2. Navigating The Sea of Development Alphabet Soup
Presented By:
Michael H. Syme

3. Where Are We Today?

4. CAPITAL FUNDS

5. PUBLIC HOUSING OPERATING SUBSIDY
20 year average = 93.89%
10 year average = 91.36%
5 year average = 93.68%

6. OPERATING SUBSIDY
In the last 20 years, it has met 100% of eligibility five times (25%)
In 2013, sequestration meant that subsidy met 81.86% of eligibility
In 2014, the proration was 88.79%
In 2015, the proration was 85.36%
In 2016, the proration was 90.21%
In 2017, the proration was 93.10%
In 2018, as of October, 93%

7. FUNDING
The Present Funding reductions are representative of a long-term trend whereby:
Funding is regularly reduced
Properties continue to age and deteriorate

8. What's A Housing Authority To Do?
Create new authority by:
Earn non-federal funds
Leverage non-federal funds
Build capacity to create future cash flow
In short – continue affordable housing in the absence of HUD 8

9. Why Not Just Go Forward And Develop?

10. Scope & Complexity
Development is complex and requires special skill sets
Housing Authority may lack the experience, expertise or staff to self-develop or simply lack of time
Every year funded at % of 100
What will it mean?

11. Options The Acronym Oasis LIHTC CNI QHWRA PBV RAD PBRA RHFF SVC MF
CFFP

12. Federal Funding MF = Mixed Finance
CFFP = Capital Fund Financing Program
RHFF = Replacement Housing Factor Funds
CNI = Choice Neighborhoods Initiative
RAD = Rental Assistance Demonstration
QHWRA = Quality Housing Work Responsibility Act
PBV = Project Based Vouchers
PBRA = Project Based Rental Assistance
SVC = Streamline Voluntary Conversion
Sec 35 allows mixed finance
Largest driver, but very competitive
Only if 4%
Elsewhere: State Apartment Incentive Loan
State Housing Initiatives Partnership Program

13. NON-FEDERAL FUNDS AVAILABLE
LIHTC - Low-income housing tax credits (issued by Florida Housing Finance Corporation)
NMTC - New market tax credits – Historical tax credits, etc.
AHP - Federal Home Loan Bank, Affordable Housing Program
CLP - Federal Home Loan Bank, Community Lending Program

14. COMBINATION OF FUNDING SOURCES PROVIDES THE FUNDING NECESSARY

15. TAX CREDITS WITHOUT PUBLIC HOUSING
Advantages:
No oversight from HUD
No total development cost restrictions
No Safe Harbor limitations
Rent at tax credit rent without 30% income limits
No Declaration of Trust
Disadvantages:
No public housing operating subsidy
No Capital funds
No HUD oversight of developer

16. TAX CREDITS WITH PUBLIC HOUSING
Advantages:
Continue receipt of public housing operating subsidy
Continue receipt of Capital funds
Units available to extremely low-income residents
Possible use of Capital Fund Financing Program
Disadvantages:
HUD oversight
Total development cost restrictions
Safe Harbor Limitations

17. TAX CREDITS WITH SITE-BASED SECTION 8
Advantages:
Higher rents, lower reserves
Predictability of subsidy
Disadvantages:
Awarding project-based vouchers
Uncertainty of contract renewal (15 years)
More regulations

18. COMMON DENOMINATOR
Tax Credits

19. THE TAX CREDIT PROGRAM
A capital subsidy program for building or rehabbing rental housing
Product of Reagan era tax reform (1986 Tax Reform Act)
Partnership between private sector and the government ("PPP")
Competitive credits (9% low-income housing tax credit "LIHTC") and automatic credits (4% LIHTC) 19

20. BASICS
LIHTC are available pursuant to Section 42 of the Internal Revenue Code of 1986
Tax credits are a dollar-for-dollar credit which offsets taxes for a ten (10) year period
But, low income use of property must be maintained for a minimum of 15 years to avoid recapture

21. TYPES OF CREDIT
The 70% subsidy – commonly referred to as 9% credit –this is now a set 9% credit and doesn’t fluctuate
The 30% subsidy – commonly referred to as 4% credit – this is a fluctuating credit amount up to 4%

22. HOW TAX CREDITS WORK State Allocating Agency Federal Government
Investor
Tax Credits
Equity
Point out private and public partners – I will focus on private, Patti on public
Point out where I am in the process (Tax Credit Project)
Interface with Investor typically through a Limited partnership structure
General partner owns just 0.01%, but controls and operates the project and provides all guaranties
Passive limited partner invests equity in return for 99.99% ownership
Distinguish between direct investor and syndicator
Tax Credit Development

23. 9% Credit Available for new construction or substantial rehabilitation
In an amount of approximately 9% of the qualified building costs every year for 10 years
Highly competitive

24. 4% Credit Available for new construction or substantial rehabilitation
Available for acquisition
In an amount of approximately 4% of the qualified building costs every year for 10 years
The credits are automatic with an allocation of the state's Volume Cap.

25. The Parties Texas Department of Housing and Community Affairs
Issues Credits to the project
Syndicator Purchases Tax Credits
Developer – Serves as Manager
Real Estate Owner – Housing Authority
Consultants

26. Benefits To Investor
Dollar-for-dollar credit against their federal tax liability
Tax benefits from losses and depreciation
Community Reinvestment Act (CRA) "credit"

27. Texas Department of Housing and Community Affairs
General
Partner(s)
Tax Credit
Investor
LIHTC allocation
Owner
Entity

28. Who Develops?
Use a developer
Become partner
Self-develop

29. Developer Develops financing plan
Causes the development to be constructed, directly or through an owner entity that it creates
Provides guarantees to investor

30. Catch 22
The Developer must be prepared to provide guarantees to investors – but HUD will not allow guarantee using federal funding

31. Overview - Simplified Developer Housing Authority Owner Equity
General Partner/PHA Affiliate
.49%
Housing Authority
Managing General Partner/Developer
.51%
Developer
Investor(s) 99+% Ownership in Fund

32. Who Manages? Developer manages Third party manager
Housing authority manages

33. Housing Authority As Property Manager
Housing authority can be sole property manager
Must have expertise to manage non-public housing units, particularly tax credit units
Housing authorities can have input into property management in a variety of ways:
Review selection of private property manager and contract terms
Joint venture with experienced private management firm to learn private-sector approach
If a housing authority manages, it must have a licensed real estate broker

34. WHAT IS RAD?
Rental Assistance Demonstration program which means Public Housing Conversion

35. OVERVIEW
HUD program authorized in Fiscal Year 2012 (FY 2012) Appropriations Bill to restructure assistance to Public Housing and Mod Rehab projects.
No new funding authorized – units are converted to RAD program with existing Public Housing funding
Initially 60,000 units authorized by Congress for Demonstration
Increased to 225,000 units (18% of public housing stock)
Increased to 445,000 (36% of public housing stock)

36. How Does RAD Benefit HUD?
Total outstanding capital needs of over $40 billion
Increasing by $3.4 billion a year
This equates to: $36,000 per unit nationally
Each unit converted decreases capital needs (according to HUD’s bookkeeping)
If 225,000 units are converted to RAD, the capital needs drop by $8.1 billion
If all 445,000 units are converted to RAD, the capital needs drop by over $16 billion
No cost to HUD, makes HUD look good

37. Uses of RAD Convert public housing assistance to:
Project-Based Rental Assistance; or
Project-Based Vouchers
Convert at “current funding” only (operating subsidy + capital fund)
Awarded projects exempt from Public Housing Assessment System

38. Public Housing Current Funding Rent Levels

39. Understanding RAD contract rent caps
PBRA:
Lower of current funding or 120% of Fair Market Rents ("FMR") (less any utility allowances ("UAs")
HUD may approve rents in excess of 120% up to 150% based on Rent Comparability Study
PBV:
Lower of current funding, “reasonable rent” or 110% of FMR (less any UAs)
Make sure developers, lenders and investors aren’t projecting RAD contract rents above applicable program caps

40. Choice Mobility And Residents
Residents who move into converted development must be allowed to move after 12 months (PBV) or 24 months (PBRA) with portable vouchers
Does not reduce number of RAD units
PHA can limit Choice Mobility moves to 15% per year
Exemptions to be granted to 10% of total Demonstration units
Right of return for residents of converted RAD units
Returning residents cannot be re-screened for admission

41. Affiliated Entity Shields Authority from Liability
Availability When Federal Funds Cannot Be Used
Resolve Tax Credit Investor's Depreciation Issue
Separate from Authority (and HUD)

42. Affiliated Entity Use a different affiliate for each of:
Serving as co-developer
Serving as co-general partner or co-managing member
Acting as a management agent
Providing guarantees

43. Co-Developer A not-for-profit affiliate
Earns developer fee of non-federal funds

44. Co-General Partner Co-Managing Member
A for-profit affiliate
Ultimately the owner of the new development
Can be subsidiary of the not-for-profit entity

45. Management Agent Can be a for-profit or non-profit
Generally, must have licensed real estate agent.
Depending on the property, may need low-income housing tax credit certification
If a not-for-profit, it can be an LLC with the not-for- profit as the sole member

46. Overview - Complex Housing Authority Owner Entity Managing Member, LLC
Not-For-Profit
Central Office Cost Center
Section 8
Public Housing
Developer
Entity
Management
Entity
Investor
Investor
99.99% 46

47. Affiliated Entity – Treatment Under State Law
Governed by Texas Business Organizations Code
Treated as a separate legal entity
Separate board
Separate meetings and minute books
Proper financial accounting

48. Affiliated Entities–Treatment By HUD
HUD's Notice: Applicability of Public Housing Program requirements to transactions between Public Housing Agencies (“PHA”) and their related affiliates and instrumentalities.

49. Key Definitions
"Affiliate(s)/Affiliated entity" shall mean entities, formed by the PHA under state law in which a PHA has a financial or ownership interest or participates in their governance. The PHA need not control nor manage the assets or operations of the Affiliate. Affiliates, for purposes of this notice, include only entities that use public housing funds for carrying out development functions of the PHA. An Affiliate is treated in the same manner as any unrelated third party contractor.
"Instrumentality" shall mean a subsidiary branch of the PHA through which functions or policies are implemented. An Instrumentality assumes the role of the PHA and is the PHA under the public housing requirements for purposes of implementing public housing development activities and programs. Instrumentalities must be authorized to act for and to assume the responsibilities of the PHA.

50. Issues Related To Affiliate Formed For Public Housing Development
Conflict of Interest - Financial interest. A bonus provided to a board member by the Affiliate would be a financial interest, while a bonus provided by the PHA for the development director's service to the PHA would not be considered a financial interest.
Use consultant agreements. Cannot be employed by both.

51. Affiliates
Must keep up all corporate formalities: separate meetings, officers, boards, books, etc.
If an affiliate uses Authority assets, there must be an agreement and consideration (lease, license or sale).
For use of employees, the affiliate enters into a consulting agreement to pay the Authority for the employee's time.
No employee can be paid by more than one employer.

52. New Set Of Books
The Affiliate must maintain a complete and accurate separate “Set of Books”
General ledger
Chart of accounts
Journals
Cash receipts and cash disbursements
Registers
Fixed assets, payroll

53. Cash Accounts
When a housing authority works with Affiliates and cash is moving from program to program, etc.
Separate the relationship
Do an actual cash transfer, not just book entries
No inter-funds!!

54. Q & A