Overview of the Tax Credit Exchange Program in Texas

Federal Program Highlights:

• Funding: 3 Billion
• Administering Agency: US Treasury
• Unused funds must be returned by 1/1/2011

Texas Program Highlights:

• Funding: Up to 314 Million
• Administering Agency:
• TDHCA Awards expected by 10/16/2009

The 2009 Stimulus Bill (American Recovery and Reinvestment Act of 2009) contained a provision allowing the limited exchange of tax credits granted under the Low-Income Housing Tax Credit (LIHTC) program for cash grants. This program has been referred to by various names, including the Tax Credit Exchange Program (TCEP), the 1602 program, the Housing Tax Credit (HTC) Exchange, or Grants in Lieu of Housing Tax Credits.

Under the LIHTC program, multi-year tax credits are available to multi-family housing construction or rehabilitation ventures that agree to provide housing for low-income tenants. These tax credits are generally sold and the proceeds used as upfront investment capital for the venture.

With the high-profile disruptions in the economy and credit markets over the last few years, the market price for these tax credits has fallen significantly. This has, in turn, disrupted the production of affordable multifamily housing under the program. Prior to the market collapse, the LIHTC program was estimated to support nearly 90 percent of all affordable rental housing created in the U.S. and 20% of multi-family construction in Texas. The Exchange program is intended to revive the production of affordable multifamily housing by replacing the funding role of the secondary market for tax credits with direct grants from the US Treasury.

In Texas, the Texas Department of Housing and Community Affairs (TDHCA) is responsible for administering the Tax Credit exchange program. TDHCA has adopted a policy document outlining how the agency intends to administer the program,3 and is currently evaluating applications.

Texas Program Details:

1. Developments allocated credits in 2007, 2008, or 2009 are eligible for exchange. If a development exchanges any credits, they must exchange 100% of their credits. Applicants requesting funds must provide evidence of a Good Faith Effort to obtain equity commitments

2. The Department is limited to exchanging 40% of the 2009 regular annual credit ceiling

3. The base exchange price is $0.77 (vs. an expected market price of $0.71)

4. Developments that agree to increase the number of extremely low income (households earning not more than 30% of the area median income) income- restricted units are eligible for higher exchange rates. Developments that increase extremely low-income units by at least 10% of the total number of units are eligible for an exchange price of $0.81, and Developments agreeing to increase extremely low- income by at least 20% of the total units are eligible for an exchange price of $0.85.

5. TDHCA will be a special limited partner in the developments funded by the exchange program. The base residual split to the Department will be 20%; however, if 10% more extremely low income units are included, the residual split to the Department will be reduced to 15% and if 20% more extremely low income units are included, the residual split to the Department will be reduced to 10%.

6. Priority will be given to developments that obtained the highest application scores in the round they applied in general accordance with the regional allocation formula, including set asides of 20% for At-Risk developments and 40% for Rural developments.

Policy Questions to Watch:

• Is the program having maximum impact (i.e. providing maximum benefit to low-income Texans?)
• Should program be extended in scope and/or timeframe?

Additional Web Resources

Texas Department of Housing and Community Affairs

National Low Income Housing Coalition