During the recent National Council of State Housing Agencies (NCSHA) 2014 Housing Credit Connect conference in Chicago, the authors formed the panel for a closed discussion of investor and syndicator compliance topics. The discussion between state housing finance agency (HFA) staff and the panel resulted in a number of opportunities for HFAs and investors and syndicators (“investor”) to work together to increase the compliance, operational and financial performance of low-income housing tax credit (LIHTC) projects.

The suggestions include:

• Provide comprehensive and “user friendly” HFA websites that allow sponsors (owners and property managers) and investors to find the compliance and asset management information they need to meet their shared obligations in that state. A compliance manual or similar guidance that enumerates the HFA’s guidance on program compliance, monitoring procedures, requirements, and recommended practices, is particularly important given the flexibility states have in implementing the LIHTC program. The website should also have required and recommended forms, rent and income limits, contact information, and important links, to name a few.
• Support the investors’ roles and rights–both public and private investors. The investor has an investment that must be protected. HFA messaging to the LIHTC industry in its state can be important, particularly where an investor or syndicator chooses to ask projects to engage in more due diligence than the HFA might require. For example, management agents may translate a “not required” statement from the HFA as “do not complete” and dispute the additional due diligence requested by the investors.  HFAs should be prepared to explain that additional due diligence can be required by an investor; it is not a violation of the Internal Revenue Code or regulations if an investor has a more conservative interpretation than the state HFA.
• Inform investors and syndicators as soon as the partner is notified when there is non-compliance. Sharing the results of HFA inspections with all partners provides an opportunity for them to quickly solve issues to the HFA’s satisfaction. Being able to log into the HFA web portals as the managing partner does to review reports submitted to the HFA would help all partners ensure that reporting to the regulatory agencies is timely and complete.
• Offer training that addresses specific LIHTC compliance policies and programmatic requirements in that state. Such training can be conducted by HFA staff or other trainers prepared to discuss HFA-specific requirements. While the basics of the LIHTC program are the same, each state has unique nuances based on the Qualified Allocation Plan and other policies. Knowing what is required in that state is critical to maintaining compliance.
• Consider the implementation of a minimum level of qualifications for site staff. While it may be too much to ask that site staff obtain a credential such as the Housing Credit Certified Professional (HCCP) or Specialist in Housing Credit Management (SHCM), it is difficult to see how a project can be successful when site staff have little or no experience with the program – a not unusual occurrence.
• Provide HFA-approved forms. While some states mandate required forms, most states currently leave it up to the owners to use forms at their discretion. The variety of forms can make it difficult for both HFA staff and the compliance staff of the investor to determine whether a household has been properly qualified. Specific forms for qualifying a household, such as the income and asset statement, employment verification, and tenant income certification are helpful to ensure there is no confusion.
• Clarify and simplify the requirements to demonstrate that a household is qualified. Compliance monitoring is a real cost. The money and time owners–and regulators and funders–spend determining, checking, recertifying, adjusting, and reporting on eligibility is money and time that could be spent providing more housing or services to low-income households. In addition to the expense of staff time, complicated rules and requirements have another cost: units that remain unoccupied for a longer time. The documentation needed to determine eligibility can slow the process of filling a vacant unit. In addition, the complexity of the rules means that eligibility is not always clear, and owners need to process multiple applicants for each unit in order to find one that is in fact qualified. Delays in filling units mean that at any given point of time fewer low-income housing households are housed in regulated affordable properties. In other words, the housing is not fully utilized to meet community needs.
• Find ways to collaborate with other funders to reduce monitoring and compliance burdens. Such collaboration could include common reporting requirements or the alignment of inspections.
• Simplify rent and income restrictions by carefully considering additional restrictions as part of the award of funds. While investor equity raised through the sale of federal LIHTCs provides the majority of the funds for developing and redeveloping affordable housing, most developments require other funding sources. These other funding sources, and state’s efforts to target federal tax credits beyond the federal requirements, have created an array of restrictions as to what households can live in which units of any given development, and how much they can be charged in rent. To track compliance with these requirements, each funding source also has its own reporting requirements. Simplifying and standardizing income and rent restrictions and reporting requirements would allow for more systems support, thereby reducing costs for owners, funders and regulators.
• Advocate with investors for a change in IRS regulations regarding how projects are monitored. Consideration should also be given to reducing the frequency and intensity of recertifications; experience suggests that more targeted reviews would be just as effective in ensuring eligibility as full annual reviews. For example, changes in unit designation or eligibility are much more likely to be needed for households that have experienced changes in composition or employment, and such households therefore merit more frequent review.  Conversely, the eligibility of households whose composition and income do not tend to change could be reviewed less frequently without raising the risk of erroneous eligibility of rent determinations.
• Require owners as well as developers to share agreements and covenants that relate to the project with new management agents. Transitions of management companies, without the hand-off of critical documents can lead to issues. HFA requirements to share this information could help to ease these transitions.
• Create and enforce strong requirements and penalties for management companies and other project changes. HFAs and investors are often left out of discussions regarding management company changes, resulting in some surprises once a sponsor makes a change. Not only does this highlight a communication issue, it can result in the selection of a management company that may not meet either the HFA’s or the investor’s standards.
• Provide detailed technical guidance on challenging topics, such as resyndication or acquisition/rehabilitation projects.
• Seek opportunities to network and collaborate on policies and procedures. By working together, for example in advocating in Washington, D.C., more opportunities to improve the program will emerge.

While investors and HFAs are created by different incentives in mind, they share a similar goal–projects serving low- to moderate-income households that are in compliance and operationally and financially stable. By being cognizant of the goals and expectations of both, HFAs and investors can ensure the mission of the LIHTC program is fulfilled.

Deanna Breznenik is an assistant director of asset management at USBancorp Community Development Corp. Breznenik can be reached at deanna.breznenik@usbank.com. Brian Carnahan, HCCP, was until August, director of the Ohio Housing Finance Agency’s Office of Program Compliance, where he oversaw compliance monitoring of tax credit, HOME, and Sec. 8 communities.  He is currently executive director of the state of Ohio Counselor, Social Worker, and Marriage and Family Therapist Board. Carnahan can be reached at brian.carnahan@cswb.ohio.gov. Allen Feliz is a managing director at TCAM, a third-party asset manager and consultant for owners and funders of affordable housing. Feliz can be reached afeliz@tcamre.com. Kristin Han is director of compliance at WNC & Associates, a national tax credit syndication firm based in Irvine, Calif.  Han can be reached at khan@wncinc.com. Carol Howard is vice president and director of housing compliance for Boston Capital. Howard can be reached at choward@bostoncapital.com.