NJ HMFA Seeks Comments on Proposed Amendments to Low Income Housing Tax Credits Qualified Action Plan

Wednesday, December 5, 2018

For years the Low Income Housing Tax Credit Program has been successful in catalyzing private investment into underserved communities to develop affordable housing options for citizens. In short, the program is a 10-year tax incentive aimed at encouraging development of affordable residential rental housing. The tax incentive is received by a developer after its application is approved, and thereafter the tax credits are typically syndicated to a third-party investor (thus generating liquid value for the developer). The New Jersey Housing and Mortgage Finance Agency (“HMFA”) has been particularly adept at managing this federal program, generating a significant demand for the Low Income Housing Tax Credits (“LIHTC”). In fact, the HMFA estimates that demand for LIHTC’s exceeds supply almost three-to-one.

The HMFA, as administrator of the LIHTC program for the State of New Jersey, recently proposed amendments, repeals and new rules to the Low Income Housing Tax Credit Qualified Action Plan (“QAP”), codified at N.J.A.C. 5:80-33.1 et seq. If ultimately adopted, the amendments will affect developers utilizing the program in a number of ways, certain of which are summarized below. The proposed amendments, repeals and new rules will be discussed during a public hearing held at the HMFA on Tuesday, December 11, 2018, at 10:00 a.m. The HMFA will also accept written comments until January 18, 2019. For full text of the proposed amendments, please see:

https://www.njhousing.gov/dca/hmfa/media/download/regulations/tc_qap_proposal_notice_2018_11_13.pdf

Fortunately for developers familiar with the program, the LIHTC program remains largely intact, however the proposed amendments would change certain eligibility criteria and application requirements. Additionally, the amendments would alter the existing set-asides present in the program. The new rules also provide additional criteria for evaluation of an application, as well as clarity regarding the point system used to assess applications. The following represents a brief summary of the most material changes present in the proposed amendments. Giordano, Halleran & Ciesla, P.C. is actively monitoring comments received by the HMFA and will provide updates once any amendment is finalized. In the meantime, Michael Bruno, Brian Shemesh and Kyle Campanile can be contacted for any questions related to Low Income Housing Tax Credits or other redevelopment issues.

Summary of Material Amendments to Low Income Housing Tax Credit Qualified Action Plan

Family Cycle Changes
- Reserved credits, or “Set-Asides”, are no longer available to HOPE VI / Choice Neighborhoods. Instead, the first set-aside of reserved credits is for a project that contains up to 55 percent affordable units and is located outside of a Targeted Urban Municipality. Preservation set-asides remain available.
  - Targeted Urban Municipality (“TUM”) is a new concept, and the HMFA will provide a list of TUMs annually.
- HMFA will accept only one application per developer/general partner/ managing member per municipality in the Family Cycle.
Senior Cycle Changes
- Reserved credits, or “Set-Asides”, are no longer available to HOPE VI / Choice Neighborhoods. Instead, the set-aside of reserved credits from the Senior Cycle is for preservation project.
- HMFA will accept only one application per developer/general partner/ managing member per municipality in the Senior Cycle.
Supportive Housing Cycle Changes
HMFA will accept only one application per developer/general partner/ managing member per municipality in the Supportive Housing Cycle.
Changes applicable to Family Cycle, Senior Cycle, Supportive Housing Cycle and Final Cycle
- Maximum Total Development Costs have been increased as follows: $275,000 per unit for buildings 1-4 residential stories; $300,000 per unit for buildings with 5-6 residential stories; and $325,000 per unit for buildings with over 6 residential stories.
Soft Costs shall not exceed 30% of total development costs.
Changes to Application Process
Application Fee Increased Nominally
Developer’s now required to satisfy Energy Benchmarking requirements.
Point System Changes
- Additional clarity regarding point system provided for various criteria present in old point system for each cycle.
  - Additional criteria for point increase / reduction included.