TDHCA September 2024 Meeting Highlights

The TDHCA convened its board meeting at 10:04am on September 5, 2024, at the UT Thompson Conference Center, Room 1.110, 2405 Robert Dedman Drive, Austin, TX 78712.

September 5 Meeting Summary

TAAHP Staff attended the board meeting and summarized its main takeaways.

Consent Agenda Approved

AGENDA ITEM 20: Rules

Presentation, discussion, and possible action on an order proposing repeal of 10 TAC Chapter 10 Subchapter F, Compliance Monitoring Rule, and order proposing new 10 TAC Chapter 10 Subchapter F, Compliance Monitoring Rule, and directing its publication for public comment in the Texas Register

A portion of the rule was last amended on February 26, 2024, to incorporate the new inspection protocol of National Standards for Physical Inspections of Real Estate (NSPIRE). Staff is proposing changes to the entirety of the current Compliance rule to clarify, add, and correct references and examples, and remove unnecessary requirements for Developments monitored by the Department while allowing public comment on all sections of the rule. Following Board approval, the revised rule will be published for public comment in the Texas Register.

Summary of changes:

10.602 – Notice to Owners and Corrective Action Periods

• New language to clarify that Owners are responsible for maintaining compliance even if the Owner is using a Manager or Management Company’s services, including oversight of responses of noncompliance identified by the Department.

10.605 – Elections under IRC §42(g)

• Adding safe harbor language for Housing Tax Credit Developments that have elected the Average Income minimum-set aside that is allowed in §1.42-19(c)(4) of Treasury regulations. It specifies that credit agencies can grant written relief for errors in designating qualified units, provided this is done within 180 days of the error’s discovery.

10.607 – Reporting Requirements

• Codifying an existing practice by including that within 10 days of an ownership transfer, the Electronic Compliance Reporting Filing Agreement and the Owner’s Designation of Administrator of Accounts forms must be submitted.

10.611 – Determination, Documentation & Certification of Annual Income —

• Multifamily Direct Loan Programs (HOME, NHTF, NSP, TCAP RF, and HOME-ARP) must have proper verification of income and assets for all certifications requiring verifications, not just initially.
• All Department’s programs are permitted to utilize the Section 8 Income Verification, which is now allowable under the implementation of the Housing Opportunity Through Modernization Act (HOTMA). This permission is only granted for households that currently are utilizing a Housing Choice Voucher. No other means tested verifications are allowable. There is an exception for developments whose Owner, Management Company, Consulting Company, or any other affiliated entity is associated with the Housing Authority to avoid conflict of interest.
• Codification of 120-day income verification policy: Verifications must be dated within 120 days of the certification date, with exceptions for lifetime benefits (e.g., pensions, annuities). This is already an existing internal policy that requires that income and asset verifications used to determine if a household is low income must be dated within 120 days of the certification effective date. The only exceptions are lifetime benefits (e.g. pension, annuities, Social Security).
• Low-Income Status: A household’s low-income status cannot be removed because of an increase in income at recertification unless the increase causes the Unit to go over income (OI) as defined in §10.615 of this subchapter, IRC §42(g), or the HOME Final Rule.

10.612 – Tenant File Requirements

• Bond Recertification Requirement: If subsequent legislation allows for the use of the Average Income minimum set aside for the Bond program, the income threshold will increase to 80% area median income.
• Removal of Section 811 PRA References & Consolidate Under the §10.624: To simplify compliance monitoring rules, staff removed all Section 811 PRA references from various parts of the rule and added all Section 811 program requirements under the §10.624 Section.

10.613 – Lease Requirements

• Floodplain Disclosure: Developments within a 100-year floodplain must include a statement in the Tenant Rights and Resources Guide about the floodplain location and must maintain flood insurance, with proof provided to the Department upon request.

10.614 – Utility Allowances

• Service Fees: Tenants with Housing Choice Vouchers or in Housing Tax Credit Developments cannot be charged service fees for submetered utilities. For MFDL Developments, such fees must be incorporated into the Utility Allowance or gross rent.
• Utility Allowance Consistency: For Developments with fixed MFDL Units, only one utility allowance may be used in buildings with MFDL units. For Developments with floating MFDL Units, only one utility allowance may be used for the entire Development.
• Renewable Energy Sources: Renewable energy benefits must directly benefit tenants (not just as a discount). To evidence the benefit, 20% of current tenant bills must be submitted with the request. Owners must submit both the Renewable Source allowance and the non-Renewable Source allowance for approval regardless of methodology or current occupancy. If the Renewable Source is damaged or inoperable for more than 30 days, the non-Renewable Source allowance must be implemented.
• Utility Provider: Any rate plan used to calculate a utility allowance, the plan must be available to all tenants in the building. If the Utility Provider offers more than one rate plan, the plan selected must be available to all households in the building.
• Use of Power to Choose website for utility allowance calculations in deregulated areas: Properties in deregulated areas must use a service plan from the power to choose website to ensure tenants can review rate plans used for the calculation of the utility allowance. Staff is proposing a change in language from “Utility Provider” to “Power to Choose” to make clear the Department will use the Power to Choose website to verify the availability of residential service to a Development when calculating and/or reviewing a utility allowance.

10.618 – Monitoring and Inspections

• Accelerated Inspection Schedule: Developments with an NSPIRE inspection score of 70 or below are subject to an accelerated inspection schedule. This is already in practice but is now being codified to ensure transparency and adherence to the standard operating procedure.

10.619 – Monitoring for Social Services

• If the Development’s LURA or application requires an after-school learning center for the Mitigation for Schools requirements, the Department will confirm this requirement is being met.

10.622 – Special Rules Regarding Rents and Rent Limit Violations

• Proposes the same corrective action language for rent and utility allowance violations with additional rent restrictions in subsection (b) that already exists in subsections (d) and (e).
• New language to include the terms “gross” rent and “equal to the lesser” to clarify the definition or rent.
• Fee-Free Rent Payment Option: Adds a new subsection to clarify that low-income residents must be offered an option to pay rent in a manner that does not result in additional fees. The rule does not mandate the acceptance of cash but ensures that alternative payment methods, such as online services, do not impose customary transaction fees. This requirement aims to alleviate financial burdens on tenants, especially those in senior properties who may be sensitive to extra costs.

10.624 – Compliance Requirements for Developments with 811 PRA Units

• Staff is proposing a rewrite of this Section to provide clear and concise 811 PRA program requirements in detail.

Figure §10.625 – Compliance Requirements for Developments with 811 PRA Units

• Staff is also adding new findings for the Section 811 PRA program, and mitigation for school requirements along with the requirement for flood insurance when applicable to the penalty chart

The Board approved the staff recommendation to repeal the existing compliance monitoring rule and publish the new, draft rule in the Texas Register for public comment. Motion made by Conroy – Seconded by Farias. Motion Carries. No opposed.

 

AGENDA ITEM 24: Multifamily Finance

Presentation, discussion, and possible action on the proposed repeal of 10 TAC Chapter 11 concerning the Housing Tax Credit Program Qualified Allocation Plan, proposed new 10 TAC Chapter 11 concerning the Housing Tax Credit Program Qualified Allocation Plan, and directing their publication for public comment in the Texas Register

Cody Campbell, TDHCA Director of Multifamily Finance, presented updates on the 2025 QAP, which sets rules and scoring criteria for the housing tax credit program and related multifamily programs. The QAP is revised annually, with a preliminary draft released in early summer for informal feedback. This year, a draft was released on August 12, receiving around 40 comments. These informal comments are not considered formal public input, but they help refine the QAP before formal rulemaking begins. The updated QAP will be published in the Texas Register with final approval anticipated in December.

Summary of Proposed Changes to the Housing Tax Credit Program Qualified Allocation Plan (QAP):

• Proximity to Jobs: Adjustments made to scoring criteria for underserved areas near jobs to improve competitiveness.
• Minimum Credits for Smaller Subregions: Increased from $600,000 to $750,000.
• Cap on One-Bedroom & Efficiency Units: Raised the cap from 30% to 35% for general deals; a compromise from the industry’s request for 50%.
• Tiebreaker Criteria: Exclude paid public parks, such as municipal golft courses, from tiebreaker considerations for development priorities.
• Legislative Updates Caveat: Include a note that the QAP may be updated due to changes from the 89th Legislative Session.
• Rent Levels of Tenant Scoring Item: The QAP includes a scoring item that awards 13 points to developments offering at least 20% of units to households earning 30% or less of the area median income. This scoring option has traditionally been reserved for supportive housing developments. The initial draft of the QAP suggested expanding this option to all applicants, but this proposal was widely deemed financially unfeasible by the industry. Staff intended to revert this scoring option to its original, supportive housing-only eligibility but accidentally missed this correction in the final draft. Staff recommends that the board restore the scoring option to apply exclusively to supportive housing developments before approving the QAP.
• Residents with Special Housing Needs Scoring Item: Originally, the rules required developments to commit at least ten units to the Section 811 program. However, after feedback from the industry and further review, staff found that this requirement disproportionately affects smaller developments and may lead to more units than can be supported by the $8 million funding available. The revised recommendation is to require developments to set aside 5% of their total units for the 811 program instead of a flat ten units. This adjustment aims to better align with available funding and industry feedback.
• Force Majeure: Requests for force majeure will only be considered if construction has already started and the request is made within 180 days of the project’s deadline. Requests made earlier, such as 18 months before the deadline, will not be considered.
  • Reason for Change: The policy was introduced in response to a recent surge in early force majeure requests, often made before construction begins. This adjustment aims to address this trend and streamline the process.
  • Public Discussion: One participant argued that there should be some discretion to handle exceptional force majeure cases that occur before construction begins, as the new rule might be too restrictive. Another board member confirmed that even with the 180-day limit, requests could still be considered for extraordinary events, such as natural disasters, occurring before construction starts. A suggestion was made to allow waivers for the 180-day rule to accommodate unique situations arising before construction. TDHCA legal counsel clarified that the force majeure policy applies post-award, and any requests for waivers would be considered during the award period. He noted that exceptions could be considered on a case-by-case basis if they arise under exceptional circumstances.
• Supportive Housing Definition: Two major supportive housing developers, Foundation Communities and New Hope Housing, have proposed changes to the supportive housing definition in the QAP:
  • Common Area Space: They recommend requiring supportive housing developments to include 30 square feet of common area space per unit. Staff supports this addition.
  • Financing Flexibility: They suggest minor adjustments to financing requirements, allowing for more flexible debt structures and additional funding sources like the Capital Magnet Fund or the Federal Home Loan Bank’s affordable housing program. Staff agrees with these recommendations.

Joy Horak Brown, CEO of New Hope Housing, also suggested an exemption for regions with significant supportive housing needs (specifically regions 3 and 6), to allow more than one supportive housing application per region if multiple viable projects exist. This proposal aims to address high levels of homelessness and limited housing options in these areas. Staff and board members are considering this adjustment to balance supportive housing needs with other housing types.

• Quantity of Low-Income Units Scoring Item
  This scoring item awards points based on the number of low-income units proposed, aiming to increase production beyond recent averages. Points are awarded as follows:
  • 1 point for a 10% increase
  • 2 points for a 20% increase
  • 3 points for a 50% increase

The staff recommends restoring the 50% scoring option to apply only to rehabilitation developments, as the industry found the benchmark unrealistic. Concerns have also been raised about the feasibility of the 10% and 20% thresholds due to the high reliance on soft funding, which is decreasing. Staff suggests lowering these thresholds to maintain production levels while easing financial pressures on developers.

 

TAAHP Public Comment

TAAHP’s QAP Chair expressed gratitude to the board and staff for their efforts on the QAP. She highlighted concerns about the challenges in meeting low-income unit goals given current constraints, such as capped 9% credits and fixed rents that do not cover rising costs.

To address these issues, she presented two recommendations:

1. Maintain the current percentage requirements for low-income units at 10% and 20%, but modify the calculation to account for regional differences. Instead of a fixed number of units, the recommendation is to use the average number of units produced across all urban subregions. The requirement would be set at the lesser of either this average (80 units over two years) or the specific average for each subregion. This approach aims to balance the need for low-income units with practical constraints, particularly in high-demand areas like Houston, where current requirements exceed what can be supported by tax credits. This method provides flexibility by considering both regional and statewide averages to better accommodate varying local conditions.
2. Lower the Percentage Requirement: Reduce the required percentages for low-income units, which would simplify compliance while still maintaining a premium for developments that exceed the new threshold. Simply lower the percentage requirements (e.g., from 10%/20% to 5%/7%) to make the goals more achievable across various regions.

ADDITIONAL DISCUSSION

• The board has the option to adjust percentages even after public comments if needed, which could provide more flexibility to address challenges.
• It was emphasized that early clarity on potential adjustments would help developers in site selection and financial planning.
• There were concerns that overly aggressive goals could lead to a delay in unit production if projects cannot secure the needed funding or meet high targets.
• The board is considering how to balance achieving more units with practical funding and development constraints.

At-Risk Set Aside

The at-risk set aside, as mandated by state statute, reserves 15% of the annual 9% housing tax credits for affordable developments at risk of losing affordability. Of this amount, at least one-third (5% of the total ceiling) must be allocated to USDA-assisted developments. This year, USDA applications consumed about half of the available credits. To address this and better balance the allocation, staff has proposed the following changes:

1. USDA Set-Aside Priority: USDA developments should first be considered for the USDA set-aside funds. If they are not awarded from this pool, they would only be eligible for the at-risk set aside after all non-USDA applications have been funded.
2. Contract Expiration Requirement: To be considered at-risk, a contract that expires annually but is subject to automatic renewal must be within two years of its permanent expiration.

INDUSTRY FEEDBACK

• Effectiveness and Complexity: Some industry stakeholders have raised concerns that these proposed changes may not effectively address the underlying issues and could complicate the process. There is a recommendation to delay implementing these changes and to engage further with developers to find a more effective solution.
• Potential Disproportionate Impact: Critics argue that the changes might disproportionately benefit rural areas and suggest that alternative solutions, such as introducing job points as a tiebreaker, could better address funding imbalances. They believe the current scoring system may unfairly advantage rural developments.
• Call for Legislative Solutions: There are also calls for a legislative solution to clarify and adjust funding allocations, as some believe the proposed changes may not adequately resolve funding disparities.

HUD Choice Neighborhood Program

Carla Mancha, CEO of the Housing Authority of Brownsville: Requested an amendment to Section 11.63, part four of the QAP, which currently requires that at least one county in an urban subregion have a population over 950,000 for a development in a HUD Choice Neighborhood grant area to qualify for competitive tax credits.

• Reason for Request: Brownsville’s Hidalgo County has a population of 894,462, making it ineligible under the current rule. Lowering the threshold would enable Brownsville to leverage the choice neighborhood designation and the 9% housing tax credit program to preserve and expand the supply of affordable housing by redeveloping their 1943 public housing site, Victoria Gardens.
• Context: Only five public housing authorities in Texas have received a Choice Neighborhood grant since 2010, and three are currently working on redevelopment. Lowering the population requirement would help Brownsville while not likely resulting in an influx of automatic awards due to the competitive nature of the grant.
• Staff & Board Feedback: Overall, the board is considering lowering the population threshold to support specific needs in Brownsville, with caution and potential temporary measures to balance fairness and assistance.

The next TDHCA board meeting is on October 10, 2024