TARGETING TAX CREDIT UNITS TO THE POOR IN 2005

Survey Data Shows Small Share of LIHTC Units Receiving 2005 Allocations Were Intended to Serve Poor Households

By Joseph Guggenheim: article in November 2007 issue of Tax Credit Advisor newsletter

Data from a survey of state housing agencies indicate only a small percentage of the housing units funded by 2005 allocations of low-income housing tax credits(LIHTCs) were intended to serve poor households.

Only 7% of the units were intended to serve households earning less than 30% of the median income of the area in which the tax credit projects were located (i.e. area median income, or AMI), as estimated by the U.S. Department of Housing and Urban Development (HUD). The common threshold for determining whether federal housing programs serve poor households is 30% of AMI, which HUD defines as “extremely low income.”

The data was collected from a survey by the National Council of State Housing Agencies (NCSHA) of state housing tax credit agencies, and published in NCSHA’s 2005 State HFA Factbook. Table 8 of the Factbook contained data from respondents, with the totals overall and a breakdown for each state credit agency, showing the number of units – in projects funded by housing credits allocated in 2005 – intended to serve renter households in four income brackets: 51%-60% of AMI; 41%-50% of AMI; 30%-40% of AMI; and less than 30% of AMI. The maximum income limit for housing credit unit tenants is 60% of AMI.

HUD’s FY 2007 estimates of median family income vary widely among urban and rural areas, from $113,100 in San Francisco to $38,800 in rural Mississippi in 2007. In FY 2005, HUD’s estimate of median family income for the entire U.S. was $58,000; 30% of this was $17,400. This latter income cap on a national basis for an extremely low income household compared to the official poverty level in 2005, set by the U.S. Census Bureau, of $19,484 for a four-person household, or 34% of HUD’s median family income for the U.S.

In addition to showing 7% of the housing credit units were intended to serve households below 30% of AMI, NCSHA’s data indicated that an additional 5% of the units with 2005 housing credit allocations were targeted to households at 30%-40% of AMI; 21% of the units, to households at 41%-50% of AMI; and 63% of the units, to households at 51%-60% of AMI.

Therefore, just 12% of all the housing units that were allocated housing credits in 2005 were intended to serve families making 40% or less of AMI.

NCSHA obtained this survey data on credit unit income targeting from 44 of the 54 agencies – mostly state – that allocated 2005 housing credits. Among the 10 agencies not responding was California, whose policies ensure that all successful competitive tax credit applications provide 10% of units to serve households at or below 30% of AMI.

The survey data revealed substantial differences in income targeting among states. Two states reported targeting more than 40% of their 2005 units to households below 30% of AMI: Vermont, at 48%, and North Carolina, at 43%. These two were followed by only two other jurisdictions that targeted above 15% of their units to households below 30% of AMI: Minnesota, at 25%, and the city of Chicago, at 19%. Seven other states each targeted more than 10% of their units to households below 30% of AMI. The remaining 33 jurisdictions (75%) targeted 10% or less of their units to extremely low income households of less than 30% of AMI.

Adding in the “near poor” (i.e. households making 30%-40% of AMI), only five states targeted 30% or more of their units to households earning 40% of less of AMI. These five were: Kentucky, 65% of units; North Carolina, 55%; Vermont, 49%; Wyoming, 35%; and Utah, 30%.

One note: The percentage of all credit units financed by 2005 allocations that actually serve poor households earning less than 30% of AMI may be higher or lower than the 7% of units that were targeted to this population. Some poor households may occupy units targeted to households above 30% of AMI and pay more than 30% of their income for rent. In addition, some owners may not be meeting their initial commitment to target units to households below 30% of AMI, with or without state agency approval. Finally, some poor households may be assisted by housing vouchers or rental assistance that enables them to afford to live in tax credit units otherwise available for households with higher incomes.

The Internal Revenue Code imposes a minimum targeting requirement for housing credit projects. Under this, at least 20% of a project’s units must be rented to households at or below 50% of AMI, or at least 40% of the project’s units must be rented to households at or below 60% of AMI.

The Code also requires housing credit agencies, in allocating housing credits, to give preference to projects that will serve the lowest income tenants for the longest periods of time.