88th Texas Legislative Priorities

TAAHP is a trade organization whose members’ finance and/or develop affordable housing around the state of Texas. A key program used to finance affordable housing developments is the Housing Tax Credit (HTC) Program (formerly called Low-Income Housing Tax Credit (LIHTC)). The following priorities regard the HTC application process or HTC properties in place.

The Texas 88th Legislature commenced on January 10th, 2023 and will run for 140 days, ending May 29th, 2023. See the significant dates, listed from the Texas Legislative Council.

Click here to view TAAHP’s Legislative Agenda Review Webcast (Member Log In Required) where TAAHP’s Government Affairs Committee and SubCommittee leadership explain TAAHP’s priorities for the 88th Legislative Session.

2023 TAAHP Legislative Priorities

Texas is missing an important state policy and finance tool designed to address the large and growing shortage of affordable housing – a state low-income housing tax credit program. Currently, over 20 states have created state low-income housing tax credit programs to provide gap funding to the federal 9% or 4% HTC programs for new construction, rehabilitation, and preservation of affordable housing developments. A state tax credit program would provide critical funding for Texas affordable housing developments using the same stringent regulatory parameters as the federal LIHTC program. This legislation would allow TDHCA to allocate state credits to 9% housing tax credit deals and 4% housing tax credit developments financed with tax-exempt bonds.

State credits are also a key tool to spur economic activity and jobs. Other states have experienced successful outcomes demonstrating that state credit programs make strong public policy. For example, Colorado’s program was originally established in 2001 and later renewed in 2014 and 2016. The 2016 renewal authorized the Colorado Housing and Finance Authority to allocate $5 million in state affordable housing tax credits through 2019. As a result of the program’s success, the Colorado legislature doubled the program to a $10 million annual allocation from 2019-2024. Georgia, which has one of the longest-standing state housing credit programs and matches each federal tax credit award with an equal amount of state credits, produces an estimated 12,000 units of affordable housing annually. Other states, including Indiana and Kansas, have passed state credit programs this year to deploy it as a resource to increase their supply of affordable housing. As Texas seeks to remain economically competitive, it must continue providing sufficient housing for its workforce using every available resource, including a state tax credit.

Public Facility Corporations are an essential financing tool that leverages local authorities’ public benefit of tax exemptions to promote the development of high-quality mixed-income housing. In 2015, the Texas Legislature approved an amendment to Section 303.042 of the Texas Local Government Code to provide 100 percent tax exemptions to private developers in return for building affordable units in mixed-income developments. The resulting program allows private developers to sell their land to a public facility corporation which leases the land and apartment complex back to the developer through a public-private partnership. Because the PFC owns the land, the Texas government code permits a 100% property tax exemption approved by the local jurisdiction. In exchange, the PFC partnership offers half of the units to people earning at or below 80 percent of the Area Median Income (AMI).

Multifamily developers have embraced the program since the amendment was adopted. As a result, the number of public entities utilizing the PFC tax-exempt leasehold interest structure has increased significantly throughout Texas. However, there are growing concerns that the program in its current form creates opportunities for some to misuse it and violate its original intent. TAAHP supports a comprehensive amendment to Section 303.042 to remedy the current problems and heighten transparency for those utilizing the PFC tool by adding stricter guidelines including: refining the affordability requirements, ensuring responsible use of the structure in the acquisition & rehabilitation of existing properties, standardizing income requirements, improving access for Section 8 voucher holders, enhancing tenant rights, and establishing robust reporting and compliance requirements.

TAAHP supports recommendations that increase the supply of affordable housing by reducing the cost of development through streamlining regulations and removing rules that inhibit development in the areas of greatest need. While the housing tax credit program is a consistent resource for affordable housing, current barriers within its regulatory framework have become obsolete over time. These include census tract restrictions, insufficient project funding caps, and infeasible allowances for cost per square foot.

Section 2306.6725(b)(2) of the state code instructs TDHCA to incentivize developments in census tracts where there are no other existing tax credit developments. This Census Tract provision induces developers to look for “clean” tracts that have never had a development. Over the 35 years of the program’s existence, the number of available census tracts in areas where they are needed has dwindled, placing high premiums on those that remain. As a result, this provision effectively disincentivizes developments in densely populated urban areas with the most need. This one-size-fits-all approach does not work in a large and diverse state like Texas. Removing this rule will not cause a proliferation where developments already exist since the regulations already incorporate other de-concentration factors that keep this from happening. TAAHP supports legislation that removes the restriction for developments in “census tracts in which tax credits support no other existing developments.”

In addition, TAAHP supports removing the requirement that TDHCA prioritize ‘cost per square foot’ as a scoring component in its allocation process. Using cost to determine competitiveness of an application can either drive applicants to decrease the quality and sustainability of materials used in the construction of a community or push applicants to allocate more units in a community to unrestricted, market-rate rents. Neither case serves to increase the number or quality of affordable housing units serving low-to-moderate income Texans.

Lastly, TAAHP supports increasing the annual funding cap per competitive housing tax credit developments. Currently state statute allows TDHCA to allocate $2 million in competitive housing tax credits per development, but only allows $3 million per developer/sponsor. In major urban markets, a $2 million allocation per project allows an applicant/sponsor to provide more affordable units within a mixed-income project rather than having to rely on market rate units to support higher development costs seen in these markets. Therefore, the $3 million per applicant/sponsor cap limits a firm to one (1) possible award for the year. TAAHP supports increasing the ‘per applicant/sponsor’ cap to $4 million, which would provide an applicant/sponsor an opportunity for two (2) successful applications as was historically the case until the unprecedented run up in costs.

Chapter 1372 of the Texas Government Code is titled “Private Activity Bonds and Certain Other Bonds,” which is not specific to housing. However, affordable housing developers and advocates recognize tax-exempt bond financing as an invaluable financing tool that allows for the production of thousands of units across the state each year. Because this law covers a wide range of activities and stakeholders with different interests, it is difficult to make sweeping changes. That said, the program’s administration has evolved with the market over the years, with broader adjustments made to the amount of volume cap going to different categories of uses and more specific (and more recent) changes to the reservation limits and closing deadlines for residential rental transactions. However, some changes (or lack of change) to this statute over the past several years did not make front-page news, even within the affordable housing industry since it rarely directly impacted the ability to utilize this resource to construct and rehabilitate multifamily developments. This was because the private activity bond program was undersubscribed for the better half of a decade, and the resource was plentiful. Although users might have had to juggle timing to get the financing they needed, it was reasonable to assume a volume cap would be available at least. Now that the program is grossly oversubscribed, its flaws are becoming apparent. It’s not uncommon for an applicant to wait a year from application submission to being given a bond reservation and still be somewhat surprised when it finally comes! TAAHP has created a subcommittee to discuss the methodology behind awarding reservations to residential rental applications, tackling subjects such as how to prioritize them, when to apply a regional allocation system, whether PFCs and HFCs should compete directly, and how to manage this extremely long timeline. Not surprisingly, we have encountered several different ideas from a diverse group of professionals and we continue to work toward recommendations that will serve developers and bond issuers in the most equitable, transparent, and predictable manner possible.

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Important Legislative Dates

January 10

88th Legislature Convenes

March 10

60-day Deadline for Bill Filing

May 31

Last day of 88th Regular Session (sine die)

Participate in Legislative Meetings

Join us for Rally Day at the State Capitol to educate and inform legislators and their staff about TAAHP’s legislative priorities. Advanced registration is required. Sponsorships are available. Details here.

Rally Day 2023

Legislative News