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HUD Low-Income Housing Tax Credit

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Description

The Low-Income Housing Tax Credit (LIHTC), created by the Tax Reform Act of 1986, is a critical resource for creating affordable rental housing for low-income populations in the United States today. In 1997, HUD created a publicly-available database of LIHTC projects that now contains information on 46,554 projects and 3.05 million housing units placed in service between 1987 and 2016.1 Overseen by the Internal Revenue Service (IRS), the federal LIHTC allocates tax credits to each state based on population. State housing finance agencies (HFA) then have the authority to issue tax credits to housing developers for acquisition, rehabilitation, or new construction of affordable rental housing based on the state’s specific housing needs.

While a critical resource for developers, LIHTC credits usually don’t cover the full cost of development or rehabilitation. Four percent (4%) credits usually cover about 30 percent of the full cost of construction that uses additional subsidies or the acquisition cost of existing buildings while 9% credits cover about 70% of new construction without any additional federal subsidies. Nonetheless, leverage funding is usually needed to complete projects. Each state agency is required to develop an annual Qualified Action Plan (QAP) that outlines the selection criteria and priorities for LIHTC awards. As of 2007, fifteen states mentioned lead-based paint in their QAP (Arizona, Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Massachusetts, Missouri, Nebraska, New Hampshire, North Carolina, North Dakota, and Pennsylvania) and four states required elimination or remediation of lead-based paint hazards in units being rehabilitated under the program.2 Lead hazard remediation is an eligible expense for LIHTC program activities and is usually incorporated in the developer’s pro forma.

Strategic Implementation

Utilize LIHTC to finance lead hazard remediation by ensuring that states include addressing lead-paint hazards in their QAP for any properties that were constructed prior to 1978.

  1. Check your state’s QAP to see if a plan to test for and address lead-based paint hazards is required in the rehabilitation of existing buildings.
  2. Contact your state’s HFA to find out about the QAP development process. Many states undergo public comment, before and/or after the QAP is drafted, to ensure that all relevant requirements are included. If there is no public comment period, then advocates will need to submit comments informally to the state HFA on the inclusion of requirements related to lead testing and remediation of lead-based paint hazards.
  3. If the state’s QAP does include requirements related to lead testing and remediation of lead-based paint hazards, ensure that those requirements reflect the best practices in proactive lead-hazard remediation, including requiring certified inspectors and contractors, lead safe work practices and clearance inspections to meet at lead dust clearance standard.

Toolkit Information

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