After legislation to repeal the Affordable Care Act was pulled from the House floor last Friday, news headlines across the country began reporting that tax reform is next on the Trump Administration’s agenda. As noted in our prior blog post, tax reform that changes the corporate tax rate, the tax-exempt bonds program and the tax-credit programs will have significant impacts on the production of the affordable housing across the country.

In an effort to protect affordable housing programs, legislators have introduced amendments to the Internal Revenue Code (“IRC”) that either (1) create savings to be reinvested in affordable housing programs or (2) expand the availability of housing tax credits and fix related technical issues.

The following bills were introduced in the past 60 days –

  1. The Affordable Housing Credit Improvement Act of 2017 (S. 548) (the “Cantwell-Hatch bill”). According to The Affordable Housing Tax Credit Coalition, the bill builds upon prior bills (S. 2962 and S. 3237), also introduced by Sentor Maria Cantwell (D) and Senator Orrin Hatch (R), and includes “a new provision addressing planned foreclosures, a provision raising the cap to 30 percent from 20 percent on Difficult to Develop Areas (DDAs), additional criteria for community revitalization plans, a provision which codifies, rather than leaving up to Treasury regulations, the prohibition against any state QAP from including local approval or local contribution requirements, and other technical changes.” A section by section summary can be found here.
  2. Affordable Housing Credit Improvement Act of 2017 (H.R. 1661). The purpose of the bill, as reported in a press release issued by co-sponsor Representative Pat Tiberi (R), is to “make the financing of affordable housing more predictable and streamlined, facilitate housing credit development in challenging markets like rural and Native American communities, increase the housing credit’s ability to serve extremely low-income tenants, and support the preservation of existing affordable housing.” The bill is co-sponsored by Representative Richard Neal (D). A section by section summary can be found here.
  3. Common Sense Housing Investment Act of 2017 (H.R.948). The goal of the legislation, introduced by Representative Keith Ellison (D), is to expand the mortgage interest deduction to lower income homeowners and reinvest an estimated $241 billion in savings over 10 years into affordable housing. More information on the bill can be found here.

Bi-partisan support for these bills, especially S.548 and H.R. 1661, suggest that tax reform protecting housing tax credits is good policy. Monitoring the evolution of these bills; the President’s plan for tax reform and the industry’s response to anticipated changes in the IRC will be telling of the future affordable housing programs, especially those authorized under the IRC.


On April 9, 2015, the Housing Authority of the City of El Paso (HACEP) and its development, private equity and lending partners closed Phase I of the largest Rental Assistance Demonstration (RAD) project in the country. Hunt Development Group has joined HACEP in undertaking the development, preservation and rehabilitation of all of the 1,590 existing low-income housing units across 13 separate public housing apartment complexes in El Paso, Texas in connection with the conversion of those units to Section 8 RAD units.

The project utilized several forms of financing, including private equity, tax-exempt loans and bonds and subordinate loans. Freddie Mac and Centerline Mortgage Partners, Inc., a wholly owned subsidiary of Hunt Mortgage Group, LLC, provided $59,625,000 in long-term, senior debt financing through Freddie Mac’s new Direct Purchase of Tax-Exempt Loans program. The conduit lender for this tax-exempt loan, the Alamito Public Facilities Corporation, also issued $65,375,000 in tax-exempt, short-term bonds, in support of the project.

Ballard Spahr was honored to be a part of this historic transaction, closing the nation’s largest RAD conversion to date, ensuring that over 1,500 families will have affordable and sustainable housing available on a long-term basis. The financing and structuring considerations and issues addressed in this transaction provide a strong basis for future deals of increasing complexity.

Released in February, the 2016 budget set forth by the Obama administration takes a focused stance towards the country’s growing infrastructure requirements. The 2016 budget features tax-exempt bond proposals seen in the administration’s 2014 and 2015 budgets, and introduces four new bond proposals:

1) A New Category of Qualified Private Activity Bonds for Infrastructure Projects – Qualified Public Infrastructure Bonds

2) Modifications to Qualified Private Activity Bonds for Public Educational Facilities

3) Modified Treatment of Banks Investing in Tax-Exempt Bonds

4) Repealing Tax-Exempt Bond Financing of Professional Sports Facilities

The 2016 budget also encourages the financing of infrastructure by limiting tax rates for upper-income taxpayers who can use specific tax deductions, tax preferences, and interest on tax-exempt to reduce tax liability to a 28 percent maximum. The new 28 percent cap, though viewed by opponents as discouraging to the investment of tax-exempt bonds, reflects the administration’s position for broader reforms on tax expenditures.

A detailed look at the 2016 budget’s four new bond proposals and the 28 percent cap is available, along with insights into other pertinent bond proposals.

DominoesIn the last few years, we have seen an increase in the number of multifamily housing projects being sold at the completion of the 15-year low-income housing tax credit compliance period. Strong rental demand in many areas of the country and low financing rates have created a favorable market for selling these types of projects.

Many of the projects being sold have been financed with proceeds of tax-exempt bonds. Some project owners are surprised to learn that it can be somewhat complicated to prepay the bonds. Sometimes closings are delayed because of the prepayment requirements contained in the related bond documents.

Here is a useful list of items that are commonly required to be provided in connection with the prepayment of an issue of tax-exempt bonds: (1) timely notice from the project owner to the bond trustee, bond issuer, credit enhancer and servicer, (2) direction letters from the project owner and the bond issuer to the bond trustee, (3) timely notice from the trustee to bondholders, (4) consents from the bond issuer and the credit enhancer, (5) tax opinions from bond counsel, (6) opinions from borrower counsel regarding certain bankruptcy code provisions, (7) defeasance escrow agreements, (8) releases of liens from the bond trustee and the credit enhancer, (9) release of the bond regulatory agreement from the bond issuer, (10) certificates from the bond trustee, bond issuer and credit enhancer and (11) dissolution agreements may be required if the tax-exempt bonds are secured by a mortgage-backed security structure.

In addition, bond counsel will usually require evidence from the project owner that the qualified project period will end with the redemption of the tax-exempt bonds. The project owner may need to provide evidence of the date on which at least 50% of the units in the project were first occupied and evidence that the project has been in compliance with the terms of the bond regulatory agreement.

Project owners who are considering selling a multifamily project financed with tax-exempt bonds will want to be aware of the process and time required to prepaying the bonds.



Housing Plus BlogSeveral exciting developments have recently brought changes to the affordable housing industry and we are inviting you to explore them with us at our fifth annual Western Housing Conference. Ballard Spahr and CSG Advisors are pleased to announce this year’s Best of the West in Affordable Housing Development and Financing conference on March 13, in San Francisco. The conference features movers and shakers in affordable housing leading panels, roundtables, and discussion about the most pertinent issues and developments shaping the housing industry.

The Legislative Update Panel has its hand on the pulse of Capitol Hill. Discussion will explore the implication and future of legislation and policies that affect the affordable housing industry.

HUD’s Rental Assistance Demonstration (RAD) Program experienced a boost in governmental support with the recent cap increase. The RAD program now offers renewed opportunities for housing authorities and developers to finance, transform, and create long-term housing options for low-income residents. The RAD Panel brings together a panorama of perspectives to discuss the need-to-know policies, timelines, financing structures, and organizational approaches to the revitalized RAD program.

The Finance Trends and Innovations Panel will offer insights to new loan products, lender programs, and interest rate structures taking shape in affordable housing finance. The discussion will examine new funding sources as a strategic means to preserve and sustain affordable housing.

Roundtable forums will feature Year 15 challenges and the implications of Fair Housing: Disparate Impact. Discussion will examine these two important topics and provide strategies, considerations, and expectations for the future of affordable housing development and management.

Registration for the event is free, and a detailed program description is available.

It is our privilege to create such an informative and collaborative forum for dialogue, exploration, and networking within an industry about which we feel so passionate. Though we will certainly blog about conference updates and insights, we hope you will join us in person.

JuryA lawsuit was recently filed alleging that the U.S. Department of Treasury (Treasury) and Office of Comptroller of the Currency (OCC) perpetuated racial segregation in the City of Dallas in their administration of the Low Income Housing Tax Credit (LIHTC) program. The plaintiff alleges that the agencies’ conduct violated their duty to affirmatively further fair housing under the Fair Housing Act.

The plaintiff, Inclusive Communities Project, is a group that assists low-income families eligible for Section 8 vouchers.  They claim that current LIHTC policies effectively foster poor, blighted, racially segregated neighborhoods in Dallas. The claims are based on the disparate impact theory of liability, in which the plaintiff uses statistics to show that racial minorities are harmed by the policies; no intentional discrimination has to be proven.

The plaintiff argues that the manner in which Treasury regulates the LIHTC program and the OCC regulates national banks that invest in such projects violates the Fair Housing Act. The plaintiff alleges that the defendants have condoned continued racial segregation through their LIHTC program administration. As a result, according to the lawsuit, LIHTC non-elderly units are disproportionately located in minority census tracts plagued by problems that include high rates of crime, poverty, and unemployment, as well as adverse environmental conditions.

Further discussion of this and related cases can be found on the Ballard Spahr website. Our recent webinars on this topic, “Fair Housing and Accessibility: Multiple Standards and Compliance Difficulties” and “Hot Topics in Fair Housing and Accessibility,” are also available on our website.

DominoesFor many years multifamily housing apartment projects could be financed with tax-exempt drawn-down bonds and loans with all of the bonds issued pursuant to a draw-down loan being treated as part of a single issue.  The date of issuance for the bonds would be the first date on which the aggregate draws exceeded the lesser of $50,000 or 5 percent of the issue price of the bonds.  Draw-down bond structures were used in many private placements as a means to eliminate negative arbitrage.

Faced with the possibility that a governmental issuer could use a draw-down structure for a Build America Bond (BABs) issue and avoid the statutory deadline for issuance of BABs, the Internal Review Service issued Notice 2010-81 creating separate definitions for (i) the issue date of a bond and (ii) the issue date of an issue of bonds. The issue date of a bond was determined to be the date that the issuer received funds in exchange for the bonds and the issue date of an issue of bonds was determined to be the first date on which the aggregate draws exceeded the lesser of $50,000 or 5 percent of the issue price of the bonds.

After the release of Notice 2010-81, the Internal Revenue received comments that the definition of the issue date of a bond in Notice 2010-81 created concerns for the treatment of draw-down bonds for purposes of the allocation and administration of volume cap on private activity bonds.  Finally, in 2011 the Internal Revenue Service issued Notice 2011-63 and indicated that, solely for purposes of private activity bond volume cap under Section 146 of the Internal Revenue Code, an issuer may treat a bond as issued either (i) on the issue date of the bonds under the general rule of Notice 2010-81, or (ii) on the issue date of the issue, provided that all of the bonds of the issue are delivered no later than the earlier of (a) the statutory deadline of issuing the bonds, or (b) the end of the maximum carryforward period of unused volume cap under the applicable statute treating all of the unused volume cap for the issue as volume cap arising in the year in which the issue date of the issue occurs. Notice 2011-63 also indicates that an issuer must type special language on the IRS form 8030 filed with respect to the bonds. 

Although Notice 2010-81 gives guidance as to which definition to use for purposes of the administration of volume cap, several questions remain.  For example, which definition of issue date should be used in applying the public hearing rules and should all draw-down bonds be treated as a single issue for purposes of applying use of proceeds rules such as limits for land and bad costs.

SpreadsheetIf you have ever issued (or borrowed the proceeds of) bonds then you should know about the Municipalities Continuing Disclosure Compliance Initiative (the “Initiative”) and take the appropriate steps to determine your compliance with Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”).

The Rule generally prohibits underwriters from purchasing or selling municipal securities unless the issuer has agreed to provide continuing disclosure to the marketplace regarding annual financial information, certain operating information and certain events in the form of annual reports and event notices. The Rule also requires that an offering document prepared for a primary offering of municipal securities include a description of any material noncompliance with any prior continuing disclosure undertaking in the last five years.

The Securities and Exchange Commission (“SEC”) recently launched the Initiative, which was designed to motivate municipal issuers (defined in the Initiative to include obligated persons) and underwriters of municipal securities to police themselves.  The Initiative encourages self-reporting related to possible material misstatements in offering documents regarding issuers’ compliance with past continuing disclosure undertakings for what the SEC deems to be “favorable settlement terms.”  The Initiative’s settlement terms expire on September 10, 2014.

On July 8, 2014 the SEC announced its first cease and desist order under the Initiative.  The SEC found that the Kings Canyon Joint Unified School District of California (“District”) made a material misstatement in a 2010 official statement.  The SEC alleged that the District incorrectly represented that it had not failed to comply in all material respects with its continuing disclosure agreements in the previous five years, and found the failure to comply itself to be material.

Participants in the municipal market, including housing authorities which have issued bonds or borrowed the proceeds thereof, should begin reviewing (or hire a third party to review) their compliance with any continuing disclosure undertakings over the past decade and ascertain if such compliance was accurately reported in all primary offerings in the past five years.  If any noncompliance is found, you should consult with counsel to determine the potential repercussions of self-reporting or not self-reporting. Ballard Spahr will continue to monitor the Initiative and stands ready to address your questions or explore these issues with you in greater detail.

American FlagWith Independence Day right around the corner and with several bond financings benefitting homeless veterans recently in the news (see Proposition 41 Bond Measure and Apartments for Homeless Veterans), it seemed fitting to highlight certain types of bonds which can be used to assist veterans.  The first of these are qualified veterans’ mortgage bonds which are private activity bonds that are used to make mortgage loans to qualified veterans.  Loans financed from qualified veterans’ mortgage bonds can only be made for principal residences and cannot be made to acquire or replace existing mortgages.   While these might sound like viable options that states could use to help homeless veterans, there are several restrictions in the Internal Revenue Code that make it impossible for most states to issue qualified vetarans’ mortgage bonds.  For example, in order to issue qualified veterans’ mortgage bonds, a state must have issued qualified veterans’ mortgage bonds prior to June 22, 1984.  Only five states (Alaska, California, Oregon, Texas and Wisconsin) meet this requirement.  In addition, a qualified veterans’ mortgage bond must be a general obligation of the issuing state.

A better option is the issuance of exempt facility bonds.  These bonds, while not specifically geared towards assisting veterans, can be used to finance multifamily housing projects for low and moderate income individuals and families.  Preference for occupancy in these projects, however, may be given to veterans as long as the veterans occupying the project qualify as low or moderate individuals.  Like qualified veterans’ mortgage bonds, exempt facility bonds are private activity bonds.  In order to issue these bonds, the issuer would need to obtain a private activity bond volume cap allocation and would be required to hold a TEFRA hearing.  As alluded to above, the issuer would also be required to set aside either (1)  20% of the residential units in the project for occupancy by individuals whose income is 50% or less of the area median gross income, or (2) 40% or more of the residential units in the project for occupancy by individuals whose income is 60% or less of the area median gross income.  Unlike qualified veterans’ mortgage bonds, exempt facility bonds are commonly used throughout the country and provide a good mechanism to help reduce homelessness among veterans.  These bonds may be a good mechanism to use to help veterans who have served our country well.  And with approximately 131,000 homeless veterans on any given night according to the U.S. Department of Veterans Affairs, any help would be more than welcome.

Rows of HousesDid you know that an estimated 20 million people in the United States live in mobile home or manufactured home communities?  These communities make up a significant component of the nation’s affordable housing stock.  Manufactured homes can be an intermediate step for some individuals and families between apartments and owner occupied housing such as condominiums and detached homes.  And, while individuals with sufficient income and cash for down payments typically prefer to buy traditional homes, there are many manufactured home communities – for example retirement communities in Florida and California and communities located near the ocean – with tenants of all income levels.

Historically, manufactured home communities were owned primarily by for profit entities and developers.  Recently, however, many such communities have been purchased or developed by nonprofit entities, municipalities and tenant cooperatives.  These nonprofit owners may be unaware that their acquisition of a manufactured home community can be financed with the proceeds of tax-exempt bonds.  In addition, nonprofit owners of older communities may be unaware that they can finance improvements to their communities with tax-exempt bond proceeds. 

The tax requirements for issuing tax-exempt bonds to finance the purchase and/or improvement of a manufactured home community are similar to the requirements for financing a multifamily housing development.  The nonprofit owner is required to, among other things, set aside a certain number of spaces in the community for lower income households.

Investor demand for tax-exempt bonds secured by manufactured home communities has steadily increased over the last decade.  In the past, rating agencies were not as comfortable rating these types of bonds, so the bonds that were issued were often either unrated or credit enhanced by bond insurance companies.  Today, investors and rating agencies are more comfortable with a bond issue backed by a manufactured home community.  They recognize that manufactured home communities have a stable tenant base because it is costly for tenants to move their homes.  Recently, bonds secured solely by a manufactured home community and its rental revenues have been rated as high as “A” by S&P. 

The current economic environment could potentially provide nonprofit owners with an opportunity to use tax-exempt bonds to finance or refinance the acquisition and/or improvement of their manufactured home communities at historically low interest rates.