balanced Scoring that we previously discussed) • Scoring incentive based on % of units in each category, ranging from 55% of units down to 3% of units. • Highest scoring opportunities is at range of 22% to 29.99% of units for each.