Utilizing Low Income Housing Tax Credits (LIHTC) to Create Affordable, Accessible Rental Housing for People with Disabilities.

Ann O'Hara, Technical Assistance Collaborative, explains Low Income Housing Tax Credits and provides examples of collaboratives working to make housing developments affordable for very low income people with disabilities.

Across the United States, people with disabilities with the lowest incomes face an extreme housing affordability crisis as rents for moderately priced studio and one-bedroom apartments soared above their entire monthly income for the first time in our nation’s history. The national average rent for a one-bedroom unit climbed to $715 per month and the studio/efficiency unit rent to $633 per month in 2006 – both higher than the entire monthly income of people with disabilities who rely on the federal Supplemental Security Income (SSI) program- the SSI Federal Benefit Rate for 2007 is $623.

Low Income Housing Tax Credit (LIHTC) Program

Created in 1986, the Low Income Housing Tax Credit (LIHTC) program has become the largest single source of funding for the production of rental housing for low-income families and individuals. The program has produced over 6 billion dollars of private investment in affordable housing.

The LIHTC program, leveraging Federal rent subsidy programs and State participation, can provide a unique opportunity for the production of quality affordable housing to people with disabilities with very low incomes. The question is how to utilize these valuable credits for the people that are in truly the most need?

How The LIHTC Works

Each year, the Internal Revenue Service (IRS) awards a per-capita amount of tax-credit dollars to each state to encourage the re-development or new construction of affordable housing units. Each state, through a competitive process, awards these credits to experienced developers with specific affordable housing projects. A tax credit is a dollar-for-dollar reduction in the amount of tax paid, and is greatly sought after by individuals, corporations and institutions. Developers sell the tax credits to investors to raise the funds to build the project. Once tax credits are awarded to the affordable housing developer, other development funding becomes much more easily available.

Project Requirements

Each project must at least meet Federal affordability standards. Project owners may elect one of the following two thresholds:

•   20-50 Rule: At least 20 percent of the units must be rent restricted and occupied by households with incomes at or below 50 percent of the HUD-determined area median income (adjusted for household size).

• 40-60 Rule: At least 40 percent of the units must be rent restricted and occupied by households with incomes at or below 60 percent of the HUD-determined area median income (adjusted for household size).

The LIHTC program requires a minimum affordability period of 30 years (i.e., a 15-year compliance period and subsequent 15-year extended use period). Some states require a longer affordability period for all LIHTC properties, and other states may negotiate longer affordability periods on a property-specific basis. Tenant incomes are recertified annually to ensure their continued eligibility. The allocating agency is responsible for monitoring compliance with the provisions during the affordability period and must report the results of monitoring to the IRS.
LIHTC regulations also provide a 10 percent set-aside policy for non-profit affordable housing developers, and the program adds to the stock of accessible housing for people with disabilities by requiring that at least 5 percent of the units be accessible to people with mobility impairments and an additional 2 percent of the units be accessible to people with sensory impairments.

Affordability?

In its most basic form, the LIHTC Program is not necessarily structured to create units that are affordable to extremely low-income households such as people with disabilities receiving SSI.

According to federal guidelines, low-income individuals should spend no more than 30 percent of their income on housing. Extremely low-income people on SSI currently have, on average nationally, an income at about 18 percent of the area median income. Obviously, this is well below the 50-60 percent of area median income targeted by the LIHTC program.

In fact, an “affordable” unit in a 60 percent LIHTC development project, with rent set at 30 percent of 60 percent of area median income, would require the entire amount of a person’s monthly SSI check, just to pay for rent.

Simply put, projects designed to serve households with incomes at 50 percent, 40 percent or even 30 percent of area median income, will not be able to serve extremely low-income households like people with disabilities on SSI.

For rent to be truly affordable for someone on SSI, rents need to generally be approximately $200 per month. The question remains, how to get there?

States’ Qualified Allocation Plan

The LIHTC program includes a requirement that states develop their own strategic planning documents describing how the LIHTC program will be implemented to meet the housing needs and housing priorities of the state. This plan – known as the Qualified Allocation Plan (QAP) – must be submitted to the Department of Treasury/IRS each year in order for the state to receive its LIHTC allocation from the federal government. Federal law requires that the QAP give priority to projects that serve the lowest-income households and remain affordable for the longest period of time.

Under the QAP plan, each state can develop its own competitive points process to award tax credits to developers with the best and most comprehensive affordable housing plans to serve the state’s housing needs. Through thresholds, set-asides and preferences, states control the allocation criteria for awarding tax credits. As part of the QAP, states can establish selection criteria that target specific groups, such as people with disabilities, people who are homeless, or elderly people.

The North Carolina Example

Since 2002, the North Carolina Housing Finance Agency has partnered with the North Carolina Department of Health and Human Services to facilitate the inclusion of people with disabilities within properties funded by the Federal Low Income Housing Tax Credit program. All tax credit properties must develop a Targeting Plan that makes 10 percent of the units available to extremely low-income people with disabilities, including those who are homeless. As a result of tweaking the QAP, since 2002, an estimated 900 units of quality affordable rental housing linked with voluntary services and supports have been funded – and more than 200 new units are added each year.

In North Carolina, the Department of Health and Human Services facilitates a partnership between the property owner/manager and a local lead agency that represents the local human service system – acting as provider, coordinator, or referral agent for the range of community services available to people with disabilities in their community.

North Carolina’s approach is an exemplary cross-disability model of linking affordable housing with community-based services for people with disabilities – and one that other states could easily adopt. In fact, the Louisiana Housing Finance Agency recently created a similar program, which will provide as many as 3,000 units of permanent supportive housing. Targeting units for people with disabilities within Low Income Housing Tax Credit financed properties is an ideal strategy to promote housing affordability, integration and ensures that the services provided are based on the needs and choices of tenants living in their own homes.

Linking LIHTC Properties and Section 8 Vouchers

It is important to recognize that the LIHTC system only provides one-time assistance for the development and construction of affordable housing units. The LIHTC funds do not assist with ongoing cost of operating the housing (e.g., insurance, maintenance, reserves, property management costs, utilities, etc.). Thus an operating subsidy is needed to cover the affordability gap between 30 percent of SSI income and the rent in a 50 percent or 60 percent affordability project.

Two federal rent subsidy programs – the Section 8 Housing Choice Voucher program and HUD McKinney/Vento Homeless Assistance Shelter Plus Care program – can be linked with the LIHTC program.

The owners of LIHTC-financed properties are required to accept Section 8 vouchers. In practical terms, this requirement means that an owner of a LHITC property may not reject a household seeking a LIHTC unit solely because the household will use a Section 8 voucher to help pay their rent. People with disabilities can use this rule to gain access to high quality LIHTC-financed rental housing, including newly constructed accessible units.

Currently, there is no systematic strategy in most states to link people with mobility/sensory impairments who have Section 8 vouchers to vacant accessible units in LIHTC properties. State policy options to effectively link Section 8 voucher holders with LIHTC units include the following:

•   During the initial occupancy period, and on a continuing basis, states could require LIHTC owners to provide written notice to Public Housing Authorities (PHAs) in the project’s jurisdiction at least 60 days prior to taking applications. PHAs could then be required to provide this information to people with vouchers looking for housing. The initial occupancy period is important because it is the only time when all of the affordable units in the property – including all those with accessible features – are available for occupancy.

• Section 8 rents can be a complicated issue in LIHTC projects. For example, the tax credit rent for an affordable LIHTC unit may be higher than the Section 8 rent permitted by the Public Housing Agency (PHA). However, the PHA should be able to grant an exception rent for a person with a disability as a reasonable accommodation under Section 504 policies, which apply to the PHA’s Section 8 program. If the tax credit rent is above the exception amount that can be approved by the PHA (the PHA can request HUD’s approval of the exception rent).

Unfortunately, since 2003, HUD has proposed repeatedly to end the voucher program and divert its valuable funding away from the lowest-income households most in need of assistance. Providing this type of “deep” rental subsidy to ensure affordability for the lowest-income households has historically been the responsibility of the federal government. HUD’s current leadership argues that it is “too expensive” to provide housing for the poorest Americans and that scarce federal housing subsidy funding should be directed “more efficiently” to higher-income households who cost less to serve. It is tragic that when state housing agencies have the political will to address the nation’s most serious housing crisis, the federal rent subsidy resources they need to ensure affordability for people with SSI-level incomes are not available.

Section 8 Project-Based Assistance

Under the project-based assistance program, the Section 8 voucher is actually committed or “tied” to one or more units in a specific building for a specific period of time. The project-based subsidy helps create new affordable housing units in a community because it provides the guarantee of a rental subsidy. Because LIHTC properties always involve new construction or rehabilitation, policies linking Section 8 project-based vouchers directly to LIHTC properties can also help provide high-quality housing to Section 8 program participants. Through this linkage, a PHA can now designate up to 20 percent of its Section 8 funding to be used in specific rental properties. Both new as well as existing rental projects are eligible to receive project-based rental assistance. The project-based assistance program encourages mixed-income housing and permits PHAs to commit the Section 8 voucher to the property for up to 10 years

Linking LIHTC with HUD’s Shelter Plus Care Program

This permanent supportive housing program provides rental assistance to homeless people with disabilities. It is one of several HUD programs authorized by Congress through the McKinney/Vento Homeless Assistance Act. The Shelter Plus Care program has four separate components, including a project-based component that works much like the Section 8 project-based program described above. Under Shelter Plus Care project-based assistance, rent subsidies can be “tied” or committed to supportive housing projects for a period of either 5 or 10 years.

No more than 25 percent of the units in a building may receive project-based vouchers although elderly housing and housing for persons with disabilities are exempt from this requirement.

Linkages to Other Federal Housing Resources

In most states, it is impossible to develop new affordable rental housing using only LIHTC. Although tax credits typically generate 40 percent or more of the cost of development, in almost every instance, additional capital financing is needed in order to make the project financially viable. Some 100 percent affordable LIHTC properties may have five or more separate sources of financing.

A few states have utilized state housing trust funds and tax-exempt bond financing in combination with LIHTC. Most states combine the federal HOME program administered by states and localities to help fill the financing gaps in LIHTC projects. State policies linking federal LIHTC funding with state HOME funding and a rent subsidy can help develop new rental housing opportunities affordable for people with disabilities. This coordination could begin when the state prepares its QAP and Consolidated Plan for approval by the federal government.

While all of this bureaucracy can be complicated, combining planning with building coalitions amongst affordable housing groups and advocacy can help assure that LIHTC policy-related changes include the people with disabilities.