- HUD and Treasury Issue Guidance on the Tax Credit Assistance Program ("TCAP") and the Tax Credit Exchange Program ("Exchange Program")
- October 15, 2009 | Authors: Kelly B. Bissinger; Julia C. Livingston; Cynthia Langelier Paine; George L. Weidenfeller
- Law Firms: Goulston & Storrs, A Professional Corporation - Washington Office; Goulston & Storrs, A Professional Corporation - Boston Office; Goulston & Storrs, A Professional Corporation - Washington Office
Industry leaders tracking developments in low income housing tax credits (“LIHTC”) should be aware of recent HUD and Treasury publications affecting deals with TCAP or Exchange Program stimulus funding. The HUD guidance focuses on new environmental review requirements for TCAP projects and eligible TCAP fees and costs. Treasury updated and, in some cases, changed the Exchange Program requirements in a list of frequently asked questions (“FAQs”).
HUD TCAP Guidance on Projects with an Existing Environmental Review
A new federal environmental review may be required for TCAP projects with a previously completed review. A new environmental review is required (i) if the governmental entity responsible for the environmental review under TCAP is different from the governmental entity that completed the prior review; or (ii) the project itself or its environmental condition has changed.
There are two options if a new review is required. The state can either (i) complete a second full environmental review; or (ii) request that the local HUD field office complete the review using the previous environmental review as background. From a practical standpoint, the HUD field office review should be the faster alternative as no public comment period is required.
HUD TCAP Guidance on Fees and Asset Management
States are prohibited from imposing fees on TCAP projects solely to reimburse costs of their own TCAP program administration. This means that governmental costs for performing program requirements such as the environmental review (even when completed by a third party contractor) may not be charged back to the TCAP project as a pass through fee. However, a state may charge an asset management fee for certain activities as long as the state has established a uniform and transparent fee structure. The guidance establishes cost categories, allowable asset management activities, and eligible TCAP costs.
Treasury Exchange Program FAQs
Among the significant changes to the Exchange Program requirements are the following:
- Exchange Program funds can be used in the same manner as LIHTC equity. This means Exchange Program funds can be used for land acquisition.
- A project with Exchange Program funds must meet the placed-in-service date rules. There are no tax credits in the deal, tax credit practitioners believe that the placed in service date is determined by the Exchange Program award date.
- A reasonable fee can be charged by state housing credit agencies to project owners for Exchange Program asset management and project compliance. Some states have begun to charge these fees upfront; however, the total amount must be reasonable.
- A state agency may not own more than a one percent interest in a project with Exchange Program funds.
- If there is a recapture event, state housing credit agencies can provide project owners the opportunity to cure the underlying non-compliance. Projects with Exchange Program commitments may wish to ask state housing credit agencies to include cure provisions in the regulatory agreement.
- A state housing credit agency may, but is not required to, record a lien against an Exchange Program project to secure its interest in the event of a recapture. Any such lien need not have first priority.