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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

December 2012: 

Low-Income Housing Tax Credits: 

Agencies Implemented Changes Enacted in 2008, but Project Data 
Collection Could Be Improved: 

GAO-13-66: 

GAO Highlights: 

Highlights of GAO-13-66, a report to congressional committees. 

Why GAO Did This Study: 

IRS and state HFAs administer the LIHTC program, the largest source of 
federal assistance for developing affordable rental housing. HFAs are 
allocated tax credits on a per capita basis and award them to 
developers. By acquiring project equity from developers, investors may 
become eligible for the credits, which offset federal tax liabilities. 
As part of HERA, Congress made changes to the program that included 
increasing credits allocated to states, setting a temporary floor on 
the most common LIHTC rate (the portion of eligible project costs for 
which a developer can receive credits), and giving HFAs more 
discretion in “enhancing” (i.e., increasing) awards. HERA also 
required GAO to study the changes, including the distribution of 
credit allocations before and after HERA. This report discusses (1) 
how IRS and selected HFAs implemented the HERA changes, (2) what HUD’s 
data show about the number and characteristics of projects completed 
from 2006 through 2010 and any data limitations, and (3) stakeholders’ 
views on the effects of the HERA changes on LIHTC projects. GAO 
reviewed IRS and state guidelines, analyzed HUD data on LIHTC 
projects, and spoke with federal, state, and industry officials. 

What GAO Found: 

Federal and state agencies implemented changes made in 2008 to the Low-
Income Housing Tax Credit (LIHTC) program by revising program guidance 
and modifying plans for allocating tax credits. The Internal Revenue 
Service (IRS) implemented the changes made by the Housing and Economic 
Recovery Act of 2008 (HERA) by, among other things, issuing notices 
and revenue procedures. Program stakeholders that GAO contacted said 
that IRS’s actions were generally sufficient. But as of October 2012, 
IRS and the Department of the Treasury were still working on 
implementation issues, such as developing guidance on the provision 
designed to ease restrictions on using tax credits to acquire existing 
federally or state-assisted buildings. At the state level, housing 
finance agencies (HFA) implemented the HERA changes by modifying their 
tax credit allocation plans, which provide criteria for awarding 
credits. For example, in their plans, some HFAs cited financial need 
as the only criterion for awarding HERA-created enhanced credits. 
Others planned to target specific types of projects, such as those 
using “green building” practices. 

The Department of Housing and Urban Development (HUD) voluntarily 
compiles the largest public database on LIHTC projects, but the data 
it collects from HFAs are incomplete. Despite HUD efforts to improve 
its data collection process, the database may undercount projects, in 
part because HUD did not follow up on potentially incomplete 
information. For example, HUD’s database showed that one state had 
between 23 and 49 completed projects each year from 2006 through 2009, 
but only 2 projects in 2010. However, officials from this state’s HFA 
provided GAO with documentation showing that they had reported 37 
projects for 2010. Further, much of the project data that HUD has 
received does not include characteristics such as the type of 
location, construction, and tenants targeted. A HUD official noted 
that a HERA provision requiring states to collect tenant-level data 
(e.g., race and income) had made collecting project data more 
challenging because HUD did not receive additional resources and 
available resources had to be divided between tenant and project data 
collection. Without more complete data on the LIHTC program, the 
federal government’s ability to evaluate basic program outcomes-—such 
as how much housing was produced-—and overall federal efforts to 
provide affordable housing may suffer. Data from 42 HFAs that reported 
each year from 2006 through 2010 provide limited insight into the 
actual number and characteristics of LIHTC projects. The number of 
reported projects completed exceeded 5,300, and most were in 
metropolitan areas and were new construction. However, missing data 
prevented analysis of trends over the 5-year period. For example, the 
proportion of missing information on the types of tenants targeted 
increased from 5 percent in 2006 to 28 percent in 2010. 

Program stakeholders told GAO that the broad effects of the HERA 
provisions on the LIHTC market were difficult to determine but noted 
that certain provisions enhanced the financial feasibility of some 
individual projects. For example, stakeholders said the temporary 
increase in per capita credit allocations, temporary credit rate 
floor, and discretion to use enhanced credits improved the financial 
viability of some projects by allowing states to award more credits 
per project. Some state officials also said that the larger awards 
especially benefited projects in rural areas that can be difficult to 
finance because they tend to have lower rents and are less attractive 
to investors than projects in urban areas. 

What GAO Recommends: 

GAO recommends that HUD evaluate and implement additional steps to 
improve its LIHTC Database. HUD agreed with the recommendation but 
said the report could better describe the agency’s efforts to improve 
data collection despite resource constraints. In response, GAO added 
further information on HUD’s changes to its collection process. 

View [hyperlink, http://www.gao.gov/products/GAO-13-66]. For more 
information, contact Daniel Garcia-Diaz at (202) 512-8678 or 
garciadiazd@gao.gov or James R. White at (202) 512-9110 or 
whitej@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

IRS Revised Guidance and States Modified Qualified Allocation Plans to 
Implement the HERA Changes: 

Available LIHTC Data Are Incomplete and Provide Limited Insight into 
Program Trends: 

Stakeholders Said HERA Provisions Helped the Financial Feasibility of 
Some LIHTC Projects: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Specific 2008 Changes Related to the Low-Income Housing 
Tax Credit: 

Appendix III: Comments from the Department of Housing and Urban 
Development: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Example of LIHTC Calculation: 

Table 2: HERA Changes Discussed in This Report: 

Table 3: Percentage of Projects with Missing Information by Project 
Characteristics, Calendar Years 2006-2010, as of July 2012: 

Table 4: Reported Number of LIHTC Projects Placed in Service, Calendar 
Years 2006-2010, as of July 2012: 

Table 5: Percentage of Reported LIHTC Projects Placed in Service from 
Calendar Years 2006-2010 by Location Type, as of July 2012: 

Table 6: Percentage of Reported LIHTC Projects by Construction Type, 
Calendar Years 2006-2010, as of July 2012: 

Table 7: Percentage of Reported LIHTC Projects by Type of Tenant 
Targeted, 2006-2010, as of July 2012: 

Table 8: Per Capita LIHTC Allocations, Calendar Years 2006-2010, 
Including HERA Increases in 2008 and 2009: 

Table 9: Amount of Credits Developers Returned to HFAs, Calendar Years 
2006-2010: 

Table 10: Specific LIHTC Provisions Enacted in 2008, by Category: 

Figures: 

Figure 1: Key Steps and Entities in the LIHTC Process: 

Figure 2: Timeline of Key Events Affecting LIHTC Market, 2007 through 
2009: 

Abbreviations: 

DDA: difficult development area: 

HERA: Housing and Economic Recovery Act of 2008: 

HFA: housing finance agency: 

HUD: Department of Housing and Urban Development: 

IRS: Internal Revenue Service: 

LIHTC: Low-Income Housing Tax Credit: 

NCSHA: National Council of State Housing Agencies: 

QAP: qualified allocation plan: 

QCT: qualified census tract: 

TCAP: Tax Credit Assistance Program: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

December 6, 2012: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

The Low-Income Housing Tax Credit (LIHTC) program is the largest 
federal program for building and rehabilitating rental housing that is 
affordable to low-income households. It is estimated to cost $6.5 
billion in fiscal year 2012 in forgone revenue. The program is jointly 
administered by the Internal Revenue Service (IRS) and state housing 
finance agencies (HFA).[Footnote 1] Each state receives an annual 
allocation of LIHTCs by statutory formula according to population. 
[Footnote 2] HFAs then competitively award the tax credits to owners 
of qualified rental housing projects that reserve all or a portion of 
their units for low-income tenants. Developers typically attempt to 
obtain funding for their projects by attracting third-party investors 
that are willing to contribute equity to the projects, and the project 
investors can then claim the LIHTCs. This process of providing LIHTCs 
in exchange for equity is generally referred to as "selling" the tax 
credits.[Footnote 3] The developers or investors can claim their share 
of credit each year during the 10-year credit period, which can be 
used to reduce their tax liability. Individual HFAs maintain data on 
the number of projects that receive tax credit allocations each year, 
as well as the characteristics of these projects. The Department of 
Housing and Urban Development (HUD) has almost no direct 
administrative responsibility for the LITHC program, but it 
voluntarily collects information from the HFAs on LIHTC projects for 
its LIHTC Database, which is the most comprehensive public source of 
information on LIHTC projects. 

Since its inception in 1986, the program has helped to build or 
rehabilitate more than 36,000 projects that help provide housing for 
low-income households.[Footnote 4] In 2008 and 2009--in the midst of 
the financial crisis--the program was severely disrupted when investor 
demand for tax credits collapsed and developers could not obtain 
funding for projects that would have qualified for the credit. The 
onset of financial struggles for large banks and the exit of two large 
LIHTC investors from the LIHTC market--Fannie Mae and Freddie Mac--
contributed greatly to decreased investor demand.[Footnote 5]During 
that period, Congress took a number of actions to improve the 
operation of the LIHTC program, including changes enacted as part of 
the Housing and Economic Recovery Act of 2008 (HERA).[Footnote 6] 
These changes generally went into effect after July 30, 2008, 
including specific changes for projects placed in service--that is, 
suitable for occupancy--after July 30, 2008.[Footnote 7] 

HERA also required us to study and report on the implementation of the 
changes, including analyzing the distribution of credit allocations 
before and after the changes went into effect.[Footnote 8] This report 
discusses (1) how IRS and selected HFAs implemented the HERA changes 
to the LIHTC program, (2) what HUD's data on LIHTC projects show about 
the number and characteristics of projects completed from 2006 through 
2010 and any data limitations, and (3) the views of program 
stakeholders about the effects of the HERA changes on these projects. 

To assess how IRS and HFAs implemented the HERA provisions, we 
reviewed IRS guidance, memorandums, and planning documents, as well as 
state qualified allocation plans (QAP), which contain detailed 
selection criteria and application requirements for the LIHTC program. 
We also interviewed officials from IRS, the Department of the Treasury 
(Treasury), and nine HFAs about the implementation of these changes. 
[Footnote 9] We selected the 9 HFAs (out of the 56 that receive LIHTC 
allocations) to cover different geographic regions and allocation 
amounts, but their experiences are not representative of all states. 
To describe HUD's LIHTC data and what these data show about the number 
and characteristics of LIHTC projects, we analyzed information 
contained in HUD's LIHTC Database, which was last updated in July 
2012.[Footnote 10] We conducted reasonableness checks on the data to 
identify any missing, erroneous, or outlying figures. We also 
interviewed HUD about how it and its contractor compile the data. 
These steps revealed that the data were not complete, which limited 
what we could conclude from our data analysis. Using the HUD data that 
were available, we examined the types and locations of projects that 
states supported with their tax credit allocations, including the 
proportions of projects that were in rural versus urban areas, that 
were newly constructed versus acquired, and that were targeted to 
specific kinds of tenants. In addition, we used the National Council 
of State Housing Agencies' (NCSHA) annual HFA Factbooks from 2006 
through 2010 to analyze the extent to which developers returned 
credits that had not been exchanged for equity to the states. We 
assessed the reliability of the HUD and NCSHA data and concluded that 
these data were sufficiently reliable for our reporting objective. To 
obtain the views of selected HFAs and industry participants about the 
effect of the HERA changes on LIHTC projects, we interviewed the same 
nine HFAs, as well as industry associations, investors, syndicators, 
and housing developers. We also reviewed supporting documentation from 
these entities about their views. Appendix I contains additional 
details about our scope and methodology. 

We conducted this performance audit from February through December 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

Description of the LIHTC Program: 

LIHTCs follow a multistep process that begins with the allocation of 
tax credits to HFAs. The process of allocating, awarding, and using 
LIHTCs is depicted in figure 1. 

Figure 1: Key Steps and Entities in the LIHTC Process: 

[Refer to PDF for image" process illustration] 

Internal Revenue Code (26 U.S.C. § 42(h)(3)): 
Tax benefits (tax credits) to: 
State housing finance agency. 

State housing finance agency: 
Housing project proposal submission from: Developer; 
Tax benefits (tax credits) to: Developer. 

Developer: 
Receives rent; 
Tax benefits (tax credits and deductions) to: Syndicator (if used); 
Money (equity): received from Investors, thru Syndicator (if used); 
Loan payments to: Lender; 
Loan from: Lender. 

Investors: 
Money (equity) to Developer, thru Syndicator (if used) (General 
partner of an investment partnership)
Tax benefits (tax credits) received from Developer. 

Source: GAO. 

Note: For a more complete description and an additional graphic on the 
LIHTC oversight and compliance system, see GAO, Opportunities to 
Improve Oversight of the Low-Income Housing Program, [hyperlink, 
http://www.gao.gov/products/GAO/GGD/RCED-97-55] (Washington, D.C.: 
Mar. 27, 1997). 

[End of figure] 

As the figure shows, there are four primary steps in the LIHTC process. 

1. HFAs receive tax credit allocations. State ceilings for LIHTCs are 
allocated by statutory formula to states annually according to 
population, with a minimum amount awarded to states with small 
populations.[Footnote 11] For 2012, the formula was $2.20 per capita 
or a minimum of $2,525,000.[Footnote 12] 

2. Developers apply to the states for tax credits. To apply for tax 
credits, a developer must submit a detailed proposal to an HFA. To 
qualify for consideration, a project must meet certain requirements, 
such as reserving specified percentages of available units for lower 
income households and restricting rents for these households to 30 
percent of a calculated income limit. 

3. HFAs award tax credits to selected housing projects. The potential 
to earn tax credits is competitively awarded to housing projects in 
accordance with states' QAPs. QAPs outline a state's affordable 
housing priorities and set out its procedure for ranking the projects 
on the basis of how well they meet state priorities and selection 
criteria that are appropriate to local conditions. The QAP must give 
preference to projects that serve the tenants with the lowest incomes, 
serve qualifying tenants for the longest period of time, and are 
located in a qualified census tract (QCT) and contribute to a local 
community revitalization plan.[Footnote 13] Developers receiving tax 
credit allocations have 2 years to complete their projects and may not 
claim the credits until the projects are placed in service. 

4. Investors receive tax benefits. Investment partnerships are a 
primary source of equity financing for LIHTC projects. Syndicators 
recruit investors willing to become partners in LIHTC partnerships. 
The money investors pay for the partnership interest is paid into the 
LIHTC project as equity financing. Although investors are buying an 
interest in a rental housing partnership, this process is commonly 
referred to as buying tax credits because they receive tax credits in 
return for their investment. Once the LIHTC project is placed in 
service, or ready for occupancy, investors can receive their share of 
the credits each year of the 10-year credit period and can use the 
credit to offset federal income taxes otherwise owed on their tax 
returns, as long as the project meets the LIHTC requirements. 

The amount of tax credits a project can receive depends on several 
factors, including the applicable fraction and the applicable 
percentage (see table 1). The applicable fraction, or the percentage 
of units in the building considered to be qualified low-income units, 
is the lesser of (1) the total square feet of the low-income units 
divided by the total square feet of all the units, or (2) the number 
of the low-income units divided by the total number of units. 
Regarding the applicable percentage, there are two credit rates 
(referred to as the 9 percent and 4 percent rates) for the LIHTC 
program that determine how much of a project's costs the allocated 
credits can cover. The credit rate takes into account whether the 
project is newly constructed or acquired and rehabilitated and the 
extent to which it uses other federal subsidies.[Footnote 14] Most new 
construction and substantial rehabilitation projects are eligible for 
the 9 percent rate, which allows investors to claim credits for about 
9 percent of the eligible basis annually over a 10-year 
period.[Footnote 15] Prior to HERA, the actual percentage for the 9 
percent credit floated based on a statutory formula and often fell 
below 9 percent. 

Table 1: Example of LIHTC Calculation: 

1. Total project development cost: $11,500,000. 

2. Ineligible costs; (e.g., land acquisition, cash reserves, 
syndication costs, certain financing costs); ($1,500,000). 

3. Eligible basis (row 1 - row 2); (Construction costs, architects' 
fees, environmental surveys, relocation expenses, title and recording 
fees, appraisals); $10,000,000. 

4. Applicable fraction; (In this example, all units in the project are 
low-income units); 100%. 

5. Qualified basis (row 3 x row 4); $10,000,000. 

6. Applicable percentage; 9%. 

7. Annual credit amount taken over 10 years (row 4 x row 5); $900,000. 

8. Credits over 10 years; $9,000,000. 

Source: GAO analysis. 

[End of table] 

The amount of equity an investor is willing to contribute to the 
construction of the project in exchange for credits results in the 
effective price of an ownership interest in the project. In the above 
example, if the investor made $6,750,000 in total equity 
contributions, the implied price of the credits would be $0.75 for 
each dollar of credit ($6,750,000/$9,000,000).[Footnote 16] 

HERA Changes to the LIHTC Program: 

HERA made more than 20 changes to the LIHTC program that generally 
became effective after July 30, 2008.[Footnote 17] Table 2 provides 
brief descriptions of the changes discussed in this report. Appendix 
II lists all of the changes to the LIHTC program made by the Multi-
Family Housing subtitle of HERA. 

Table 2: HERA Changes Discussed in This Report: 

HERA change: 1. Temporarily increased per capita credit allocations to 
states; 
Description: Before HERA, the amount of credits a state received was 
based on a formula that adjusted the 2003 per capita rate of $1.75 for 
inflation. In 2003, states with small populations received at least 
$2,030,000 in allocations, also adjusted for inflation each subsequent 
year. HERA increased the per capita allocation by 10 percent for 2008--
from $2.00 to $2.20--which resulted in a per capita allocation of 
$2.30 in 2009 after adjusting for inflation. The allocation for states 
with small populations was increased to $2,555,000 in 2008 ($2,665,000 
in 2009, adjusted for inflation). After 2009, the per capita 
allocations reverted to the amounts that would have been specified by 
the inflation calculations ($2.10 and $2,430,000 in 2010). 

HERA change: 2. Established a 9 percent minimum credit rate; 
Description: Before HERA, the actual percentages for the 9 percent 
credit floated based on a statutory formula and often fell below 9 
percent. HERA set a floor of 9 percent for this credit, effective for 
buildings placed in service after July 30, 2008 and before December 
31, 2013. Without this provision, the rate would have been 7.94 
percent for August 2008. 

HERA change: 3. Gave states flexibility to pick buildings eligible for 
a "basis boost"; 
Description: HERA gave HFAs the ability to designate any building, 
regardless of location, as eligible for an enhanced credit of up to 
130 percent of the building's eligible basis (rather than the normal 
100 percent), in effect treating these projects as if they were in a 
difficult development area or a qualified census tract.[A] HERA 
required HFAs to find that the basis boost was necessary for a 
building to be financially feasible as part of a qualified project 
before granting it to a developer. 

HERA change: 4. Redefined when a building is considered federally 
subsidized; 
Description: Before HERA, if any part of a building's eligible basis 
was federally subsidized, the building was ineligible for the 9 
percent credit. HERA limited the definition of a federal subsidy for 
these purposes to tax-exempt bonds, thus possibly making more 
buildings eligible for the 9 percent credit. 

HERA change: 5. Eased restrictions on using LIHTCs to acquire an 
existing building; 
Description: Before HERA, in general, the acquisition costs for an 
existing building would not be eligible for the credit unless there 
was a period of at least 10 years between the date it was acquired by 
the taxpayer and the date the building was last placed in service. 
HERA waived the 10-year rule for any federally or state-assisted 
building. A federally assisted building is a building "substantially" 
assisted, financed, or operated under specific sections of various 
housing acts or under any other housing program administered by HUD or 
by the Department of Agriculture's Rural Housing Service. A state-
assisted building is a building "substantially" assisted, financed, or 
operated under any state law with purposes similar to one of the acts 
just mentioned. 

HERA change: 6. Repealed the bond posting requirement; 
Description: Before HERA, a taxpayer could avoid credit recapture when 
disposing of a building by posting a disposition bond with IRS. The 
purpose of the bond was to ensure the recapture amount could be 
assessed and collected if a recapture event occurred after the 
disposition. HERA replaced this option by extending a statute of 
limitations for assessing the recapture amount to 3 years from the 
date the taxpayer notifies Treasury (IRS) that noncompliance with 
federal LIHTC requirements has occurred, if it is reasonably expected 
that such building will continue to be a qualified low-income building 
for the remainder of the compliance period.[B] Although generally 
applicable to dispositions of a building after HERA's enactment date, 
at the election of the taxpayer, the provision also applies to 
dispositions on or before that date if the taxpayer had placed a 
disposition bond with IRS in a timely fashion. 

HERA change: 7. Changed median income rules in rural areas; 
Description: Before HERA, tenant income limits were based on the 
relevant area's median gross income. HERA changed the measurement of 
area median gross income applied to certain properties in certain 
rural areas so that the income limits for these properties would be 
measured by the greater of the otherwise applicable area median gross 
income or the national nonmetropolitan median gross income. 

HERA change: 8. Changed the general public use requirement; 
Description: To be eligible for LIHTCs, residential units in qualified 
projects must be available for general public use. HERA clarified that 
a project would not fail this requirement just because it favored 
tenants who had special needs, were members of specified groups, or 
were involved in artistic or literary activities. 

HERA change: 9. Instituted hold harmless provisions for reductions in 
area median gross income; 
Description: Before HERA, HUD used a "hold harmless" policy to keep 
the area median gross income it used to determine eligibility for 
HUD's main rental assistance program from falling. HERA put the HUD 
practice into the Internal Revenue Code to bolster the financial 
viability of LIHTC projects by preventing rents from automatically 
falling when the area median gross income level on which rents are 
based declined. It did this by adding hold harmless provisions to 
address areas where the area median gross income had decreased. HERA 
prevented future decreases in tenant income limits and rents resulting 
from declines in area median gross income. 

Sources: GAO analysis of HERA changes; Joint Committee on Taxation, 
General Explanation of Tax Legislation Enacted in the 110TH Congress, 
JCS-1-09 (March 2009); Michael J. Novogradac and Glenn A. Graff, 
"Impact of the Housing and Economic Recovery Act of 2008 on Current 
and Future Low-Income Housing Tax Credit Properties," Journal of 
Affordable Housing & Community Development Law, vol.18, no.1 (fall 
2008). 

Note: See appendix II for a list of all changes to the LIHTC program 
made by the Multi-Family Housing subtitle of HERA. 

[A] A difficult development area is defined as "any area designated by 
the Secretary of Housing and Urban Development as an area which has 
high construction, land, and utility costs relative to area median 
gross income." HUD updates the list of such areas annually. 26 U.S.C § 
42(d)(5)(B)(iii)(I). 

[B] A LIHTC project is subject to a 15-year compliance period during 
which a taxpayer is subject to IRS oversight and an extended use 
period of at least 30 years during which the project is subject to HFA 
oversight. The 15-year compliance period and the extended use period 
begin at the same time. Noncompliance with federal LIHTC requirements 
within the 15-year compliance period may result in IRS's denying 
claims for the credit in the current year or recapturing credits 
claimed in prior years. 

[End of table] 

Other Economic and Program Changes Affecting LIHTC: 

In addition to HERA, several other economic and program developments 
affected the LIHTC program in the 2008 to 2009 time frame (see fig. 
2). For example, the general economic recession beginning at the end 
of 2007 reduced the profitability of banks and other financial 
institutions that were large LIHTC investors. As a result, these 
investors had no need for tax credits because they experienced losses 
or lower profits and thus had lower tax liabilities to offset. With 
the drop in demand for the credits, the effective prices of LIHTCs 
fell, creating funding gaps for developers who had assumed they would 
be able to sell their tax credits for a higher price. According to one 
report, thousands of projects and tens of thousands of units that 
would have otherwise been bought or rehabilitated stalled.[Footnote 18] 

Figure 2: Timeline of Key Events Affecting LIHTC Market, 2007 through 
2009: 

[Refer to PDF for image: timeline] 

December 2007-June 2009: 
General economic recession, which affected profitability of financial 
institutions and their ability to invest in the LIHTC market. 

July 2008: 
HERA changes to the LIHTC program generally go into effect after July 
30, 2008. 

September 2008: 
Fannie Mae and Freddie Mac, major LIHTC investors, are placed into 
conservatorship and later leave the LIHTC market. 

February 2009: 
The Recovery Act created the Tax Credit Assistance Program, which 
assists LIHTC projects that received awards between October 1, 2006, 
and September 30, 2009. The Recovery Act also created the Tax Credit 
Exchange Program, which allowed state housing finance agencies to 
apply to receive grant money in lieu of LIHTCs for 2009. 

Source: GAO. 

[End of figure] 

To help fill the funding gaps, in February 2009 Congress enacted the 
American Recovery and Reinvestment Act of 2009 (Recovery Act), which 
created the Tax Credit Assistance Program (TCAP) and the Tax Credit 
Exchange Program (Exchange Program). TCAP provided supplemental grant 
and loan funds to projects that received LIHTCs. The Exchange Program 
allowed HFAs the option of exchanging eligible portions of the state's 
housing credit ceiling for cash grants that could be used to finance 
low-income housing. 

IRS Revised Guidance and States Modified Qualified Allocation Plans to 
Implement the HERA Changes: 

Because the LIHTC program is jointly administered by federal and state 
governments, agencies at both levels played roles in implementing 
HERA's changes to the program. At the federal level, IRS and 
Treasury's Office of Tax Policy provided new guidance for program 
stakeholders. At the state level, HFAs modified their QAPs for 
allocating tax credits. 

IRS and Treasury Have Issued Guidance and Are Considering and Acting 
on Implementation Issues: 

HERA made changes to the LIHTC program that affected various parties, 
including taxpayers, HFAs, and project owners, and IRS and Treasury 
provided guidance and took other actions into 2012 to implement these 
changes. To better ensure that information on the HERA changes was 
widely accessible, IRS issued revenue procedures and notices, made 
changes to forms and form instructions, and circulated newsletters to 
program stakeholders.[Footnote 19] More specifically, its actions 
included the following: 

* Issuing (1) a revenue procedure for taxpayers to follow when 
choosing to no longer maintain a surety bond, as permitted by the HERA 
change described in table 2, item 6;[Footnote 20] (2) a notice that 
the 9 percent floor (table 2, item 2) would apply to eligible projects 
that had committed to a lower rate before HERA; and (3) a newsletter 
to program stakeholders describing new income limits related to the 
HERA "hold harmless" provisions described in table 2, item 9. The 
income limits are a percentage of the relevant area's median gross 
income and are the basis for calculating the gross rent that a LIHTC 
project can charge.[Footnote 21] 

* Updating instructions for Form 8609, "Low-Income Housing Credit 
Allocation and Certification," to reflect changes involving the 9 
percent floor (table 2, item 2), federally subsidized buildings (table 
2, item 4), and the HERA basis boost (table 2, item 3). HFAs use the 
form to report LIHTC allocations for buildings to IRS, and building 
owners use it to certify such things as a building's eligible basis, 
qualified basis, and placed-in-service date. 

* Revising the Guide for Completing Form 8823, Low-Income Housing 
Credit Agencies Report of Noncompliance or Building Disposition, a 
guide intended to help housing agencies identify and consistently 
report noncompliance issues to IRS. 

* Discussing through internal memorandums whether regulations needed 
to be updated because of HERA and exploring implementation issues that 
surfaced. For instance, IRS internally considered questions from the 
division tracking its own implementation of HERA's LIHTC provisions 
about whether the changes required updates to regulations governing 
general public use requirements mentioned in table 2, item 8. An 
official from IRS's Office of Chief Counsel told us they determined 
that no updates were needed. 

Program stakeholders we spoke with, including HFAs, industry 
associations, syndicators, and developers, generally said that IRS's 
actions to implement the HERA changes were sufficient, and that they 
were satisfied with the agency's efforts. However, they raised two 
concerns in our discussions that IRS and Treasury have continued to 
consider and act on. 

The first involved the HERA provision noted in table 2, item 5, that 
eased restrictions on using LIHTCs to acquire an existing building. 
Before HERA, acquisition costs for an existing building generally 
would not be eligible for LIHTCs unless the building had been placed 
in service 10 years or more before it was acquired. HERA waived this 
10-year rule for any federally or state-assisted building--that is, 
any building that was "substantially" assisted, financed, or operated 
under certain federal or state programs or laws. 

In response to this HERA provision, the IRS Chief Counsel and Treasury 
placed clarification of the meaning of "substantially" on priority 
lists of guidance projects for July 2010 through June 2011 and July 
2011 through June 2012. With over 300 guidance projects on the 
priority list for 2011-2012, IRS and Treasury had not issued any 
guidance defining "substantially" as of October 2012. Agency officials 
cited the complexity of the issue and other agency priorities as 
reasons for the delay.[Footnote 22] A Treasury official was not yet 
able to tell us when the agency would complete the guidance, what it 
was likely to say, or whether it would resolve the definition of 
"substantially" for both federal and state subsidies at the same time. 

The relative importance of future guidance is unclear as stakeholders 
disagreed on the need to clarify the meaning of "substantially." Some 
stakeholders said there was little need for clarification. However, 
one organization sought guidance from Treasury in 2009 and 2010 
because, it said, the lack of a definition was delaying some 
acquisition projects.[Footnote 23] An IRS official agreed, saying the 
lack of guidance had delayed acquisition projects and resulted in the 
substitutions of other projects, such as construction of new 
buildings, for acquisitions. In addition, a Treasury official told us 
that the lack of guidance had likely made attorneys for potential 
LIHTC projects conservative in interpreting "substantially." For 
example, some may have decided that all the units in a building must 
be federally subsidized in order to meet the definition. 

A second concern--related to HERA's hold harmless provisions on income 
and rent limits--did not rise to the level of necessarily requiring 
formal guidance, but has received continued federal attention because 
of its complicated nature. The hold harmless provisions (table 2, item 
9) are aimed at bolstering the financial viability of LIHTC projects 
by preventing rents from automatically falling when area income 
levels, on which the rents are based, decline. In so doing, the 
provisions resulted in a system in which, for instance, three projects 
on the same street could have three different sets of income and rent 
limits if they were placed in service in three different time periods. 
Accommodating all of the possibilities for different placed-in-service 
dates required projects to use multiple tables to find the applicable 
income and rent limits, and some program participants have found this 
confusing. Furthermore, the income and rent limits change annually 
when HUD publishes new area income levels. The owner of a LIHTC 
project must use the correct table, based on the building's location 
and placed-in-service date, to determine the maximum income that a 
household may have to be a qualified low-income household, and the 
maximum gross rent that a household may be charged, based on the 
number of bedrooms in the unit, for the unit to qualify for the credit 
as a low-income unit. 

IRS issued explanatory newsletters about the hold harmless provisions, 
and IRS officials said they made public presentations to stakeholders 
about them, but some LIHTC program participants reported that the 
provisions were complicated, confusing, and hard to administer. For 
example, Texas HFA officials told us that the increase in the number 
of possible rent limits complicated communications with property 
owners and increased property owners' compliance risks. A Vermont HFA 
official described how staff had to learn to calculate new limits, 
publish and distribute new tables, and explain the changes in their 
QAP. However, some HFAs told us that while the provisions were complex 
and burdensome, they had worked hard to understand them and had 
learned to work with them. IRS has continued to provide explanatory 
newsletters and IRS officials told us they made public presentations 
into 2012. A Treasury official acknowledged the complexity of the 
provisions and said further clarifying guidance might be warranted. 
However, the official also said that making a change to hold harmless 
guidance would require determining that the change merited more 
consideration than the many non-HERA topics that Treasury also needed 
to consider. 

HFAs Generally Implemented HERA Changes through Qualified Allocation 
Plans: 

HFAs we spoke with also took steps to implement the changes, including 
one of the changes HFAs generally thought was significant--the HERA 
basis boost. Our review of QAPs for nine HFAs and research by an 
industry group found that HFAs often modified their QAPs to implement 
the HERA basis boost but varied in how they used the new flexibility. 
Of the nine states we examined, eight modified their QAPs by revising 
their criteria for awarding the basis boost. According to a state 
official, the remaining HFA also revised its criteria for the basis 
boost but conveyed the changes to stakeholders through its website, 
public hearings, and newspapers. 

In general, states varied in the criteria they developed for awarding 
the basis boost. We analyzed NCSHA summaries of the factors that HFAs 
reported considering in awarding the HERA basis boost in 2009, the 
first full year after HERA's enactment. According to the summaries, 30 
of the 54 HFAs reporting cited specific factors beyond the single 
criterion given in HERA (financial feasibility).[Footnote 24] The 
other 24 HFAs cited financial feasibility or other general guidance 
(17), did not report any factors (1), or chose not to implement the 
HERA basis boost (6). Research by NCSHA in 2010 noted that some states 
applied the boost statewide and some applied it to more specific 
geographical areas, project types, or projects with certain 
characteristics. NCSHA cited examples of states targeting the basis 
boost to developments that had tenants of different income levels, 
involved expensive land, were in rural or tribal areas or areas 
affected by natural disasters, featured "green building" practices or 
preservation initiatives, or were transit oriented. 

States' use of the basis boost also varied over time. Our analysis of 
NCSHA summaries for 2008 through 2010 showed that HFAs' use of the 
HERA basis boost became more widespread over that period. More 
specifically, while 12 HFAs reported not having implemented the basis 
boost in 2008, this number dropped to 3 in 2010. For example, the 
Florida HFA did not begin to use the boost until the change appeared 
in its 2011 QAP because until then, the state was still benefiting 
from Gulf Opportunity Zone disaster credits and did not need the HERA 
basis boost.[Footnote 25] California HFA officials said they did not 
use the boost as much as some other states because California already 
had a large number of counties that were designated as difficult 
development areas (DDA) and had a state LIHTC program covering 
projects that might have benefited from the HERA basis boost. 
[Footnote 26] The officials said they did not use the HERA basis boost 
at all in 2012. The Massachusetts HFA began implementing the HERA 
basis boost in 2009 and continued to use it into 2012. In its 2009 
plan, the HFA identified 20 locations that were eligible for the HERA 
basis boost, a number that rose to 35 in its 2012 plan. 

HFAs also modified their QAPs and published technical information to 
reflect other program changes in HERA. For instance, soon after HERA 
was enacted, the Oregon HFA revised multiple sections of its QAP. In 
accordance with HERA changes, it added the historic nature of 
buildings and energy efficiency as criteria for awarding LIHTCs, 
updated policies on the availability of LIHTC projects for general 
public use, and inserted new policies on the use of the 9 percent 
floor. The Massachusetts HFA incorporated the increase in per capita 
allocations as well as the 9 percent floor into its 2008 QAP. In 
addition, some of the states we reviewed published technical 
information to help program stakeholders comply with HERA program 
changes. For example, as they had done in previous years, California 
HFA officials sent a memorandum to LIHTC project owners and applicants 
in December 2011 on revised rent and income limits the HFA had 
published, using information from HUD. 

Available LIHTC Data Are Incomplete and Provide Limited Insight into 
Program Trends: 

HUD maintains a database of LIHTC-funded projects, which was last 
updated in July 2012, but the information it contains is incomplete. 
Although HUD has almost no direct administrative responsibility for 
the LIHTC program, as the federal government's lead housing agency, it 
has been voluntarily collecting information on the program since 1996 
because of the importance of these credits as a source of funding for 
low-income housing. HUD's LIHTC Database, the largest source of 
federal information on the LIHTC program, aggregates project-level 
data that are voluntarily submitted by HFAs. HUD contracts with a 
consulting firm to help compile the database, which is updated 
annually and is available to the public on HUD's website.[Footnote 27] 
Additionally, HUD sponsors studies of the LIHTC program that use these 
data. IRS, which jointly administers the program with HFAs, collects 
limited data that it needs to carry out its mission of administering 
and enforcing the internal revenue laws.[Footnote 28] It does not 
maintain the information needed to assess a housing production 
program, such as the types of tenants targeted and whether projects 
are in urban or rural areas.[Footnote 29] 

HUD's Database Is Incomplete Despite Efforts to Improve Data 
Collection: 

HUD's LIHTC Database does not capture all LIHTC projects placed in 
service, for three main reasons. First, although most HFAs voluntarily 
report LIHTC project data to HUD each year, some do not report 
consistently. Forty-two of 56 HFAs submitted project data to HUD for 
each year from 2006 through 2010. In 2010, these 42 HFAs received 
about 89 percent of all per capita LIHTC allocations. Of the remaining 
14 HFAs, 2 did not report projects in any of the 5 years, while 12 did 
not report each year, but did report for at least 2 of the years. For 
these 12, all of the nonreporting was for 2008 through 2010 (the most 
recent reporting year), a period in which some HFAs were struggling to 
comply with a HERA requirement that they collect data on tenant 
characteristics (e.g., race and income) for LIHTC projects, according 
to HUD and NCSHA officials.[Footnote 30] 

The HERA provision containing this requirement authorized $6.1 million 
for fiscal years 2009 through 2013 for HUD to, among other things, 
provide technical assistance to HFAs and compile the tenant data, but 
HUD never received any appropriations for these tasks. HUD is working 
to fulfill the requirement with existing resources. For example, HUD 
streamlined the project and tenant data collections by merging the two 
efforts. It also required HFAs to submit data in a standardized 
electronic format via a secure web portal. According to HUD, this 
change is significant, as the prior data collection process involved a 
HUD contractor that contacted each HFA and then standardized the 
collected data, which HFAs often maintained in different formats. HUD 
said that although some HFAs would need several years to make the 
transition, the new system was the most cost-effective long-term 
solution. HUD also said it recognized the problem of underreporting in 
recent years but that until the transition to the new data collection 
method was completed, its options were to either knowingly underreport 
properties placed in service or not release any data for those years. 

Second, in recent years, HUD has not identified or followed up on 
cases in which HFAs reported a substantially lower number of projects 
than in past years, although such information could potentially be 
incomplete. For example, HUD's database showed that one state had 
between 23 and 49 projects placed in service each year from 2006 
through 2009, but only 2 projects in 2010. When we followed up with 
the HFA in this state, HFA officials provided us with documentation 
showing that they had reported 37 projects for 2010. Similarly, HUD's 
database showed that another state had 2 projects placed in service in 
2008, compared with 90 or more in each of the 2 previous years. An 
official from this state's HFA told us that the actual number for 2008 
was 96 properties. We provided HUD with these and other examples for 
their review. According to a HUD official, before 2008 its contractor 
followed up with HFAs on these types of data anomalies but now places 
less emphasis on this function because of resource limitations and the 
HERA requirement for tenant data. Instead, the contractor now focuses 
on assisting HFAs with meeting the tenant data requirement and follows 
up only with HFAs that do not report any project data at all. 

Third, at the time they reported to HUD, HFAs may not have had 
information on all projects placed in service. Specifically, HFA 
officials said that delays between the date when a project was placed 
in service, the date a project owner reported it to the HFA, and the 
date the HFA recorded it in its information system could result in 
underreporting of projects. HUD instructs states to review the 
property information previously submitted and include information for 
these omitted properties. As a result, these omissions may be 
corrected in subsequent data submissions. 

Even when HUD did receive project data, much of it was incomplete, 
omitting information on project characteristics such as the type of 
location, construction, and tenants targeted. The proportion of 
missing information on project characteristics increased after 2007 
(see table 3). For example, the proportion of missing information on 
the types of tenants targeted increased from 5 percent in 2006 to 28 
percent in 2010. A HUD official noted that the HERA provision 
requiring HFAs to collect data on the characteristics of tenants in 
LIHTC projects had made it more challenging for HFAs to also report 
the project data with existing resources. In addition, a HUD official 
explained that across HFAs, different offices maintain tenant-level 
and project-level data. He said that HUD's data request was often 
completed by the offices with the tenant data, which might not have 
detailed project information. The official added that he had 
emphasized the need for HFAs to direct HUD's request for project data 
to the appropriate office in presentations to an HFA association and 
in communications with individual HFAs. However, according to HUD, 
resource limitations have prevented HUD and its contractor from 
performing thorough follow up with HFAs about missing information on 
project characteristics. 

Table 3: Percentage of Projects with Missing Information by Project 
Characteristics, Calendar Years 2006-2010, as of July 2012: 

Project characteristic: Location type (e.g., metropolitan, 
nonmetropolitan); 
Percentage of projects with missing information by year placed in 
service: 
2006: 10%; 
2007: 8%; 
2008: 11%; 
2009: 14%; 
2010: 17%. 

Project characteristic: Construction type (e.g., new construction, 
acquisition and rehabilitation); 
Percentage of projects with missing information by year placed in 
service: 
2006: 5%; 
2007: 5%; 
2008: 10%; 
2009: 12%; 
2010: 17%. 

Project characteristic: Types of tenants targeted (e.g., elderly, 
family, disabled); 
Percentage of projects with missing information by year placed in 
service: 
2006: 5%; 
2007: 8%; 
2008: 17%; 
2009: 23%; 
2010: 28%. 

Source: GAO analysis of HUD's LIHTC Database. 

Note: Data are for the 42 HFAs that reported information on LIHTC 
projects each year from 2006 through 2010. 

[End of table] 

Having complete data on the LIHTC program is important because of the 
program's significance to overall federal efforts to meet the nation's 
affordable housing needs. As previously noted, the LIHTC program is 
the largest subsidy program for constructing and rehabilitating low-
income rental housing. Additionally, the program is used in 
conjunction with other federal housing programs, including HUD's 
programs. For example, some LIHTC projects receive grants through 
HUD's HOME Investment Partnership program and have mortgages that are 
insured by HUD's Federal Housing Administration.[Footnote 31] HUD's 
LIHTC Database is the federal government's main source of information 
on LIHTC projects, and HUD and others have used data from 2007 and 
earlier--prior to some of the challenges discussed previously--to 
conduct research on the LIHTC program. For example, one study HUD 
sponsored examined the geographic distribution of LIHTC projects to 
assess whether program rules contribute to clustering of subsidized 
housing in central city and high-poverty areas.[Footnote 32] Another 
HUD-sponsored study examined whether LIHTC projects continue to 
provide affordable housing after the 15-year period in which they are 
required to do so.[Footnote 33] In addition, the Rental Policy Working 
Group established by the White House's Domestic Policy Council has 
used the data to examine the potential for harmonizing and 
streamlining property inspection requirements for rental properties 
with multiple sources of federal funding, including LIHTCs.[Footnote 
34] However, as we have seen, a number of challenges faced by HUD and 
HFAs have adversely affected the completeness of HUD's database. 
Without more complete data on the number, location, and 
characteristics of LIHTC projects, the federal government's ability to 
continue evaluating program outcomes and overall federal efforts to 
provide affordable housing is limited. 

Available Data Provide Limited Insight into Trends in the Number and 
Characteristics of LIHTC Projects: 

According to HUD data as of July 2012, the 42 HFAs that submitted 
information for each year from 2006 through 2010 reported that more 
than 5,300 LIHTC projects were placed in service over the 5-year 
period (see table 4).[Footnote 35] In total, these projects used more 
than $3 billion in LIHTCs and contained more than 421,000 living 
units. The reported number of projects and units placed in service 
declined over the 5-year period, particularly after 2008; however, the 
lack of complete project data, as discussed previously, prevents a 
reliable analysis of actual program trends. 

Table 4: Reported Number of LIHTC Projects Placed in Service, Calendar 
Years 2006-2010, as of July 2012: 

Number of projects placed in service: 
2006: 1,387; 
2007: 1,286; 
2008: 1,225; 
2009: 886; 
2010: 594; 
Total: 5,378. 

Number of units placed in service: 
2006: 112,612; 
2007: 100,980; 
2008: 86,283; 
2009: 65,409; 
2010: 56,265; 
Total: 421,549. 

Amount of LIHTCs used for projects placed in service:
2006: $664,950,647; 
2007: $661,318,390; 
2008: $686,848,400; 
2009: $568,352,441; 
2010: $454,559,496; 
Total: $3,036,029,374. 

Source: GAO analysis of HUD's LIHTC Database. 

Note: Data are for the 42 HFAs that reported information on LIHTC 
projects each year from 2006 through 2010. The lack of complete 
project data prevents a reliable analysis of program trends. 

[End of table] 

Although data at the national level are limited, information from the 
nine HFAs we contacted provide some insight into changes in the number 
of projects placed in service after HERA was enacted in 2008. Six of 
the nine HFAs indicated that the number of projects declined 
substantially between 2008 and 2009, while the other three experienced 
either modest or no declines. For example, California HFA officials 
said they had 203 projects placed in service in 2008, compared with 
140 in 2009. In contrast, Massachusetts HFA officials said they had 21 
projects placed in service in both years. Of the six HFAs that had 
substantial declines, three continued to see decreases in 2010, while 
the remainder experienced modest to large increases in 2010.[Footnote 
36] 

While a portion of LIHTC projects in HUD's database lack information 
on location type, the data do indicate that the majority of LIHTC 
projects placed in service from 2006 through 2010 were located in 
metropolitan central and noncentral cities (e.g., suburbs). For each 
of these years, at least 69 percent of reported projects were in 
metropolitan areas, but given the proportion of projects with missing 
information on location type, trends in this characteristic cannot be 
precisely determined (see table 5). 

Table 5: Percentage of Reported LIHTC Projects Placed in Service from 
Calendar Years 2006-2010 by Location Type, as of July 2012: 

Location type: Metropolitan/central city; 
Percentage of projects by year placed in service: 
2006: 42%; 
2007: 47%; 
2008: 40%; 
2009: 45%; 
2010: 43%. 

Location type: Metropolitan/noncentral city; 
Percentage of projects by year placed in service: 
2006: 27%; 
2007: 24%; 
2008: 30%; 
2009: 25%; 
2010: 27%. 

Location type: Nonmetropolitan; 
Percentage of projects by year placed in service: 
2006: 21%; 
2007: 21%; 
2008: 19%; 
2009: 16%; 
2010: 13%. 

Location type: Location type not indicated; 
Percentage of projects by year placed in service: 
2006: 10%; 
2007: 8%; 
2008: 11%; 
2009: 14%; 
2010: 17%. 

Source: GAO analysis of HUD's LIHTC Database. 

Note: Data are for the 42 HFAs that reported information on LIHTC 
projects each year from 2006 through 2010. 

[End of table] 

According to HUD data, the majority of reported LIHTC projects placed 
in service from 2006 through 2010 were newly constructed (see table 
6). However, the amount of missing data on construction type after 
2007 makes it impossible to draw accurate conclusions on potential 
changes in the proportion of projects that were newly constructed and 
those that were acquisition and rehabilitation projects. 

Table 6: Percentage of Reported LIHTC Projects by Construction Type, 
Calendar Years 2006-2010, as of July 2012: 

Construction type: New construction; 
Percentage of projects by year placed in service: 
2006: 58%; 
2007: 59%; 
2008: 55%; 
2009: 55%; 
2010: 54%. 

Construction type: Acquisition and rehabilitation; 
Percentage of projects by year placed in service: 
2006: 33%; 
2007: 33%; 
2008: 31%; 
2009: 31%; 
2010: 27%. 

Construction type: Both new construction and acquisition/ 
rehabilitation; 
Percentage of projects by year placed in service: 
2006: 2%; 
2007: 1%; 
2008: 2%; 
2009: 1%; 
2010: 1%. 

Construction type: Missing construction type; 
Percentage of projects by year placed in service: 
2006: 5%; 
2007: 5%; 
2008: 10%; 
2009: 12%; 
2010: 17%. 

Source: GAO analysis of HUD's LIHTC Database. 

Note: Data are for the 42 HFAs that reported information on LIHTC 
projects each year from 2006 through 2010. Columns may not sum to 100 
percent due to rounding. 

[End of table] 

According to data reported to HUD, the most common types of tenants 
targeted by LIHTC projects in 2006 and 2007 were families and elderly 
tenants (see table 7). However, as previously noted, the proportion of 
projects in HUD's database with missing information on tenant types 
increased substantially after 2007. As a result, any reported changes 
in types of tenants targeted are not definitive. In addition, HUD 
officials told us that HFAs may have used different criteria for 
determining whether a project was targeted to particular groups of 
tenants, potentially resulting in inconsistencies across HFAs. 

Table 7: Percentage of Reported LIHTC Projects by Type of Tenant 
Targeted, 2006-2010, as of July 2012: 

Tenants targeted: Family; 
Percentage of projects by year placed in service: 
2006: 45%; 
2007: 42%; 
2008: 44%; 
2009: 38%; 
2010: 30%. 

Tenants targeted: Elderly; 
Percentage of projects by year placed in service: 
2006: 24%; 
2007: 25%; 
2008: 23%; 
2009: 20%; 
2010: 21%. 

Tenants targeted: Disabled; 
Percentage of projects by year placed in service: 
2006: 9%; 
2007: 10%; 
2008: 15%; 
2009: 12%; 
2010: 15%. 

Tenants targeted: Homeless; 
Percentage of projects by year placed in service: 
2006: 3%; 
2007: 4%; 
2008: 8%; 
2009: 7%; 
2010: 7%. 

Tenants targeted: Other; 
Percentage of projects by year placed in service: 
2006: 6%; 
2007: 10%; 
2008: 7%; 
2009: 10%; 
2010: 7%. 

Tenants targeted: Did not target; 
Percentage of projects by year placed in service: 
2006: 22%; 
2007: 20%; 
2008: 14%; 
2009: 13%; 
2010: 14%. 

Tenants targeted: Not indicated; 
Percentage of projects by year placed in service: 
2006: 5%; 
2007: 8%; 
2008: 17%; 
2009: 23%; 
2010: 28%. 

Source: GAO analysis of HUD's National LIHTC Database. 

Notes: Percentages may sum to more than 100 percent because projects 
can target more than one type of tenant. Data are for 42 HFAs that 
reported LIHTC projects to HUD in each of these years. 

[End of table] 

Stakeholders Said HERA Provisions Helped the Financial Feasibility of 
Some LIHTC Projects: 

State and industry officials we spoke with said that isolating the 
effect of the HERA changes on the overall LIHTC market was difficult 
because of other program changes (e.g., creation of the Exchange 
Program) and economic developments (e.g., the recession and financial 
crisis) that occurred around the same time. Nonetheless, state and 
industry officials we spoke with identified specific LIHTC projects 
that they said would not have been completed without certain HERA 
provisions. In particular, they cited the temporary increase in per 
capita credit allocations, the temporary 9 percent floor, and the HERA 
basis boost as three provisions that helped the financial feasibility 
of some projects and likely prevented even further decreases in LIHTC 
projects after 2008. In addition, stakeholders said HERA changes 
particularly helped the financial feasibility of rural projects. 

Stakeholders Identified HERA Changes That Enhanced Project Feasibility: 

Temporary Increase in Per Capita Credits: 

Because of HERA's temporary increase in per capita credit allocations, 
HFAs received tens of millions of dollars more in allocations in 2008 
and 2009 than they would have otherwise. By statute, LIHTC allocation 
amounts are adjusted for inflation each calendar year, but for 
calendar years 2008 and 2009 only, HERA further increased allocations 
to each HFA. Adjusted for inflation, the per capita allocation in 2008 
would have been $2.00, but HERA increased the amount to $2.20 that 
year and to $2.30 in 2009. The minimum allocation for small HFAs was 
increased to $2,555,000 in 2008 and $2,665,000 in 2009. Without HERA, 
HFAs would have received $61,836,050 less in per capita credits than 
they did in 2008 and $62,408,937 less in 2009. For 2010, LIHTC 
allocations returned to the path that would have been in place if HERA 
had not been enacted (see table 8). 

Table 8: Per Capita LIHTC Allocations, Calendar Years 2006-2010, 
Including HERA Increases in 2008 and 2009: 

Calendar year: 2006; 
Credit per capita: $1.90; 
Total per capita credits: $575,565,080. 

Calendar year: 2007; 
Credit per capita: $1.95; 
Total per capita credits: $598,946,906; 
Percentage change in total credits from previous year: 4.06%. 

Calendar year: 2008; 
Credit per capita: $2.20; 
Total per capita credits: $680,421,802; 
Percentage change in total credits from previous year: 13.60%. 

Calendar year: 2009; 
Credit per capita: $2.30; 
Total per capita credits: $716,847,811; 
Percentage change in total credits from previous year: 5.35%. 

Calendar year: 2010; 
Credit per capita: $2.10; 
Total per capita credits: $662,928,791; 
Percentage change in total credits from previous year: -7.52%. 

Source: GAO analysis of data from NCSHA and IRS. 

[End of table] 

Some state officials we spoke with said that they allocated the 
additional credits to projects already under development and to new 
projects. For example, HFA officials in Michigan and Oregon told us 
that they used the additional credits to both fill funding gaps for 
projects that had previously received LIHTC allocations and to fund 
one or two additional projects in their states. Massachusetts HFA 
officials told us that they used the additional credits to finish 
projects that were in danger of not being completed because of drops 
in prices that investors were willing to pay for LIHTCs. 

Although HFAs received additional credits in 2008 and 2009, developers 
also returned more unused credits to HFAs in these years. According to 
data from NCSHA, the total amount of credits developers returned to 
HFAs increased substantially in 2008 and 2009. The amount of returned 
credits in 2009 was more than 6 times the amount in 2006 (see table 9). 

Table 9: Amount of Credits Developers Returned to HFAs, Calendar Years 
2006-2010: 

Calendar year: 2006; 
Credits developers returned to HFAs: $66,809,433. 

Calendar year: 2007; 
Credits developers returned to HFAs: $68,641,795. 

Calendar year: 2008; 
Credits developers returned to HFAs: $108,431,328. 

Calendar year: 2009; 
Credits developers returned to HFAs: $426,862,481. 

Calendar year: 2010; 
Credits developers returned to HFAs: $72,322,543. 

Source: GAO analysis of data from NCSHA. 

[End of table] 

An NCSHA official explained that developers returned credits for 
several reasons. For example, the NCSHA official noted that in 2008, 
developers had trouble finding LIHTC investors, resulting in a higher-
than-normal amount returned to the HFAs. Also, in 2009, the Recovery 
Act's Exchange Program allowed HFAs to exchange returned credits for 
cash grants, resulting in a very high amount of returns that year. For 
2009, the amount of returned credits included those that were returned 
and exchanged, as well as those returned and possibly reallocated to 
other developers. According to the NCSHA official, virtually all of 
the returned credits that were not exchanged were reallocated either 
the same year or the following year. 

Temporary 9 Percent Floor and Basis Boost: 

Some state housing officials and industry stakeholders said that 
HERA's temporary floor for the 9 percent credit helped the financial 
feasibility of individual projects. Owing to the floating credit rate 
prior to HERA, developers that received the 9 percent credit actually 
received a credit approximating 8 percent. By setting a floor of 9 
percent for projects placed in service by the end of 2013, HERA 
increased the amount of credits these projects could receive. For 
example, if a pre-HERA project had an eligible basis of $1,000,000 and 
the floating rate for the 9 percent credit was 8 percent, that project 
would be eligible to receive $800,000 in credits ($80,000 per year for 
10 years). In contrast, by setting a floor of 9 percent for the 9 
percent credit, that same project would be eligible for $900,000 in 
credits ($90,000 per year for 10 years). 

Also, as previously noted, the HERA basis boost provision gave HFAs 
the ability to designate any building, regardless of location, as 
eligible for an enhanced credit of up to 130 percent of the building's 
eligible basis rather than just those in a DDA or a QCT. One developer 
told us that every LIHTC project he had completed since the passage of 
HERA used the HERA basis boost, and that it and the 9 percent floor 
together had made a significant difference in his ability to complete 
projects. This developer cited a project in which these two provisions 
reduced a funding gap of $1,680,000 to $450,000, which the developer 
was able to close by other means. Another LIHTC developer noted that 
the 9 percent floor allowed LIHTC deals to be engineered with fewer 
funding sources and that in many cases such deals would not have been 
completed without this provision. In addition, North Carolina HFA 
officials told us that some projects had received tax credit awards in 
2007 and 2008, but had funding gaps when the tax credit market 
collapsed and prices for tax credits fell before developers could 
secure equity from investors. For these projects, the HFA allowed 
developers to return their allocated credits and receive new credits 
with the 9 percent rate and the HERA basis boost, thus filling the 
funding gaps. According to the North Carolina officials, these HERA 
provisions helped in completing a total of 46 projects that likely 
would not otherwise have been completed. 

In addition, HFA officials in Oregon and Michigan noted that they used 
the HERA basis boost for permanent supportive housing--long-term 
housing projects with supportive services for homeless persons with 
disabilities or other barriers--which have lower income tenants. 
Similarly, HFA officials in Florida said that the HERA basis boost 
helped fund three projects that will be placed in service in either 
2012 or 2013 for tenants that were homeless and had lower incomes. 
According to the officials, such projects are typically difficult to 
develop because project cash flows are limited because tenants may not 
have any income when they move in. HFA officials in Minnesota said 
that without the 9 percent floor, it would have been difficult to fund 
projects serving the long-term homeless, those with special needs, and 
those with lower incomes. 

Stakeholders Said HERA Changes Helped Rural Projects: 

According to state housing officials and industry participants, 
certain HERA provisions helped mitigate some of the challenges 
associated with developing projects in rural areas. For example, the 
maximum amount of rent a project owner can charge is based on the 
area's income limits. According to officials from the Council for 
Affordable and Rural Housing, because rural areas often have lower 
income limits compared with urban areas, rural projects also often 
have lower cash flows from rents. They noted that the HERA provision 
that allowed projects in rural areas to base tenant income limits on 
the greater of the area median gross income or the national 
nonmetropolitan median gross income was one of the most significant 
HERA provisions for rural housing. In cases where the national 
nonmetropolitan measure is greater than the local area measure, 
project owners can set higher rent levels than they would have prior 
to HERA. This flexibility, in turn, can give project owners access to 
a broader pool of qualified tenants and increase cash flows from rent, 
potentially making the projects more attractive to investors. 
Additionally, according to some industry stakeholders, investor demand 
for LIHTCs is often weaker in rural areas than in urban areas in part 
because rural LIHTC projects tend to be smaller in scale. As a result, 
fixed transaction costs are spread over fewer units, and a few 
vacancies can have a relatively greater impact on the viability of a 
small project. Some state officials told us they applied the HERA 
basis boost to rural areas to help strengthen the financial viability 
of projects in these locations. For example, Michigan HFA officials 
said they applied the HERA basis boost to rural areas because rural 
projects would not have been desirable to investors without it. 

Conclusions: 

The LIHTC program is the largest federal program for building and 
rehabilitating affordable rental housing and provides billions of 
dollars in tax credits each year. Through HERA, Congress made a number 
of changes to the program and sought analysis of credit allocations 
made before and after the act's implementation. However, limitations 
in available program data hamper this type of analysis and potentially 
other research that could be useful to policymakers. HUD is not 
required to collect data on LIHTC projects and has very limited 
administrative responsibility for the program, but it has collected 
some information from HFAs for many years. We commend HUD for taking 
steps as the lead federal housing agency to collect and disseminate 
project information. This information has been used to examine 
important issues, such as the extent to which subsidized housing 
remains affordable over the long term and the potential for 
harmonizing requirements across federal housing programs. But, in 
recent years, the completeness of HUD's LIHTC Database has worsened, 
due partly to resource constraints and challenges HUD and HFAs face in 
meeting new requirements for compiling information on tenants in LIHTC 
projects. In addition, HUD and its contractor have not followed up on 
data anomalies that could indicate incomplete reporting. Our work 
suggests that HUD's database may be missing many projects that could 
be captured through additional follow-up efforts. Without improvements 
in the database, the federal government's ability to evaluate basic 
program outcomes--such as how much housing was produced--and other 
aspects of federal housing policy may suffer. 

Recommendation for Executive Action: 

HUD has taken steps to improve its data collection process and faces 
resource constraints. However, the importance of the LIHTC program to 
federal housing policy underscores the need for continued attention to 
data quality and completeness. Therefore, we recommend that the 
Secretary of Housing and Urban Development (1) evaluate options for 
improving the completeness of HUD's LIHTC Database, including 
following up on data anomalies and enhancing the role of HUD's 
contractor in data collection and quality control; and (2) based on 
this evaluation, take additional steps to improve the data. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to HUD, IRS, and Treasury for their 
review and comment. We received written comments from HUD's Acting 
Assistant Secretary for Policy Development and Research that are 
reprinted in appendix III. We also received technical comments from 
IRS and Treasury, which we incorporated into the final report where 
appropriate. 

In its written comments, HUD agreed with our conclusions and 
recommendations but expressed concerns about the draft report's 
characterization of HUD's LIHTC Database and data collection efforts. 
HUD said that our draft report did not adequately explain either the 
transition HUD was experiencing in its data collection or changes it 
had made to the collection process. HUD noted, as did our draft 
report, that while HERA required the agency to compile data on tenants 
in LIHTC units and authorized $6.1 million for this purpose, Congress 
did not appropriate these funds. HUD stated that to more cost-
effectively collect both the tenant and property data, it merged the 
two efforts and required HFAs to submit all of the data through a 
secure web portal in a standardized electronic format. HUD said that 
it understood that this requirement would entail a multiyear 
transition for some HFAs, but also noted that in the long run this 
solution was the most cost-effective way to collect the information. 
Additionally, HUD said it recognized that its database had suffered 
from underreporting in recent years but said that until the transition 
to the new data collection method was completed, its options were 
either to knowingly underreport properties placed in service or to not 
release any data for those years. In response to HUD's comments, we 
added language to the final report clarifying the connection between 
resource constraints for the implementation of the tenant data 
requirement and the completeness of the project data. We also added 
language describing how HUD had modified its data collection process 
and its rationale for reporting incomplete data rather than no data. 

HUD also expressed concern about our use of the word "inaccurate" to 
describe potential shortcomings in some of the information in the 
LIHTC Database. HUD said that it would never publicly release 
information that it thought might be inaccurate and suggested that we 
substitute "incomplete" for "inaccurate." Our draft report generally 
used the word "incomplete" to characterize the information in the 
LIHTC Database but in three places used the phrase "potentially 
inaccurate information" to describe cases in which the LIHTC Database 
showed substantially fewer projects for an HFA than the number we 
obtained from the HFA directly. We agree that "incomplete" is a more 
appropriate term and revised the final report to use that word 
throughout. 

We are sending copies of this report to interested congressional 
committees, the Secretary of the Treasury, the Commissioner of 
Internal Revenue, and the Secretary of Housing and Urban Development. 
This report is also available at no charge on the GAO website at 
[hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact us at (202) 512-8678 or garciadiazd@gao.gov, or (202) 512-9110 
or whitej@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. GAO staff who made major contributions to this report are 
listed in appendix IV. 

Signed by: 

Daniel Garcia-Diaz: 
Acting Director: 
Financial Markets and Community Investment: 

Signed by: 

James R. White: 
Director Strategic Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report discusses (1) how the Internal Revenue Service (IRS) and 
selected housing finance agencies (HFA) implemented the Housing and 
Economic Recovery Act of 2008 (HERA) changes to the Low-Income Housing 
Tax Credit (LIHTC) program, (2) what the Department of Housing and 
Urban Development's (HUD) data on LIHTC projects show about the number 
and characteristics of projects completed from 2006 through 2010 and 
any data limitations, and (3) the views of program stakeholders about 
the effects of the HERA changes on these projects. 

To assess how IRS and selected HFAs implemented HERA changes to the 
LIHTC program, we reviewed IRS guidance, memorandums, and planning 
documents. We also interviewed IRS and Department of the Treasury 
officials. In addition, we interviewed officials from nine HFAs: 
California, Florida, Massachusetts, Michigan, Minnesota, North 
Carolina, Oregon, Texas, and Vermont. We selected these HFAs to cover 
different regions of the country and amounts of tax credit 
allocations. The selected states are not representative of the entire 
LIHTC market. For the selected HFAs, we reviewed qualified allocation 
plans (QAP) that contained detailed selection criteria and application 
requirements for LIHTCs. To further learn how HERA changes were 
implemented, we interviewed other industry stakeholders, such as 
industry associations, investors, syndicators, and housing developers. 

To examine HUD's data on LIHTC projects and what these data show about 
the number and characteristics of LIHTC projects completed from 2006 
through 2010, we analyzed information from HUD's LIHTC Database. 
[Footnote 37] HUD collects these data from HFAs and maintains 
information on LIHTC-financed projects once they are placed in 
service. We conducted reasonableness checks on the data to identify 
any missing, erroneous, or outlying figures. We also asked the nine 
HFAs previously mentioned to check HUD's numbers of projects placed in 
service from 2006 through 2010 against their own records, and 
interviewed HUD about how it and its contractor compiled the data. As 
discussed in the body of this report, we found that HUD's data may not 
contain all LIHTC projects placed in service as of 2010 for several 
reasons, including (1) challenges states face in implementing new 
requirements for reporting tenant data and (2) delays between when a 
project is placed in service and when that information is entered into 
the state's data system and reported to HUD. As a result, the number 
of reported projects placed in service as of 2010 may be understated. 
We also found that a substantial proportion of projects in the 
database had missing values for key project characteristics. For this 
reason, changes in the reported number and characteristics of projects 
over time should be interpreted with caution. While we acknowledge 
these limitations, we chose to present the LIHTC data as reported by 
HUD because they provided the broadest coverage of LIHTC projects 
placed in service through 2010. We concluded that the data elements we 
used were sufficiently reliable for describing limitations of the data 
and presenting the project information HUD had compiled as of July 
2012. For each year, we totaled the number of projects placed in 
service. Due to the limitations of HUD's data, we supplemented this 
analysis by examining information from the nine HFAs we contacted to 
identify any state-level trends. Using the HUD data, we calculated the 
proportion of projects with certain characteristics, including 
location type (metropolitan/central city, metropolitan noncentral 
city, nonmetropolitan), construction type (new construction, 
acquisition/rehabilitation, both new construction and 
acquisition/rehabilitation), and the type of tenants targeted 
(elderly, family, disabled, homeless, other). In addition, because 
HERA increased the amount of credits allocated to states in 2008 and 
2009, we analyzed trends in annual LIHTC allocations from 2006 through 
2010 using data collected by the National Council of State Housing 
Agencies (NCSHA). In order to assess the reliability of the NCSHA data 
we analyzed, we reviewed documentation and interviewed NCHSA officials 
about their methods for collecting and reporting the data. We 
concluded that the NCHSA data were sufficiently reliable for our 
purposes. 

To obtain the views of selected HFAs and industry participants about 
the effects of the HERA changes on LIHTC projects, we interviewed 
officials from the HFAs and industry stakeholders noted previously. We 
obtained their views on which HERA changes were most significant, the 
extent to which the HERA changes helped complete projects that 
otherwise would not have been feasible, and the extent to which the 
HERA changes affected the characteristics of projects that received 
LIHTC allocations. In addition, we reviewed documentation on projects 
that industry stakeholders said had been affected by the changes. 

We conducted this performance audit from February through December 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Specific 2008 Changes Related to the Low-Income Housing 
Tax Credit: 

Table 10 summarizes the changes related to the LIHTC program made in 
the Multi-Family Housing subtitle of HERA.[Footnote 38] 

Table 10: Specific LIHTC Provisions Enacted in 2008, by Category: 

Temporary increase in per capita credit allocations to states: 
* For 2008 and 2009 only, increased the per-resident credit amount a 
state may allocate and the small-state minimum annual cap. 

Determination of credit rate: 
* For buildings placed in service after July 30, 2008, and before 
December 31, 2013, established a 9 percent minimum credit rate for 
newly constructed and substantially rehabilitated nonfederally 
subsidized buildings; 
* Redefined the criteria for considering whether a building is 
federally subsidized by not counting certain federal loans and 
assistance. 

Changes to definition of eligible basis: 
* Gave states the flexibility to designate buildings as eligible for 
an enhanced credit of 130 percent of the normal amount when the 
buildings needed the enhanced credit in order to be financially 
feasible; 
* Increased the minimum rehabilitation expenses needed for existing 
buildings to be eligible for the credit; 
* Expanded the size of the community service facility that is counted 
as part of the eligible basis of a low-income building; 
* Clarified how federal grants are treated in reducing a building's 
eligible basis; 
* Redefined related persons to include only those with a 50 percent 
ownership commonality (raised from 10 percent); 
* Expanded the definition of a federally assisted building and 
included state-assisted buildings in the waiver of the 10-year rule on 
change of ownership. 

Other simplification and reform of low-income housing tax incentives: 
* Repealed prohibition on the credit for buildings receiving HUD 
moderate rehabilitation help; 
* Gave projects 1 year, not 6 months, after credit allocation to incur 
10 percent of reasonably expected costs; 
* For buildings disposed of, released the disposition bond requirement 
to avoid recapture; 
* Added energy-efficiency and "historic nature" criteria to criteria 
that states must set forth in qualified allocation plans; 
* Added an exception to a general rule prohibiting 100 percent full-
time student households from occupying low-income units to allow a 
unit occupied by a student who had previously received foster care to 
be eligible for the credit; 
* Changed median income rules in rural areas; 
* Clarified a provision so that a project would not fail the general 
public use requirement just because it favored tenants who had special 
needs, were members of specified groups, or were involved in artistic 
or literary activities. 

Treatment of basic housing allowances: 
* Excluded military basic housing allowances from income for purposes 
of income eligibility rules in certain locations. 

Refunding treatment for certain multifamily housing bonds: 
* Treated a bond issued to refinance a first issue of bonds as a 
refunding issue. 

Coordination of certain tax-exempt bond rules and credit rules: 
* Conformed rules so that in both cases certain restrictions will be 
satisfied if the next available unit in a building is rented to a new 
tenant who satisfies income and rent-restriction requirements; 
* Conformed rules related to residential units occupied by 100 percent 
low-income student households; 
* Conformed rules related to single-room occupancy housing. 

Hold harmless for reductions in area median gross income: 
* Changed how area median gross income is determined. 

Exception from annual recertification requirement: 
* For projects that are 100 percent low income, waived the requirement 
for annual tenant income recertifications. 

Source: GAO analysis of Joint Committee on Taxation, General 
Explanation of Tax Legislation Enacted in the 110TH Congress, JCS-1-09 
(March 2009). 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Housing and Urban 
Development: 

U.S. Department of Housing and Urban Development: 
Assistant Secretary for Policy Development and Research: 
Washington, DC 211415-6000: 

November 28, 2012: 

Mr. Daniel Garcia-Diaz: 
Mr. James R. White: 
U.S. Government Accountability Office (GAO): 
441 G Street NW: 
Washington, DC 20548-0001: 

Dear Mr. Diaz and Mr. White: 

Thank you for providing the Department of Housing and Urban 
Development's Office of Policy Development and Research (PD&R) the 
opportunity to review the draft report, "Low-Income Housing Tax 
Credits: Agencies Implemented Changes Enacted in 2008, but Project 
Data Collection Could be Improved." As you know, PD&R staff provided 
considerable guidance and assistance for the report on PD&R's Low-
Income Housing Tax Credit (LIHTC) properties placed in service 
database. However, after reviewing the report, HUD finds there are 
several important omissions and mischaracterizations that distract 
from the purpose of the report and that could significantly undermine 
PD&R's efforts to collect and report data on a housing production 
program over which it has no administrative authority. HUD's concerns 
are explained below and the Department would appreciate GAO's 
attention and response to them in the final report. 

Most importantly, pages 17 through 23 of the draft report could be 
improved to better describe the current state of PD&R's database and 
the many efforts HUD has taken to efficiently carry-out the data 
collection efforts, As the GAO research team knows, PD&R began 
collecting the property data in the mid-1990s because of the lack of a 
consistent source of LIHTC program data on a national basis. Since HUD 
does not have a direct role in the administration of this program and
the Internal Revenue Service (IRS) does not release any of its 
information on LIHTC properties, the data is collected from the sixty 
state and local housing finance agencies (HFAs) that administer the
program. Many of these agencies have limited staff time to devote to 
responding to HUD's data request. In order to compensate for their 
lack of capacity, HUD chose to use its own resources and fund a 
contractor who worked closely with the HFAs to ensure complete, 
accurate and consistent reporting. Until the passage of HERA in 2008, 
PD&R's LIHTC database was generally complete and regarded as the most 
comprehensive, if not the only, national source of LIHTC property data,
and was used widely in independent academic studies of the LIHTC 
program (for recent examples, see: Nathaniel Baum-Snow and Justin 
Marion, 2009, "The Effects of Low-Income Housing Tax Credit 
Developments on Neighborhoods," Journal of Public Economics, 93: 655-
666; and Michael D. Eriksen, and Stuart S. Rosenthal, 2010, "Crowd Out 
Effects of Place-Based Subsidized Rental Housing: New Evidence from 
the LIHTC Program," Journal of Public Economics, 94: 953-66). 

The passage of HERA in 2008, specifically its mandate that the state 
HFAs provide HUD demographic and economic data on tenants in LIHTC 
units, required PD&R to significantly modify its well-established 
methodology for collecting LIHTC property information. As GAO mentions 
in the draft report, HERA authorized $6.1 million over five years to 
fund the submission of LIHTC tenant data from the state HFAs to HUD. 
These funds were to support not only IT infrastructure within HUD, but 
also to provide funds to the HFAs to upgrade their LIHTC program 
administrative data systems, which for many states did not even exist. 
Unfortunately, Congress did not appropriate any funds to support this 
mandate. Despite the lack of specific appropriated funds, HUD decided 
to carry-out Congress' mandate using its existing resources. The most 
cost effective way to collect data, regardless of whether the 
authorized funding was appropriated, was to merge the property and 
tenant data collections, since both sets of data were provided by the 
same set of state and local agencies. In 2010, using industry-accepted 
and endorsed standards of electronic data submission, HUD required 
that all property, and tenant, data be submitted through a secure 
portal on HUDUser.org in an XML formatted file. The requirement that 
the data be submitted in a specific, electronic format was a stark 
change in the collection methodology, and one that PD&R understood 
would entail a multi-year transition for some agencies, but it was 
indeed the most cost effective solution for the long-run viability of 
HUD's LIHTC data collection responsibilities. 

HUD is concerned because the draft report: 1) does not adequately 
explain the transition that the data collection is experiencing, due 
to HERA, and 2) does not explain the steps HUD has taken to make the 
process of collecting LIHTC project data more cost-effective. PD&R 
acknowledges that the database has suffered from under-reporting over 
the past few years and is taking steps, beyond the change in 
collection methodology described above, to improve the data coverage.
While the Department completes the transition to the more cost-
effective methodology given the shortage of funds, PD&R's options are 
to either knowingly under-report properties placed into service, or 
not release any data for these years. PD&R has chosen to release the 
partial, but not inaccurate, data with the proper caveats noted on 
HUDUser.org, where the database is available. 

In the discussion of HUD's database in the draft report, GAO states 
that the database contains, or may contain, "inaccurate" information 
and, even worse, that HUD is aware that the database contains 
inaccurate information. I believe what GAO truly means is "incomplete" 
rather than "inaccurate." HUD would never publicly release information 
that it thought may be inaccurate and in fact, GAO staff did not 
identify any information that was potentially inaccurate, but rather 
found, as acknowledged by HUD staff, that the information, 
specifically the number of properties placed into service through 
2010, was incomplete at the time the GAO accessed the data. 

The Department agrees with the conclusions and recommendations in the 
draft report that HUD should continue evaluating ways to improve the 
data collection on an on-going basis so that the L1HTC database can be 
more complete in a timelier manner. 

The Department looks forward to seeing GAO's response to HUD's 
concerns in the final report. The report is an important contribution 
to understanding the LIHTC program, which is why HUD is invested in 
ensuring its role is accurately described. Please let me know if I can 
provide any additional information. 

Sincerely, 

Signed by: 
Erika C. Poethig: 
Acting Assistant Secretary for Policy Development and Research: 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov: 

James R. White, (202) 512-9110 or whitej@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Steve Westley and Joanna 
Stamatiades (Assistant Directors), Emily Chalmers, William Chatlos, 
Lois Hanshaw, Lawrence Korb, May Lee, John McGrail, Marc Molino, 
Edward Nannenhorn, Winnie Tsen, and Jason Wildhagen made important 
contributions to this report. 

[End of section] 

Footnotes: 

[1] All 50 states, the District of Columbia, Puerto Rico, and four 
U.S. possessions (American Samoa, Guam, the Northern Mariana Islands, 
and the U.S. Virgin Islands) have HFAs that receive LIHTC allocations. 
HFAs are state-chartered authorities established to meet the 
affordable housing needs of the residents of their states. 

[2] 26 U.S.C. § 42(h)(3). 

[3] The owners of the LIHTC project are permitted to claim the LIHTCs 
on their income tax return. Technically, what is sold to the investor 
is not the credit but an ownership interest in the project (through a 
partnership or other entity). 

[4] Although the LIHTC program is a major source of financing for 
affordable rental housing, some researchers have argued that the 
program may displace other affordable housing that would have been 
available through the private, unsubsidized housing market. A 2008 
report by the Congressional Research Service reviewed the research 
literature on this and other issues concerning the impact of the LIHTC 
program. Congressional Research Service, The Low-Income Housing Tax 
Credit: A Framework for Evaluation, RL33904 (Washington, D.C.: Apr. 
15, 2008). 

[5] Fannie Mae and Freddie Mac are private, federally chartered 
companies created by Congress to, among other things, provide 
liquidity to home mortgage markets by purchasing mortgage loans, thus 
enabling lenders to make additional loans. In September 2008, Fannie 
Mae and Freddie Mac were placed into federal government 
conservatorship. 

[6] Pub. L. No. 110-289, 122 Stat. 2654 (July 30, 2008). Under the 
American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5), 
Congress also created two new programs that addressed the lack of 
private investment in projects that would otherwise have used LIHTCs. 
The two programs are the Tax Credit Assistance Program and the Grants 
to States for Low-Income Housing Projects in Lieu of Low-Income 
Housing Credits Program. HFAs were to use the funding from these 
programs to provide gap financing for stalled "shovel-ready" projects 
and to offset the drop in the demand for, and subsequently the price 
of, LIHTCs. For information on the implementation of these programs, 
see GAO, Recovery Act: Opportunities to Improve Management and 
Strengthen Accountability over States' and Localities' Uses of Funds, 
[hyperlink, http://www.gao.gov/products/GAO-10-999] (Washington, D.C.: 
Sept. 20, 2010) and Recovery Act: Housing Programs Met Spending 
Milestones, but Asset Management Information Needs Evaluation, 
[hyperlink, http://www.gao.gov/products/GAO-12-634] (Washington, D.C.: 
June 18, 2012). 

[7] IRS Notice 88-116 defines the placed-in-service date as the date 
on which the first unit in the building is certified as being suitable 
for occupancy under state or local law. 

[8] HERA at § 3004. The program changes within the scope of our review 
are contained in HERA, div. C, title I, subtitle A, 122 Stat. 2878-
2888 (July 30, 2008). 

[9] We interviewed HFA officials from California, Florida, 
Massachusetts, Michigan, Minnesota, North Carolina, Oregon, Texas, and 
Vermont. 

[10] The LIHTC data that IRS maintains are oriented toward enforcing 
the tax code rather than measuring program outcomes. Although not an 
administering agency, HUD has historically collected information on 
projects produced under the program due to the importance of LIHTCs as 
a source of funding for low-income housing. The most recent data 
available from the database are for properties placed in service in 
2010. 

[11] 26 U.S.C. § 42(h)(3). 

[12] The state ceiling applies to (1) the 9 percent credit for 
nonfederally subsidized new buildings and substantially rehabilitated 
buildings treated as new buildings, and (2) the 4 percent credit for 
acquired buildings. The state credit ceiling does not include the 4 
percent credit available to housing projects financed with tax-exempt 
bonds, which are associated with private activity bonds. 

[13] Under 26 U.S.C. § 42(d)(5)(B)(ii)(l), QCTs are designated by the 
Secretary of Housing and Urban Development and include census tracts 
where either 50 percent or more of households have income below 60 
percent of the area median gross income or the poverty rate is at 
least 25 percent. 

[14] The 9 percent credit is also known as the 70 percent present 
value credit. 26 U.S.C. § 42(b). This latter terminology reflects the 
fact that the 9 percent credit is designed to yield a total amount 
over the 10-year credit period that is worth 70 percent of the present 
value of the stream of tax credits. The 9 percent rate refers to the 
approximate value that can be claimed by investors each year. 

[15] Investors use the 4 percent credit for acquisition of existing 
buildings and new construction projects that are financed in 
conjunction with tax-exempt bonds and other gap subsidies. The 4 
percent credit floats based on a statutory formula. 

[16] For additional information on the calculation of the price of 
LIHTC credits, see GAO, Community Reinvestment Act: Challenges in 
Quantifying Its Effect on Low-Income Housing Tax Credit Investment, 
[hyperlink, http://www.gao.gov/products/GAO-12-869R] (Washington, 
D.C.: Aug. 28, 2012). 

[17] HERA, div. C, title I, subtitle A, 122 Stat. 2878-2888 (July 30, 
2008). 

[18] Joint Center for Housing Studies of Harvard University, The 
Disruption of the Low-Income Housing Tax Credit Program: Causes, 
Consequences, Responses, and Proposed Correctives (Cambridge, Mass.: 
December 2009). 

[19] A revenue procedure is an official statement of a procedure 
published in the Internal Revenue Bulletin that affects, for instance, 
the rights of a taxpayer under the Internal Revenue Code and should be 
a matter of public knowledge. It provides return filing or other 
instructions concerning an IRS position. A notice is a public 
pronouncement that may contain guidance involving substantive 
interpretation of the Code or other provisions of the law. 

[20] A surety bond is a bond guaranteeing the performance of a 
contract or an obligation. 

[21] For any project, the area median gross income determined for a 
particular year after 2008 is held harmless--it cannot be lower than 
the amount determined the year before. Also, for projects that had the 
area median gross income determined for 2007 or 2008, the area median 
gross income for years after 2008 is at least the amount at which HUD 
had held it harmless previously plus the amount by which the area 
median gross income increased after 2008. 

[22] In previous reports, we have described delays in the priority 
guidance process. See GAO, Tax Policy: The Research Tax Credit's 
Design and Administration Can Be Improved, [hyperlink, 
http://www.gao.gov/products/GAO-10-136] (Washington, D.C.: Nov. 6, 
2009), and Financial Derivatives: Disparate Tax Treatment and 
Information Gaps Create Uncertainty and Potential Abuse, [hyperlink, 
http://www.gao.gov/products/GAO-11-750] (Washington, D.C.: Sept. 20, 
2011). 

[23] The organization, the LIHTC Working Group, consists of LIHTC 
industry participants who work together to try to resolve technical 
and administrative LIHTC program issues. 

[24] Although 56 HFAs receive LIHTC allocations, not all of them 
report information to NCSHA. 

[25] Gulf Opportunity Zone disaster credits are LIHTCs, in addition to 
regular, annual allocations available to states, given to states 
affected by Gulf Coast hurricanes. 

[26] As previously noted, a DDA is any area designated by the 
Secretary of Housing and Urban Development as an area which has high 
construction, land, and utility costs relative to area median gross 
income. 

[27] [hyperlink, http://www.huduser.org/portal/datasets/lihtc.html]. 

[28] The lack of data is fairly typical with tax expenditures such as 
the LIHTC program. Tax expenditures are reductions in a taxpayer's tax 
liability that result from special credits, deductions, exemptions and 
exclusions from taxation, deferral of tax liability, and preferential 
tax rates. We previously reported that even basic information about 
who claims tax benefits and which communities benefit from specific 
activities from tax expenditures is often lacking. As a result, 
information often has not been available to help Congress determine 
the effectiveness of some tax expenditures. For more information, see 
GAO, Tax Policy: Factors for Evaluating Expiring Tax Provisions, 
[hyperlink, http://www.gao.gov/products/GAO-12-760T] (Washington, 
D.C.: June 8, 2012) and Community Development: Limited Information on 
the Use and Effectiveness of Tax Expenditures Could Be Mitigated 
through Congressional Attention, [hyperlink, 
http://www.gao.gov/products/GAO-12-262] (Washington, D.C.: Feb. 29, 
2012). 

[29] A private accounting firm has also collected LIHTC project 
information, including information on project characteristics, by 
surveying LIHTC investors and syndicators. However, this database also 
does not capture all LIHTC projects, and is not publicly available. 

[30] HERA at § 2835(d). Pub. L. No. 110-289 (codified at 42 U.S.C. § 
1437z-8). 

[31] HOME is the largest federal program that awards block grants to 
state and local governments exclusively to create affordable housing 
for low-income households. 

[32] Casey J. Dawkins, Exploring the Spatial Distribution of Low-
Income Housing Tax Credit Properties, Assisted Housing Research Cadre 
Report, prepared for the Department of Housing and Urban Development, 
Office of Policy and Development Research (Washington, D.C.: February 
2011). 

[33] Jill Khadduri, Carissa Climaco, Kimberly Burnett, Laurie Gould, 
and Louise Elving, What Happens to Low-Income Housing Tax Credit 
Properties at Year 15 and Beyond? Report prepared for the Department 
of Housing and Urban Development by Abt Associates, in partnership 
with VIVA Consulting (Washington, D.C.: August 2012). 

[34] The working group consists of the White House Domestic Policy 
Council, National Economic Council, Office of Management and Budget, 
HUD, U.S. Department of Agriculture, and Treasury. The purpose of the 
working group is to better align rental requirements across programs, 
and thereby increase the effectiveness of federal rental policy and 
improve participant outcomes. 

[35] LIHTC projects are generally placed in service 1 to 2 years after 
receiving tax credit allocations. For example, projects placed in 
service in 2010 likely received allocations in 2008 or 2009. 

[36] As discussed in the next section of this report, some of the 
unused credits were exchanged for cash grants or reallocated to future 
projects. 

[37] The most recent data available from the database are for 
properties placed in service in 2010. 

[38] Pub. L. No. 110-289, div. C, title I, subtitle A, 122 Stat. 2878-
2888 (July 30, 2008). 

[End of section] 

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