Low-Income Housing Tax Credits & Preservation in Colorado, 2018

The Colorado Housing Finance Agency's (CHFA) 2018 Qualified Allocation Plan (QAP) provides point incentives for preservation projects and projects committing to long term affordability. 

The 2018 Qualified Allocation Plan (the Plan) was developed by Colorado Housing and Finance Authority (CHFA) and gives preference among selected projects to:

  • projects serving the lowest-income tenants
  • projects obligated to serve qualified tenants for the longest periods, and
  • projects located in a QCT and the development of which contributes to a concerted community revitalization plan.

The Colorado Housing Finance Agency’s 2018 Qualified Allocation Plan, lists its Guiding Principles for the selection of projects to receive an award of Federal and/or State Credits, including; to support new construction of affordable rental housing projects as well as acquisition and/ or rehabilitation of existing affordable housing projects, particularly those with an urgent and/or critical need for rehabilitation or at risk of converting to market rate housing

 

Set-Asides

Starting in credit-year 2018 through credit-year 2021, a three-year set-aside is being provided for Sun Valley Redevelopment, sponsored by the Denver Housing Authority (DHA), which is located at Decatur Street and West 10th Avenue in Denver and received a Choice Neighborhoods Implementation Grant award of $30 million.

The set-aside is being provided for the project due to the following expected benefits to its community as well as the entire state:

  • Bringing in millions of federal dollars that would otherwise not be available to the state;
  • Preservation of affordable public housing by transforming aging and obsolete public housing projects into vibrant mixed-use development;
  • Sun Valley Redevelopment will receive a set-aside amount of $1,350,000 in annual credits in 2018. Thereafter during the three-year period, the annual credit amount may fluctuate but will not exceed the maximum credit award pursuant to the applicable year’s QAP. The aggregate set-aside for this project will not exceed $4,050,000.
  • The set-aside will continue to be incorporated into the QAPs for the years of 2020 and 2021. Each QAP for those years will be subject to approval by the Governor. Each application for credits will be subject to all requirements of the corresponding year’s QAP, including the requirement that no more credit will be reserved for the project than CHFA determines is necessary for the project’s financial feasibility and viability as a low-income housing project

 

Threshold

All applications must score a minimum of 130 points under “Scoring Criteria” in order to be considered for a reservation. The minimum score threshold must be met at the time of application. Include supporting documentation electronically.

For acquisition/rehabilitation projects – An appraisal must be provided that is no older than six months from the date of application

 

Point Incentives

Project Location – 5 points

Five points may be earned for proposed projects to be located in a community that has an identified community housing priority (e.g., supports a local, regional, or state plan; a neighborhood plan or some other community-sponsored need assessment; master plan; etc.) or to be located at an existing or planned TOD site*. Applicant must provide evidence, clearly demonstrating the project fits into the community’s need (Choose only one).

* A TOD site is defined as that which is within a half-mile walk distance of public transportation, such as bus, rail, and light rail.

Project Rehabilitation – 5 points

Rehabilitation of blighted buildings or locally or federally designated historic structures can earn a project five points. Blighted buildings are buildings that are in severe disrepair, including, but not

limited to, boarded-up, abandoned, or uninhabitable buildings, all of which have serious

building code violations. Rehabilitation expenditures must be at least $7,600 in hard costs

per unit to be eligible for rehabilitation credits. Substantial rehabilitation projects that are

changing the building’s use to residential but do not fit the above description of a blighted

building do not qualify for points under this category.

Project Preservation – 15 points

Preservation projects, defined as existing tax credit projects that are eligible for acquisition/rehabilitation credits that are retaining their current income targeting; projects eligible for acquisition/rehabilitation credits that have federally subsidized rental assistance (HUD Section 8, Rural Development Section 515, etc.) can earn an additional 15 points

 

Basis Boost

The Code allows for a 30 percent basis boost for projects located in one of the following areas:

Qualified Census Tracts (listed in the application)Designated by HUD as areas where 50 percent or more of the households have an income of less than 60 percent of the area median income;

Difficult Development Areas (DDAs) (listed in the application)Designated by HUD as areas experiencing high construction, land, and utility costs relative to the area median income. (Note: DDAs are redesignated annually.) Projects in a DDA that receive a reservation may need to meet allocation requirements earlier than the deadline indicated in the Preliminary Reservation Letter to retain the DDA designation;

Small Area Difficult Development Areas (SADDAs) For metropolitan statistical areas (MSAs), HUD will designate on an annual basis small areas within metropolitan statistical areas (MSA’s) by zip code. Eligibility for a SADDA consideration requires that a fully completed application is received by CHFA in the year that the SADDA is in effect. Contact CHFA staff for assistance with the application. Provide a printout of the map showing the project is within an existing SADDA available from the HUD website at: www.huduser.gov/portal/sadda/sadda_qct.html; and

CHFA Basis Boost CHFA is authorized to award up to a 30-percent “basis boost” to buildings that it determines need the boost to be economically feasible. This basis boost, however, is not available to projects that qualify for a basis boost because they are already in a HUD Qualified Census Tract, DDA, or SADDA. The request must be supported by a narrative that details the reasons for the financial need for the CHFA basis boost. The CHFA basis boost only applies to new construction and rehabilitation eligible basis of 9 Percent Federal Credit LIHTC projects. This basis boost does not apply to 4 Percent Federal Credit projects.

The basis boost options above do not apply to acquisition basis or to State Credits.

The State Credit amount calculation will be subject to a three-test method that is like the Federal Credit method above. Please refer to the Excel application for more detail about the State Credit calculation.

 

Extended-Use

The Code requires that the low-income occupancy and rent restrictions be maintained during the initial compliance period of 15 years [Section 42(i)(1)]. In addition, the occupancy restrictions must be maintained for an extended-use period of an additional 15 years [Section 42(h)(6)(D)] subject to termination by foreclosure or the qualified contract process [Section 42(h)(6)(F)]. The Code also requires that state allocating agencies give preference to projects with the longest low-income use period. Therefore, CHFA requires a minimum waiver of five (5) years of the rights to termination using the qualified contract process to be considered for evaluation.

 

Y15- Extended Low Income Use

Waiver of Right to Pursue Qualified Contract [Section 42(h)(6)(E)(i)(II)]

Below are the minimum waiver requirements for each type of credit request:

  • For competitive 9 Percent Federal Credit: Minimum of a 25-year waiver
  • For noncompetitive 4 Percent Federal Credit: Minimum of a five-year waiver

CHFA will award points for projects that receive federal tax credits that waive any rights to terminate the extended-use period under Section 42(h)(6)(E)(i)(II) of the Code in the following increments:

15 Years of Compliance + 5 Years of Waiver – 10 points

15 Years of Compliance + 10 Years of Waiver – 20 points

15 Years of Compliance + 15 Years of Waiver – 30 points

15 Years of Compliance + 20 Years of Waiver – 34 points

15 Years of Compliance + 25 Years of Waiver – 38 points

 

Distressed Communities

The Colorado Housing Finance Agency’s 2018 Qualified Allocation Plan, lists its Guiding Principles for the selection of projects to receive an award of Federal and/or State Credits, including; to support projects in a QCT, the development of which contributes to a concerted community revitalization plan as defined in Section 5.A 4, Primary Selection Criteria

 

Community Revitalization

CHFA will award one (1) point for projects located in a qualified census tract that contribute to a Community Revitalization Plan, are an important part of a broader or comprehensive program of neighborhood improvement, and which have the capability of fundamentally changing the character of a neighborhood.

The sponsor must show in measurable terms how the community will be impacted. This should include local municipal support articulated in a community plan or in the form of significant funding commitments from the local unit of government, or evidence of substantial major investment in the area that is consistent with an existing comprehensive community plan for improvement at the proposed site. These funding commitments or major investments should not be received solely from the development of tax credit properties. Generally, the overall development plan should include municipal support, private investment, and/or private commitments to the redevelopment area.

Contributed By: 
National Housing Trust

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