HCR-46-07-00002-P Qualified Allocation Plan for the Allocation of Low-Income Housing Credits

11/14/07 N.Y. St. Reg. HCR-46-07-00002-P

NEW YORK STATE REGISTER

VOLUME XXIX, ISSUE 46

November 14, 2007

RULE MAKING ACTIVITIES

DIVISION OF HOUSING AND COMMUNITY RENEWAL

PROPOSED RULE MAKING

HEARING(S) SCHEDULED

 

I.D No. HCR-46-07-00002-P

Qualified Allocation Plan for the Allocation of Low-Income Housing Credits

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed action:

Amendment of sections 2040.1–2040.14 of Title 9 NYCRR.

Statutory authority:

Executive Order Number 135, dated February 27, 1990 as continued by Executive Order Number 5, dated January 1, 2007; U.S. Internal Revenue Code section 42(m); N.Y. Public Housing Law section 19

Subject:

State of New York's qualified allocation plan for the allocation of low-income housing credits and regulations for the allocation of New York State low-income housing credits.

Purpose:

To amend the process by which DHCR reviews Federal low-income housing credit applications and State low-income housing tax credit applications, and utilizes selection criteria, and to increase consistency with Federal statutes.

Public hearing(s) will be held at:

1:30 p.m., Jan. 3, 2008 at Division of Housing and Community Renewal, 38-40 State St., Hampton Plaza Ballroom, Albany, NY; at Division of Housing and Community Renewal, 25 Beaver St., Rm. 510, New York, NY; Division of Housing and Community Renewal, 620 Erie Blvd. W, Suite 312, Syracuse Conference Rm., Syracuse, NY; and Division of Housing and Community Renewal, Statler Towers, 107 Delaware Ave., Suite 600, Buffalo Conference Rm., Buffalo, NY.

Accessibility:

All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.

Interpreter Service:

Interpreter services will be made available to deaf persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.

Substance of proposed rule (Full text is posted at the following State website: www.dhcr.state.ny.us):

9 NYCRR Part 2040 is amended as follows:

1. Alphabetize defined terms.

2. Amend the definition of “adjusted project cost” to clarify it, and delete an unnecessary reference to “approved total project cost”.

3. Delete the definitions of the unused terms “approvable costs of a community service facility”, “approved total project cost”, “gross syndication proceeds”, “operating subsidy reserve” and “public offerings”.

4. Amend the definition of “code” to provide a current citation to Section 42 of the Internal Revenue Code (“IRC”).

5. Add a new defined term “compliance period” to provide a plain language definition of this term, eliminating the need to reference the IRC.

6. Define “extended use period” to provide a plain language definition, eliminating the need to reference the IRC.

7. Add a new defined term “high acquisition cost project” which applies to projects which have acquisition costs above 25% of total development cost and clarifies DHCR's discretion to limit the amount of the developer's fee so that a high acquisition cost does not automatically elevate the developer's fee unreasonably.

8. Add a new defined term “HTFC”, an acronym for the Housing Trust Fund Corporation.

9. Add a new defined term “local non-profit organization” to clarify the non-profit participation that will qualify for scoring points.

10. Amend the definition of “operating deficit guarantee” and amend section 2040.3(g)(2)(ii) to clarify DHCR's operating deficit guarantee requirements.

11. Add a new defined term “persons with special needs” to specify those persons for which LIHC-assisted units may be specially targeted.

12. Amend the definition of “preservation project” to eliminate the requirement that these projects be in a crisis situation or be part of a community revitalization plan; and to clarify the commencement of the 30 year period during which the proposed rehabilitation must be sufficient.

13. Add a new defined term “primary market area”.

14. Add a new defined term “qualified low-income housing project” to provide a plain language definition of this IRC term.

15. Add a new defined term “supportive housing” to specify DHCR's requirements for a project to be considered supportive housing and therefore eligible for a possible set-aside of Credit.

16. Add a new defined term “visitability” with a corresponding new threshold requirement which incorporates a minimum accessibility standard into the Proposed Rule to assist households with elderly and disabled persons.

17. Revise language at section 2040.3(d)(1) regarding DHCR's process for providing a project with an initial award of Credit to clarify existing policy.

18. Revise language at section 2040.3(d)(2) to clarify DHCR's current process for issuance of a carryover allocation.

19. Replace references to Internal Revenue Service (IRS) Form 8609 with the term “final credit allocation.”

20. Eliminate the threshold requirement at section 2040.3(e)(3) that all local governmental approvals required for the project have been obtained. An applicant will have to have initiated the process of securing all necessary governmental approvals and demonstrate that the project is eligible to obtain such approvals.

21. Revise the experience requirement at section 2040.3(e)(6) to clarify that all parties involved in the project must have the requisite experience to develop and operate the proposed project.

22. Require that, at the time of application, the project developers, owners, and managers are not in default of their obligations to any governmental agency pertaining to similar projects.

23. Delete the threshold requirement that there be no change in the project's ownership structure as proposed prior to the issuance of the final credit allocation, eliminating potential ambiguity in the existing rule because section 2040.6(b) permits such changes with the approval of DHCR.

24. Delete the threshold requirement formerly at section 2040.3(e)(10) that the amount of annual credit requested does not exceed $20,000 per unit.

25. Revise the threshold requirement at section 2040.3(e)(9) (formerly at section 2040.3(e)(11)) to clarify that the per project and per unit caps will be specified in DHCR's annual Notice of Credit Availability (“NOCA”).

26. Revise the threshold requirement at section 2040.3(e)(10) to clarify that the “comprehensive market study of the housing needs of low-income individuals in the area” required by the IRC, must be conducted by professionals pre-approved by DHCR.

27. Clarify that it is the number of bedrooms in a unit (not merely the size of the units) that must be appropriate for the type of occupancy proposed.

28. Add a new threshold requirement at section 2040.3(e)(14) regarding accessibility standards for persons with mobility impairments.

29. Make changes to correspond to the changes made to the term “preservation project”, and replacement of that term with “high acquisition cost project”.

30. Add a new threshold requirement at section 2040.3(e)(17) which eliminates the owner's right, after 15 years of low-income operation, to request a “qualified contract”, requiring DHCR to find a non-profit buyer willing to continue to operate the project under the requirements of the Program. This gives project owners the option to commit to a regulatory period of a minimum of 30 years or to commit to sell the project to the tenants.

31. Add a new threshold requirement which requires all projects to incorporate certain “green building” standards including: utilizing Energy Star (or equivalent) appliances, light fixtures and heating systems; water usage and energy efficiency measures; passive radon-reduction if necessary; and, lead-safe work practices.

32. Reorganize section 2040.3(f), “project scoring and ranking criteria” so that the criteria “are listed in descending order according to the relative weight given” as stated in the section.

33. Delete the “housing needs” scoring criteria at section 2040.3(f)(1) and replace it with a new scoring criteria “community impact/revitalization”, which better measures the need in a locality for the type of housing proposed.

34. Delete the “efficiency of credit use” scoring criteria at section 2040.3(f)(2) and replace it with “financial leveraging”. The proposed scoring provision eliminates DHCR's awarding of Credit based on the “amount of credit requested for the project.” The financial leveraging criteria will award points to the extent other financing sources are utilized to minimize the use of DHCR/HTFC resources, and based upon the amount of credit requested per unit adjusted for unit size.

35. Delete the scoring provision “regulatory period” and replace it with a new criteria “long term affordability.” The former provision provided scoring points for projects providing a regulatory period of a minimum of 30 years, which DHCR has made a threshold requirement. This new provision will encourage long-term project affordability by providing points to projects which commit to a minimum regulatory period of longer than 30 years.

36. Add a new scoring criteria “green building”. This new scoring criteria will provide an incentive for projects financed with Credit to reduce energy and resource consumption, minimize environmental impacts, and utilize Credit to remediate sites in need of environmental remediation.

37. Amend the “energy efficiency” scoring criteria to provide points for receiving financing through the New York State Energy Research and Development Authority's (“NYSERDA”) Multifamily Building Performance Program or the New York State Energy Star Labeled Homes Program, or demonstrating that the project will meet comparable energy efficiency standards.

38. Add a new scoring criteria “fully accessible and adapted, move-in ready units” to provide additional points for projects designed to serve the growing population of persons with mobility, vision and hearing impairments.

39. Delete the “tenant buy-out plan” scoring criteria.

40. Amend the “project amenities” scoring criteria to: modify some criteria, and increase point value and the number of amenities for which points will be given including: Energy Star (or equivalent) air conditioning; laundry facilities or washer/dryer hookups, and dishwashers; discounted broadband internet access; community room; on-site management office; outdoor patio and garden space; and computer lab.

41. Amend the “project readiness” scoring criteria so that it better gauges project readiness.

42. Revise the “participation of local tax exempt organizations” scoring criteria formerly at 2040.3(f)(8) and replace it with a renamed scoring criteria “participation of local non-profit organizations” to conform the criteria more closely to the wording and requirements of the IRC, reduce the number of points from 5 to 4, and clarify the levels of participation for which points will be awarded.

43. Amend the “special needs” scoring criteria to replace the term “special populations” with the term “persons with special needs”, and to add the requirement that projects receiving scoring points submit a “comprehensive service plan” to ensure that persons with special needs are provided with needed services.

44. Add a new scoring criteria “mixed income” to provide 3 points for projects which reserve at least 15 percent of total project units for households earning more than 60 percent of area median.

45. Add a new section “set-asides” which compliments and clarifies DHCR's right to allocate credit to projects which further the State's housing goals.

46. Amend section 2040.3(g)(2)(ii) to recognize that changes in the low-income housing industry have led to the ownership of projects by limited liability companies. The section is also amended to eliminate the statement that the amount of the developer's fee and the method for funding the operating deficit guarantee shall be established at the credit reservation or binding agreement stage.

47. Amend section 2040.3(g)(2)(iii) to eliminate an apparent inconsistency and to clarify that the developer's fee is an allowable cost that may be reduced where an identity of interest has been found, effecting no substantive change.

48. Sunset the regulations regarding projects which are financed by tax-exempt bonds subject to the Private Activity Bond Cap in anticipation of delegating processing to the New York State Housing Finance Agency.

49. Update the rule's Freedom of Information Law reference.

50. Amend section 2040.9(c) to correct a typographical error to confirm the Existing Rule to the IRC's requirement, and DHCR's practice, of conducting inspections in a manner which will not give project owners notice of what units, or what year's records, will be inspected.

51. Amend the scoring section of 9 NYCRR section 2040.14(d) and add a general allocation policy section and a set-aside section in order to coordinate, to the extent possible, the scoring mechanisms, general allocation policies and the set-aside policies for both the LIHC and SLIHC programs.

52. Additionally, DHCR made a number of minor typographical corrections and formatting changes to sections of the Existing Rule for consistency and grammatical reasons.

Text of proposed rule and any required statements and analyses may be obtained from:

Arnon Adler, Division of Housing and Community Renewal, 38-40 State St., Albany, NY 12207, [phone]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

Five days after the last scheduled public hearing.

Summary of Regulatory Impact Statement

1. Statutory Authority:

Executive Order Number 135, dated February 27, 1990, which was continued in full force and effect by Executive Order Number 5, dated January 1, 2007, authorizes the Commissioner of the Division of Housing and Community Renewal (“DHCR”) to administer New York State's annual allotment of federal low-income housing tax credits. U.S. Internal Revenue Code (“IRC”) Section 42(m) provides that Low-Income Housing Credit (“LIHC” or “Credit”) must be allocated pursuant to a “qualified allocation plan” (“QAP”) approved by the Governor. The LIHC program promotes housing for households earning up to 60 percent of the area median income.

Public Housing Law Article 2-A (the “Act”) created the New York State Low-Income Housing Tax Credit Program (“SLIHC”). The Act authorizes DHCR to allocate New York State tax credits to those who invest in the development of eligible housing for households earning up to 90 percent of area median income, and to promulgate rules and regulations necessary to administer the program.

2. Legislative Objectives:

The LIHC and SLIHC programs were enacted to promote housing that is affordable to persons meeting the applicable income eligibility criteria.

3. Needs and Benefits:

The changes to the existing rule (“Existing Rule”) which would be made by this proposed rule (“Proposed Rule”) will amend 9 NYCRR, Part 2040 to:

1. Clarify the definitions and DHCR policies and procedures.

2. Delete unused terms.

3. Update references to IRC Section 42 and the Freedom of Information Law.

4. Provide plain language definitions of IRC terms.

5. Add a new term “high acquisition cost project”.

6. Define “local non-profit organization” and specify non-profit participation that qualifies for scoring points.

7. Amend the rule to account for project ownership by limited liability companies.

8. Define “persons with special needs” to specify those persons for which LIHC-assisted units may be specially targeted.

9. Amend the definition of “preservation project” to eliminate the requirement that these projects be in a crisis situation or be part of a community revitalization plan; and clarify the 30 year rehabilitation sufficiency requirement.

10. Define “primary market area”.

11. Define “supportive housing” to specify DHCR's requirements for a possible set-aside of Credit.

12. Eliminate the threshold requirement that all local governmental approvals required for the project have been obtained in response to concerns that this disadvantaged worthwhile projects.

13. Require that project participants are not in default of governmental agency obligations pertaining to similar projects.

14. Delete the requirement that there be no change in the project's ownership structure prior to the final allocation of credit.

15. Delete the threshold cap of $20,000 per unit because it is too restrictive. This cap will now be specified in DHCR's annual Notice of Credit Availability (“NOCA”).

16. Specify that the IRC required “comprehensive market study” be conducted by professionals pre-approved by DHCR.

17. Require design features accommodating persons with mobility impairments.

18. Make changes to the term “preservation project”, which correspond to the new term “high acquisition cost project”.

19. Require a minimum 30 year regulatory period in recognition of the State's need to preserve affordable housing.

20. Require certain energy efficiency and environmental “green building” standards and provide scoring points for additional “green building” measures.

21. Replace the “housing needs” scoring criteria with “community impact/revitalization”, which better measures a locality's need for the housing proposed.

22. Replace the “efficiency of credit use” scoring criteria with “financial leveraging”, awarding points to the extent DHCR financing is minimized.

23. Amend the “energy efficiency” scoring criteria to provide points for participation in certain programs involving financing from the New York State Energy Research and Development Authority or demonstrating that the project will meet comparable energy efficiency standards.

24. Add a new scoring criteria “fully accessible and adapted, move-in ready units” to encourage projects designed to serve persons with mobility, vision and hearing impairments.

25. Delete the “tenant buy-out plan” scoring criteria which was criticized as impractical for many projects.

26. Amend the “project readiness” scoring criteria so that it better gauges project readiness.

27. Amend the “persons with special needs” scoring criteria to ensure that persons with special needs are provided with appropriate services.

28. Replace the “participation of local tax exempt organizations” scoring criteria with “participation of local non-profit organizations” to conform the criteria more closely to the IRC's wording and requirements and to reduce the point value.

29. Add a “mixed income” scoring criteria to encourage projects which reserve units for households earning over 60 percent of area median income to minimize concentrations of poverty.

30. Amend the “project amenities” scoring criteria to encourage projects which provide additional quality of life amenities.

31. Add a new section “set-asides” which clarifies DHCR's right to allocate credit to projects which further the State's housing goals.

32. Amend section 2040.3(g)(2)(ii) to recognize ownership of projects by limited liability companies and to eliminate the statement that the amount of the developer's fee shall be established at the credit reservation or binding agreement stage.

33. Sunset the regulations regarding projects which are financed by tax-exempt bonds subject to the Private Activity Bond Cap in anticipation of delegating processing to the New York State Housing Finance Agency.

34. Amend the SLIHC program's “project scoring and rating criteria”, and add a general allocation policy section and a “set-aside” section, in order to coordinate, to the extent possible, the scoring mechanisms, general allocation policies and the set-aside policies, for both the LIHC and SLIHC programs.

35. Additionally, DHCR made a number of minor typographical corrections and formatting changes to sections of the Existing Rule for consistency and grammatical reasons.

4. Costs:

(a) Costs to State Government.

There will be no costs to state government because of the proposed amendments to the rule. DHCR will administer the LIHC and SLIHC programs with existing staff and resources.

(b) Costs to local government.

None.

(c) Cost to private regulated parties.

The changes made by the Proposed Rule should result in no increased costs to regulated parties. Any increase in development costs should be offset by the Credit allocated to the project.

5. Local Government Mandates:

None.

6. Paperwork:

The rule requires the filing of application and supporting documentation to establish eligibility for an allocation of the federal tax credits.

None.

7. Duplication:

None.

8. Alternatives:

The alternative to the Proposed Rule is the Existing Rule which does not adequately address the Division's need to clarify its definitions, and strengthen and broaden its scoring criteria to meet more programmatic goals. Specifically:

1. The alternative to deleting definitions of unused terms, and alphabetizing defined terms, is to fail to make the rule more readable.

2. The alternative to revising the definition of “code” is the existing outdated reference.

3. The alternative to defining “high acquisition cost project” and the corresponding threshold criteria is to allow developer's fees to be based on the cost of purchasing existing housing.

4. The alternative to defining “local non-profit organization” and “primary market area” is to fail to respond to the need for more specificity.

5. The alternative to defining “persons with special needs” is to leave the term undefined.

6. The alternative to amending the definition of “preservation project” is the current definition, which hampers efforts to preserving existing housing.

7. The alternative to defining “supportive housing” and reserving the right to set-aside Credit for such housing is to fail to clarify the basis of the State's discretion to provide additional housing opportunities for persons with special needs.

8. The alternative to providing a definition of “visitability” and adding the corresponding threshold criteria (section 2040.3 (e)(14) of the Proposed Rule) is to fail to ensure that Credit-assisted housing is accessible to elderly persons and persons with mobility impairments.

9. The alternative to revising section 2040.3(d)(1), regarding the issuance of a binding agreement in order to facilitate attainment of financing, is to fail to set forth the general purpose of a binding agreement.

10. The alternative to amending the provision allowing a carryover allocation, despite the failure of the owner to expend 10 percent of the owner's reasonably expected basis, is the current text which indicates that DHCR will continue to make judgment calls regarding carryover allocations, and risk the loss of Credit.

11. The alternative to deleting the reference in section 2040.3(d)(2), setting forth developer fee limits in the carryover allocation, is to retain this provision; IRC requirements make the eliminated timeframe unnecessary.

12. The alternative to eliminating the requirement that all local governmental approvals have been obtained is the current requirement which makes it difficult to develop worthwhile projects.

13. The alternative to revising the experience requirement is to retain the current text which can be misinterpreted.

14. The alternative to amending section 2040.3(e)(8) is the current text which allows parties to participate in the Credit program despite having failed to properly develop or run similar projects.

15. The alternative to eliminating the requirement forbidding changes in the project's ownership is the current text, which creates ambiguity because section 2040.6(b) allows such changes with DHCR approval.

16. The alternatives to eliminating the per unit cap of credit allocations to $20,000 are not practical, therefore DHCR has determined that the cap should be set forth in the annual NOCA.

17. The alternative to amending the marketing study requirement is to fail to provide needed specificity.

18. The alternative to extending the minimum regulatory period is to fail to provide for the preservation of affordable housing.

19. The alternative to adding “green building” threshold requirements is to fail to promote conservation.

20. The alternatives to the “community impact/revitalization” criteria which replaces “housing needs” include the failure to amend the criteria to better measure the need for the type of housing proposed.

21. The alternative to revising the “efficiency of credit use” scoring criteria, now “financial leveraging”, is the current text which hampers the development of worthwhile projects.

22. The alternative to amending the “energy efficiency” scoring criteria is to delete the current text because its components have been made threshold requirements.

23. The alternative to including the “fully accessible and adapted, move-in ready units” scoring criteria is to fail to promote affordable housing designed to serve persons with physical impairments.

24. The alternative to amending the “project amenities” scoring criteria is to fail to encourage projects providing desirable amenities.

25. The alternative to amending the “project readiness” scoring criteria is to fail to better gauge project's readiness to proceed.

26. The alternative to amending the former “participation of local tax exempt organizations” scoring criteria is the current section which has been criticized as over-emphasized. The amendment also ensures compliance with IRC requirements.

27. The alternative to the amendments to the “special needs” scoring criteria is the current text, which does not sufficiently address special needs.

28. The alternative to adding the “mixed income” scoring criteria is to fail to provide an incentive for minimizing concentrations of poverty.

29. The alternative to adding the “set-asides” section is to fail to provide for the special priorities for which DHCR may show a preference or reserve Credit.

30. The alternative to amending section 2040.3(g)(2)(iii) is the current text, which might create ambiguity.

31. The alternative to adding 2040.4(f) is to have DHCR, instead of the New York State Housing Finance Agency, process applications for projects which are financed by tax-exempt bonds subject to the Private Activity Bond Cap, with which the Housing Finance Agency has greater experience.

32. The alternative to amending the SLIHC program's scoring criteria, and adding a general allocation policy section and a set-aside section is to retain the current text which would be inconsistent with the proposed changes to LIHC regulations.

9. Federal Standards:

This Rule does not exceed the minimum standards of the federal government for the LIHC or SLIHC programs.

10. Compliance Schedule:

Not applicable. The rule changes will affect only those who apply to DHCR for allocations of Credit after the amendments to the rule are effective.

Regulatory Flexibility Analysis

The Division of Housing and Community Renewal has found that the proposed amendments to the rule at 9 NYCRR Part 2040 (the “Proposed Rule”) will have no negative impact on small businesses. DHCR sought and utilized the advice of persons who represent small businesses in order to ensure that the Proposed Rule would have no negative impact on small businesses. Prior to drafting the Proposed Rule, DHCR held three roundtable discussions (the “Roundtables”). Two Roundtables were held with members of the affordable housing industry who have been active in the Credit program, including members of the Rural Housing Coalition. One Roundtable was held with members of federal, state and local government who have been active in the Credit program. Sixty-seven members of the affordable housing industry who have been active in the Credit program were invited to attend the non-governmental Roundtables. Twenty members of federal, state and local government were invited to attend the governmental Roundtable. The invitees included for-profit and not-for-profit housing developers, attorneys, Credit syndicators and representatives of government agencies with an interest in the Credit program. Forty-eight members of the affordable housing industry attended the Roundtables, thirty of whom were representatives of small businesses. No participant expressed an opinion indicating that any of the amendments in the Proposed Rule would adversely affect small businesses. Based upon the Roundtables, its prior experience in the allocation of Credit to projects which utilize small business services, and the nature of the amendments, DHCR does not anticipate that the amendments in the Proposed Rule will have any adverse impact on small businesses.

Rural Area Flexibility Analysis

The Division of Housing and Community Renewal has found that the proposed amendments to the Rule at 9 NYCRR Part 2040 will not impose any adverse economic impact on rural areas or reporting, recordkeeping, or other compliance requirements on public or private entities in rural areas. The changes to the existing Rule which would be made by the proposed amendments impose no further requirements in rural areas, will not impose additional capital or compliance costs on person/entities which are located in rural areas, and will have no other adverse impacts on rural areas.

Prior to drafting the Proposed Rule, DHCR held three roundtable discussions (the “Roundtables”). Two Roundtables were held with members of the affordable housing industry who have been active in the Credit program, including members of the Rural Housing Coalition. One Roundtable was held with members of federal, state and local government who have been active in the Credit program. Sixty-seven members of the affordable housing industry who have been active in the Credit program were invited to attend the non-governmental Roundtables. Twenty members of federal, state and local government were invited to attend the governmental Roundtable. The invitees included for-profit and not-for-profit housing developers, attorneys, Credit syndicators and representatives of government agencies with an interest in the Credit program. No invitee expressed an opinion indicating that the proposed changes to the rule would adversely affect rural areas. DHCR's experience with the Low-Income Housing Credit Program and the nature of the amendments are such that no such impact should be anticipated.

Job Impact Statement

The Division of Housing and Community Renewal has found that the proposed amendments to the Rule at 9 NYCRR Part 2040 will have no adverse impact on jobs and employment opportunities. DHCR's experience with the Low-Income Housing Credit Program and the nature of the amendments are such that no adverse impact should be anticipated. The proposed Rule's inclusion of requirements and incentives regarding energy conservation and the minimization of adverse environmental impacts may result in an increase in jobs in related industries.