20 Years of Rural Voices
Rory Doyle / There Is More Work To Be Done
Rory Doyle / There Is More Work To Be Done
Still Ticking After All These Years
Low-Income Housing Tax Credits in Washington State
by Kim Herman
This story appears in the 2015 Fall Edition of Rural Voices
Tax credits remain important in rural Washington, financing the production of thousands of homes.
Low-Income Housing Tax Credits in Washington State
by Kim Herman
This story appears in the 2015 Fall Edition of Rural Voices
Tax credits remain important in rural Washington, financing the production of thousands of homes.
That statement was in the opening paragraph of a 2003 article for Rural Voices I wrote about the use of housing tax credits in rural Washington. Without a doubt, it is just as true today as it was then, if not more so. In the intervening 12 years, the Washington State Housing Finance Commission has amended our housing credit guidelines a number of times, we participated in the tax credit support programs created by federal economic recovery legislation in 2008 and 2009, we survived the Great Recession, and we have redefined the geography of Washington for applicants for the 9 percent tax credit program. What has not changed is the importance to rural Washington of the housing credit program, which encourages private sector investment in affordable rental housing properties.
The Continuing Importance of Housing Credits to Rural Areas
In my 2003 article I was able to point to 121 rural housing projects funded with housing credits that produced more than 4,000 units of affordable housing. I am happy to say that since that time our production of affordable rural housing using housing tax credits has not slowed down. Since 2003, we have financed another 191 rural projects providing another 8,844 affordable housing units in rural communities with populations of less than 50,000. Even more interesting is that 44 of the projects were financed using tax-exempt bonds and 4 percent housing credits, removing pressure from the resource-limited 9 percent credit program.
Changes Have Happened
In many smaller communities where projects have previously been built, there have been fewer opportunities for feasible rural developments. We have also experienced less for-profit involvement in rural areas due to the scoring criteria in the competitive 9 percent program. Now, however, we see smarter and more sophisticated nonprofit developers expanding their reach.
These changes were driven by the competition and economics of the tax credit program and the need for trust and confidence to be developed between the developers of rural housing and tax credit investors. Small rural projects became less feasible as land and building costs increased and the program came under scrutiny about high per-unit costs. Therefore, we have seen the number of units in rural projects increase.
In addition, both for-profit and nonprofit developers have taken advantage of opportunities for acquisition and rehabilitation of older USDA Section 515 portfolios, often using the bond/4 percent credit program instead of the 9 percent program. Even more could be done to preserve USDA’s aging rural housing portfolio if the agency would streamline its processing time and remove outdated requirements that force tax credit allocators to repeatedly roll over allocations for the purchase and preservation of USDA projects already in the pipeline.
Affordable Housing for Native Americans
The Commission had financed two housing credit projects for Native American tribes in the early 2000s in cooperation with Travois, a national organization serving tribal housing authorities. Then we reached out to the tribes and provided specific training in the housing credit program to encourage more tribal participation. This effort increased successful applications from tribes in Washington. Since 2003, we have financed an additional 11 projects for various tribes that provide 321 affordable housing units to tribal members. Given the remote location of many tribal reservations, including the Makah tribe in the far northwest corner of Washington, these financings demonstrate the wonderful flexibility of the housing credit program in rural America.
The Recession Years
In the first year of the Great Recession, 2008, the Commission took advantage of a 20 percent increase in Washington’s per-capita credit allocation and an expanded definition of projects eligible for the 30 percent basis boost to finance seven housing credit projects in rural Washington that provided 375 units of affordable housing to low-income households. These benefits were part of the Housing and Economic Recovery Act (HERA) passed the same year to stimulate the economy.
The federal efforts to support the housing credit program under the 2009 American Recovery and Reinvestment Act (ARRA) provided even greater stimuli for helping rural projects in Washington. While not all of the benefits went to rural projects, ARRA combined $37.8 million in the Tax Credit Assistance Program and $101 million generated through the Section 1602 Exchange Program with $96.8 million in regular 2009 housing credits to fund almost twice as many projects as usual. This included 12 rural projects with 480 units of housing for low-income families and represented a significant economic boost to rural communities that were suffering the effects of the recession.
Responding to Our Partners
In 2013, the Commission made a number of significant changes to our allocation criteria for the 9 percent housing credit program. These changes allowed us to improve the balance of the allocations across the state geographically, as well as to address the growing conflict between the need to preserve existing housing and the priority to create new units. After much research and many stakeholder policy meetings, we eliminated our credit set-asides for Rural Development (RD) projects, qualified nonprofits, and rural areas, as well as the “Housing Needs Points” previously used to determine geographic distribution.
Instead, three distinct geographic credit pools were created: King County Metro (home of Seattle), other metro counties, and nonmetro counties. Like projects now compete against like projects, based upon the pool in which they are located. This also provided the opportunity to evaluate and adjust the existing allocation criteria and their applicability to the various geographies, which removed several barriers for rural projects to compete for housing credits. The Commission also introduced significant total development cost guidelines the same year that were adjusted to match economic factors in the three geographic pools. These changes resulted in seven rural projects receiving housing credits in 2013, producing 432 units of affordable rural housing.
Summing Up
The Low Income Housing Tax Credit program has allocated $853.8 million in housing credits to fund 312 rural housing projects that have produced 8,165 units of family housing, 3,534 units of senior housing and 1,145 units of housing for agricultural workers in Washington State. Beyond a doubt, without the housing credit program, the vast majority of the people living in these affordable homes would not have a decent, affordable place to live today.
Kim Herman is Executive Director of the Washington State Housing Finance Commission. His past experience includes executive positions at Delta Housing Development Corporation, Indianola, MS; Rural Housing Alliance/Rural America, Washington, DC; Rural Assistance Initiative, HUD; Yakima Housing Authority, Yakima, WA; and Portland Development Commission, Portland, OR.