The American Recovery and Reinvestment Act of 2009 (ARRA), which President Obama signed yesterday in Denver, contains significant funding for housing authorities and local government, including gap funding for Low Income Housing Tax Credit projects.

ARRA includes $4 billion for the Public Housing Capital Fund; $2.25 billion in gap financing for LIHTC projects; $1 billion in Community Development Block Grant funds; $1.5 for a homelessness-prevention fund; $2 billion in additional funds for the Neighborhood Stabilization Program; $250 million for energy-efficiency retrofit investments in Section 202, Section 811, and Section 8 projects; and $2 billion for full-year payments for project-based Section 8 rental subsidies.

Click on each link below to read a more detailed discussion of the requirements for the corresponding fund:

Ballard stands ready to assist clients in determining how these changes will affect their businesses and how they may benefit from ARRA. For more information, please contact the co-chairs of Ballard's Housing Group, Mary Jo George at 202.661.2208 or george@ballardspahr.com, and Paul K. Casey at 410.528.5694 or casey@ballardspahr.com.

 Public Housing Capital Fund

ARRA allocates $4 billion for the Public Housing Capital Fund: $3 billion to be allocated using the current Capital Fund formula and $1 billion to be competitively bid. The funds shall remain available until September 30, 2011.

ARRA prohibits Capital Funds from being used for Operating Funds uses or rental assistance, even though a portion of a housing authority's capital fund allocation normally may go toward Operating Fund uses. Funding allocated by the Capital Fund formula shall not be limited by replacement housing uses. In other words, a housing authority that receives funds allocated by the Capital Fund formula as replacement housing factor funds does not need to comply with the replacement housing requirements of those funds. ARRA also empowers the HUD Secretary to waive statutory and regulatory requirements attached to the obligation or expenditure of Capital Funds to facilitate timely expenditure, with the exception of those related to fair housing, nondiscrimination, labor standards, or the environment. HUD may also direct that state and local procurement requirements shall not apply to the Capital Funds allocation.

For the $3 billion to be allocated by the Capital Fund formula, housing authorities must give priority to (i) capital projects that can result in contracts based on bids within 120 days from the date the funds are available to the housing authorities, (ii) projects already underway or that are included in a housing authority's five-year plan, and (iii) rehabilitation of vacant units. The Secretary may determine not to allocate funding to public housing authorities designated as troubled or to those that elect not to accept funding. HUD is required to distribute these formula funds within 30 days of enactment of ARRA.

A total of $1 billion of the $4 billion shall be competitively bid out to housing authorities. HUD is required to allocate the funds to projects that are "priority investments."

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 Tax Credit Supports

ARRA allocates $2.25 billion in funds for gap financing for Low Income Housing Tax Credit (LIHTC) projects to be allocated to state housing finance agencies (HFAs). In addition, HFAs will have the ability to exchange tax credits for grant proceeds, which will provide another avenue for developers to finance LIHTC projects.

Gap Financing

HFAs will receive additional funds (Gap Financing) apportioned among the states based on the 2008 percentage of HOME funds apportioned to each state. HFAs must commit 75 percent of the Gap Financing to project owners within one year of ARRA's enactment. The project owner must expend 75 percent of the funds within two years of ARRA's enactment and 100 percent of the funds within three years of enactment. The HFAs shall distribute the funds competitively pursuant to the state qualified allocation plan to owners of projects that have received or simultaneously receive an allocation of LIHTCs. Projects eligible for Gap Financing include any project awarded tax credits in 2007, 2008, or 2009, but state HFAs shall give priority to projects that can be completed within three years of ARRA's enactment. Failure to meet these expenditure deadlines can result in the HFA and/or the Secretary of Treasury deciding to redistribute the funds to a more deserving project or to another state that has fully utilized their Gap Financing. Gap Financing awarded to an LIHTC project shall not be treated as a federal grant for purposes of establishing the "eligible basis for the project.

Exchange Program

HFAs can exchange a portion of their existing LIHTC allocations for grant funds equal to 85 percent of the product of (i) unused housing credit ceiling for 2008, (ii) any returns to the HFA during 2009 of credit allocations previously made, (iii) 40 percent of the HFA's 2009 credit allocation, (iv) 40 percent of the HFA's share of the national pool allocated in 2009, and (v) 10. HFAs receiving the grant instead of LIHTC allocations must use such funds to finance the construction, acquisition, or rehabilitation of a qualified low-income building (either to buildings with or without LIHTC). An HFA will have discretion to allocate these funds to non-LIHTC projects if the HFA determines that such use would increase funds available for the rehabilitation of affordable housing. The HFA must distribute all such funds before January 1, 2011, and return any unused portion to the Secretary of the Treasury. Presumably, the HFA will distribute such funds to project owners in the form of a soft loan. Any such funds received by the project owner under the exchange program will not reduce the eligible basis of the project. Any project receiving funds through the exchange program will have to comply with the LIHTC provisions. Failure to satisfy the LIHTC rules during the 15-year compliance period will result in recapture of the funds under methods the Secretary of Treasury deems appropriate.

Under both the Gap Financing and the Exchange Program, HFAs are required to act as asset managers to ensure compliance with LIHTC requirements. 

 including projects that leverage private sector funding or financing for renovations and energy conservation retrofit investments. HUD must commit these funds to housing authorities by September 30, 2009.

ARRA places a series of expenditure and recapture deadlines on both the funds distributed by the formula allocation and the funds awarded by competitive grant. The starting points for the expenditure deadlines are different: the formula funds must be committed to housing authorities within 30 days of enactment of the legislation, while the competitive grants need not be committed until September 30, 2009. Housing authorities are required to obligate 100 percent of the funds within one year of the date the funds become available to them; expend at least 60 percent of the funds within two years of the date on which funds become available to them; and expend 100 percent of the funds within three years of the availability date. If a housing authority fails to comply with the one-year obligation, two-year expenditure, or three-year expenditure requirement, HUD must recapture all remaining funds awarded to the housing authority and reallocate funds to agencies that are in compliance with the obligation and expenditure requirements.

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 Neighborhood Stabilization Funds

The Neighborhood Stabilization Program (NSP-I) was originally included in the Housing and Economic Recovery Act of 2008, which allocated funds to states and localities to address neighborhood destabilization created by foreclosed-upon homes and residential properties. ARRA includes an additional $2 billion in funding for the NSP program (NSP-II). It also makes changes to NSP-I.

The changes to NSP-I are as follows:

The permitted use relating to land banks is amended to provide that NSP-I funds can be spent on the establishment and operation of land banks for foreclosed homes and residential properties.
The entire section regarding the five-year reinvestment period is repealed. Note that the more general program income requirements will continue to apply.
Extensive tenant protections for tenant-occupied units acquired using NSP-I funds are established.
The main components of the NSP-II program are as follows:

  • A total of $2 billion is made available, to be allocated by competitive bid. The Secretary is to publish criteria on which competition is to be based no later than 75 days after the law's enactment. Applications must be submitted to HUD within 150 days of enactment.

  • Unless otherwise provided, the requirements of NSP-I apply to the additional funds.

  • Eligible grantees are states, units of general local government, and nonprofit entities, which may submit proposals in partnership with for-profit entities.

  • At least 50 percent of allocated funds must be spent within two years; all must be spent within three years.

    The permitted uses for the $2 billion are:

    • those contained in NSP-I (as amended by ARRA), except that (1) funding to be used for the redevelopment of demolished or vacant properties must be for use as housing, (2) funding may not be used to demolish any public housing, and (3) a grantee may not use more than 10 percent of its grant for demolition unless approved by the Secretary;

    • up to 10 percent of the funds may be used by the Secretary for capacity building and support for local communities receiving funding under NSP-1 or NSP-II; and

    • up to 1 percent of the funds are available for HUD staffing, training, technical assistance, technology, monitoring, travel, enforcement, research, and evaluation activities.

    • Extensive tenant protection provisions for tenant-occupied units acquired using NSP-II funds are established.
      • The Secretary has broad regulatory and statutory waiver authority to expedite the use of the funds, with the exception of requirements related to fair housing, nondiscrimination, labor standards, and the environment.

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       Homelessness Prevention Grants

      ARRA includes $1.5 billion for homelessness-prevention activities. Funds may be used for various activities, including short-term and medium-term rental assistance, housing-search assistance, mediation or outreach to property owners, credit-repair services, security or utility deposits, utility payments, and moving-costs assistance. Eligible grantees are those as defined by the McKinney-Vento Homeless Assistance Act. Grantees must expend at least 60 percent of the funds within two years of the date of the obligations of funds and 100 percent within three years. HUD may recapture any funds not expended within the two-year expenditure deadline and reallocate to grantees that are in compliance with expenditure requirements.

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       Community Development Block Grants

      ARRA includes $1 billion for the CDBG program. The funds will be allocated by HUD using the FY 2008 funding formula. Localities must give priority to projects that can result in contracts based upon bids within 120 days from the date funds are made available to recipients. The HUD Secretary may waive or specify alternative requirements by statute or regulation, except requirements related to fair housing, nondiscrimination, labor standards, and the environment.

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       Elderly, Disabled, and Section 8 Assisted Housing

      ARRA allocates $250 million for energy retrofit investments for existing Section 202, Section 811, and projects with Section 8 subsidies. Owners must have a "satisfactory" or higher management review rating. Owners must accept an additional affordability covenant of not less than 15 years. HUD may fund these retrofit investments with grants or loans.

      The HUD Secretary may waive or specify alternative requirements by statute or regulation, except requirements related to fair housing, nondiscrimination, labor standards, and the environment.

      A total of $2 billion is available to fund ongoing Section 8 rental assistance attached to multifamily properties, to ensure that property owners are paid for a full year of such assistance.

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       Energy Provisions

      Housing authorities and other affordable housing owners and developers can take advantage of existing, expanded, and new energy tax credits available through ARRA. Although housing authorities are not taxpayers, a number of models exist to take advantage of these incentives. For example, a housing authority can partner with a private entity which will own the energy generation system, selling power to the housing authority. The housing authority provides the real estate for the development of a solar panel array, geothermal heating and cooling system, or other types of renewable energy generation, while the private partner, who owns the energy system, receives the tax benefits awarded for the renewable energy system, and the resulting cash savings are passed to the housing authority in lower energy costs. Private owners, developers, and housing authorities interested in collaborating with private entities may find the models for taking advantage of tax incentives here.

      ARRA also expands bonding authority to fund renewable energy or energy-efficiency improvements by governments, including housing authorities. Private Activity Bonds may be used to finance energy-efficiency improvements, and tax credit bonds such as Clean Renewable Energy Bonds (CREBs) and Conservation Bonds allow for near-zero interest rate loans to fund these types of improvements. Additional information on bonding authority and other types of funds available through state and local governments is located here.

      Thus, there are many possible sources of additional funding and cost savings with new tax incentives and bonding authority included in ARRA. Housing authorities may be able to install energy-efficient or renewable-energy sources using additional HUD funds, bond proceeds, or cost savings from tax credits and, depending upon the project, may then reap the ongoing benefits of energy generation and/or costs savings through existing HUD incentives within the operating fund.

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      This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.

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