Column: Don’t add burdens to state’s affordable housing tax credits

While our colleagues at Palolo Valley Homes remain justifiably frustrated by the experience with “aggregator” investors (“Hawaii lawmakers look at preventing investor schemes on affordable housing projects,” Star-Advertiser, April 4), the legislative efforts of House Resolution 104 and House Concurrent Resolution 108 to fend off such investors address a point-in-time issue, not an issue related to current affordable housing tax credit transactions.

The Low-Income Housing Tax Credit (LIHTC) Program as defined by the Internal Revenue Code requires a 15-year compliance period and an additional 15-year extended-use period during which rents are regulated as affordable to households at 60% of area median income. The crux of the issue is the fact the Internal Revenue Code also provides owners with the right to terminate the extended-use period under certain circum- stances — which Oceanside attempted to utilize.

Omitted from the Star-Advertiser’s April 4 story is the fact that the Hawaii Housing Finance and Development Corp. (HHFDC) policy document for the LIHTC Program, known as the Qualified Application Plan, was amended in 2015 and addresses this issue.

Therefore, the termination of the extended-use period is a nonissue today.

HHFDC awards 20 additional points to LIHTC applicants that waive the right to terminate the extended- use period. In the competitive LIHTC process, any developer refusing to waive the right to terminate the extended- use period is unlikely to receive a tax credit allocation.

When awarded an allocation, HHFDC requires the additional extended-use period ranging from 55 to 62 years to be locked in and recorded in a regulatory agreement with the state Bureau of Conveyances as an encumbrance on the property’s title. So even if a predatory investor somehow took over the controlling interest on the project, that entity would still be required to keep rents at affordable rates through the extension period.

While the 2015 changes made to the Qualified Application Plan process curbed the concern about aggregators, there will always be predatory investors who will try to reap financial gain by attempting to use their veto power or rights against the wishes of a general partner. But as with any other government program, it is nearly impossible to legislate against all bad actors who try to abuse the system.

In the scenario where the investor attempted to block the nonprofit’s negotiated right to acquire the project by buying out the tax credit investor, the right is a business term that is negotiated up front and not a point that the Qualified Application Plan can address. Accordingly, any regulatory amendments will lack authority to revise existing limited partnership agreements between the nonprofit and the tax credit investor.

Additional state regulation is unnecessary for the already overregulated process of affordable rental. Rather than burdening HHFDC with amendments to policy documents and potentially delaying next year’s tax credit application process, we would suggest that developments dated prior to 2015 reach out to HHFDC for guidance on how to ensure that their affordable rental projects continue to meet the needs of our community.