A tax-credit increase from Washington at last WASHINGTON, D.C. - The affordable housing industry saw the realization of one of its dearest goals in December, when then-President Bill Clinton signed an increase in the Low-Income Housing Tax Credit (LIHTC) cap into law. The LIHTC program lies at the heart of the production of affordable apartments in the United States. Since its inception in 1986, the federal government had permitted each state to issue an annual allocation of LIHTCs at the rate of $1.25 per capita, which the affordable housing industry had long sought to increase to $1.75 per capita. The rate will increase to $1.50 per capita in 2001 and $1.75 per capita in 2002, with adjustments for inflation beginning in 2003.

The rise in the LIHTC cap was part of H.R. 4577, a tax-relief package that Congress passed in mid-December. That bill also calls for an increase in the states' private activity bond cap in 2002. Tax-exempt bonds are often used by the affordable housing industry along with tax credits to help build affordable rental housing. The cap will grow from a rate of $50 per capita with a minimum of $150 million per state to $75 per capita with a $225 million minimum per state, with adjustments for inflation also beginning in 2003.

Jay Harris, vice president of property management for the Washington, D.C.-based National Multi Housing Council (NMHC), said the LIHTC cap increase "has been a long time coming. Clearly, there is a need for affordable housing in this country, and one of the restraints has been a lack of subsidy." NMHC and the Alexandria, Va.-based National Apartment Association, which operate a joint legislative program, were two of the many organizations to lobby for the increase.

However, Harris noted that NMHC will keep a close eye on how new supply affects existing portfolios. "Some in the industry are concerned that new construction not cannibalize existing affordable properties," he said. It is very important that state housing agencies conduct feasibility studies to make sure that new construction is placed in areas where there truly is a need, Harris added.

The process for using LIHTCs to build affordable apartments is as follows. First, developers apply to state housing agencies for the LIHTCs. If their applications are approved, developers then market those credits, often through a syndicator, in order to raise equity for the apartments. Under the program, developers must rent 20% of their units at 50% of the area median income, or 40% of the units at 60% of the area median income.

Over the years, the program has become quite popular. Last year, industry observers noted that in some states the demand for the credits outweighed supply by a ratio of 3:1. Given the high demand for tax credits, many developers often use a combination of the credits and tax-exempt bonds to build affordable apartments.

- Why should I be concerned about wetlands on my property?

Because they can add to your acquisition costs, possibly even preventing the project from happening in extreme cases. Also, wetlands can be highly sensitive environmentally, and developing them can have adverse effects on the surrounding ecosystem.

- What is "avoidance and minimization?"

Section 19 of NWP 27 states all projects "must be designed and constructed to avoid and minimize adverse effects to waters of the United States to the maximum extent practicable at the project site." As a result, developers are required to prepare a statement that shows how they avoided and/or minimized damage to wetlands. If the avoidance and minimization statement is deemed insufficient or faulty, additional conservation or mitigation efforts may be required.

- What are mitigation banks and how do they work?

The mitigation bank system allows companies to donate money toward rehabilitating off-site wetlands as mitigation for disturbing or destroying wetlands on their project site. According to Sam Collinson, spokesperson of the Army Corps, the goal is to achieve 1:1 "function of value." In the most extreme scenario (mitigating the destruction of a high-grade wetland by merely preserving a low-grade one), the ratio of acres mitigated to acres destroyed can be as high as 25:1.

- Who is the final authority on these matters?

In most cases, the local district engineer for your Army Corps of Engineers district.

- What does the Supreme Court have to say about all this?

In a recent decision that could have great impact on future wetlands regulation, the Supreme Court recently ruled that Cook County, Ill., could build a waste disposal facility on the site of an abandoned quarry, even though the large holes left by the quarrying process had filled with water. While this technically made the site a wetland, the Court ruled that it was not deserving of special protection by the federal government, and local authorities could do as they saw fit.