Tennessee Housing Development Agency - Board of Directors

Meeting Materials July 26, 2016

Tab 1 - Agenda

Tab 2 - Memo from Ralph Perrey, Staff Awards

Tab 3 - Board Meeting Minutes

from May 24, 2016

Tab 4 – Tax Credit Committee Meeting Materials

Tab 5 – Audit & Budget Committee Meeting Materials

Tab 6 – Lending Committee Meeting Materials

Tab 7 – Grants Committee Meeting Materials

Tab 8 – Rental Assistance Committee Meeting Materials

Tab # 1 Items: Agenda

THDA Board of Directors Meeting July 26, 2016—1:00 p.m. Central Time

William R. Snodgrass -Tennessee Tower 312 Rosa L Parks Avenue, Third Floor

Nashville, Tennessee 37243

All meetings except Tax Credit Committee will be held in The Nashville Room

* Indicates Board Action Required ? Indicates Discussion Which Might Result In Board Action

Agenda (Tab #1)

Public Comment to the Board Bills, Perrey, Board Members

A. Opening Comments and Introductions ........................................................................................................ Bills

B. Staff Recognition (Directors) (Tab #2) ..................................................................................................... Perrey

C. Approval of Minutes from May 24, 2016 Meeting (Tab #3) ......................................................................... Bills

D. Approval of THDA’s Updated Strategic Plan ............................................................................................... Bills

E. Executive Director’s Report (Tab #2) ...................................................................................................... Perrey

F. Committee Reports and Committee Matters

1. Tax Credit Committee (July 25, 2016—2:30 p.m.--Tab # 4)

Meeting to be held in the Andrew Jackson Building, Ground Floor, Hearing Room) .................. Bills

* a. Volume Cap Increase for the Multifamily Tax-Exempt Bond Authority Program Discussion .......................................................................................................................................... Blade/Miller b. 2017 Low Income Housing Tax Credit Qualified Allocation Plan Discussion ............................ Blade

2. Audit & Budget Committee (July 26, 2016—9:30 a.m. CT--Tab # 5) ................................................ Lillard

a. Preliminary Operating Income Discussion ............................................................................... Ridley b. 2017 Audit Plan ......................................................................................................................... Oliver c. Executive Director Performance Evaluation Process ............................................................... Lillard

3. Lending Committee (July 26, 2016—9:45 a.m. CT--Tab # 6) ........................................................ Cleaves

a. Great Choice Plus Down Payment Assistance Discussion ......................................................... Hall b. Hardest Hit Fund Program Update ......................................................................................... Peraza

4. Grants Committee (July 26, 2016 —10:00 a.m. CT--Tab # 7) .................................................. van Vuuren

* a. 2015-2016 HOME Funding Recommendations – CHDO Matrix ................................................ Watt * b. Housing Trust Fund Competitive Grants 2017 Fall Round Program Description ..................... Watt * c. 2017 LIHEAP Model Plan ............................................................................................................ Watt * d. National Housing Trust Fund Allocation Plan (Blue Folder Item) ............................................... Watt e. 2014 Emergency Solutions Grant Funds Allocation Update (Verbal) .......................................... Watt f. Habitat for Humanity Program Annual Review (Blue Folder Item) ............................................. Watt g. Sumner County 2011 HOME Grant Update (Verbal) .................................................................. Watt

5. Rental Assistance Committee (July 26, 2016 —10:15 a.m. CT--Tab # 8) ......................................... Brown

a. Committee / Program Updates ....................................................................................................... Jett

Tab # 2 Items: Memo from Ralph Perrey, Executive Director Staff Service Awards

Tennessee Housing Development AgencyAndrew Jackson Building Third X'loor502 Deaderick St., Nashville, TN 37243

Bill HaslamGovemor

To:From:Date:Subj:

Ralph M. PerreyExecutive Director

THDA Board of DirectorsRalph M. Perrey, Executive DirectorJuly 6,2016Board Update June 2016

I am pleased to offer this update on THDA business and activities:

We look forward to seeing you at our Board and Committee meetings inNashville, on July 25 and26,and to welcoming our newest board members, Regina Hubbard and Lynn Tully.

This will also mark the first meeting of our newly created Rental Assistance Committee, chaired byKim Brown. We will offer an overview of the three program divisions under this committee'sjurisdiction - Rental Assistance, Program Compliance and Contract Administration. All boardmembers are invited to sit in.

There are several action items this month, including:o A proposed increase in the multifamily volume cap from $150 million to $200 million. This

will allow THDA to meet the demand for multifamily bond financing for the balance of calendar2016. Detail is provided behind the Tax Credit Committee tab.

o The HOME grants proposed for the CHDO round. You will recall that there were problems withall of applications submitted this spring, we suspect due to recent changes in federal rules. V/eallowed those applicants to make corrections and resubmit; the funding recommendations canbe found behind the Grants Committee tab.

We will be seeking your input on a proposed change to THDA's down payment assistance loans thatwould lengthen the period of time during which those loans are subject to repayment. The changewould have a positive impact on THDA's operating revenue. We will discuss this with both Audit &Budget and Lending Committees.

V/e also look forward to updating you on our progress on loan servicing, which we are on track tobegin this fall.

Please feel free to contact me if you have questions about any item on the agenda.

www,THDA.ore - (615) 815-2200 - Toll Free: 800-228-THDA

Celebrating Years of Service5 Years

Ella Harris Sr. Mortgage Account Manager

Single Family Programs

THDA Hire Date: April 20, 2015

State Hire Date: July 11, 2011

5 Years

Shanaya Grier Housing Program Coordinator

Community Programs

THDA Hire Date: September 1, 2011

5 Years

Dareyl Adam SharePoint Administrator

Information Technology

THDA Hire Date: July 3, 2011

15 Years

Terry Malone Construction Control Manager

Multifamily Development

THDA Hire Date: September 1, 2001

Strategic Plan

Agenda Item D

D. Approval of THDA’s Updated Strategic Plan Verbal Update, no materials for this agenda item

Tab # 3 Items: Board Meeting Minutes from May 24, 2016

TENNESSEE HOUSING DEVELOPMENT AGENCY BOARD OF DIRECTORS

May 24, 2016

Pursuant to the call of the Chairman, the Tennessee Housing Development Agency Board of Directors met in regular session on Tuesday, May 24, 2016, at 1:00 p.m. Central Time, in the William R. Snodgrass Tennessee Tower, The Nashville Room, Nashville, Tennessee.

The following Board members were present: Brian Bills (Chair), John Baker, Ann

Butterworth for Comptroller of the Treasury Justin Wilson, Kim Grant Brown, Dorothy Cleaves, Kendra Cooke, Courtney Hess for State Treasurer David Lillard, Greg Turner for Commissioner of Finance & Administration Larry Martin, Secretary of State Tre Hargett, Jim Sattler, and Pieter van Vuuren. The following Board members were absent: Daisy Fields, Ron Jones and Benjie Shuler.

Chairman Bills recognized Ralph Perrey, Executive Director, who recognized the

following THDA staff members for their years of service: Ricardo Moore Section 8 Contract Admin 10 years Kristen Spratt Community Programs 10 years Linda (Susan) Scott Section 8 Rental Assistance 15 years Susan Foulks Information Technology 15 years

Chairman Bills, seeing a quorum present, called the meeting to order and offered a time

for public comment. No members of the public asked to speak. Chairman Bills called for consideration of the Board minutes from March 22, 2016. Upon

motion by Mr. van Vuuren, second by Mr. Cooke, the minutes were approved. Chairman Bills called on Mr. Perrey who provided the following Executive Director’s

report: • Quarterly Business Review is scheduled for June 8th and includes high level updates on

goals and accomplishments for each division. Mr. Perrey extended an invitation to all Board Members to attend the meeting.

• Mr. Perrey recognized Ceagus Clark, Research Analyst, Research and Planning to demonstrate the on-line mapping tool displaying its capabilities and data included and covered by THDA’s programs. Dr. Hulya Arik clarified that data was cumulative and would be updated on a yearly basis.

• Great Choice Tours and Campaigns are under way as Mr. Perrey and other staff members are aggressively traveling around the state.

• Loan production is 7% ahead of last year. Overall loan production was down earlier in the year, but May is averaging more than $1 million per day.

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• Loan Servicing preparations are going well. Mr. Perrey recognized Steve Fisher, Director of Loan Servicing, who provided the following information on loan servicing efforts:

o Staff is actively engaged in the acquisition of software and meetings with other vendors.

o Two new managers start in June. o Hiring and advertising for additional positions is ongoing. o Master servicing operations are being reviewed internally to make conversion and

implementation run smoothly.

o Biweekly discussions are taking place with each of the three sub-servicers regarding their portfolios.

o Timeline for the first conversion is still fall of 2016 dependent upon availability of vendors.

• State funding has been approved for employee raises, with the authority for each agency to give their own raises. THDA is under a pay-by-performance system and will be following the lead of executive branch agencies regarding raises. Funding for market based salary adjustments was also approved and THDA will analyze positions during the summer with appropriate raises implemented in the fall.

• After five years, HUD has agreed to let THDA resume Management and Occupancy Reviews on rental properties in the THDA project based contract portfolio.

• The September Board meeting will be held in Jackson. A reception and meetings will be held in the City Hall Council Meeting Chambers. Rooms have been reserved at the DoubleTree. More logistical details will follow.

Chairman Bills called for consideration of the resolution titled “Resolution of the Board of Directors of THDA Authorizing the Creation and Describing the Functions Of A Rental Assistance Committee”. Upon motion by chairman Bills, second by Mr. Sattler, the resolution creating a rental assistance committee was adopted.

Chairman Bills reported that the Tax Credit Committee had no action items, however, he

recognized Mike Blade, Assistant General Counsel and Director of the Multifamily Division, who provided an update on the Tax Credit Committee agenda.

Chairman Bills gave the Bond Finance Committee meeting report and started with the

Schedule of Financing for Fiscal Year 2016-2017 (the “Schedule of Financing”). He noted that the Schedule of Financing provides for total bond issuance of $458 million, in three bond issues, for fiscal year 2016-2017 including approximately $128 million in anticipated refundings and $330 million in proceeds. Chairman Bills pointed out that the change from two bond issues to three smaller bonds issues was due to negative arbitrage. Upon motion by Chairman Bills, second by Mr. Turner, the Schedule of Financing was approved.

Chairman Bills next called for consideration of authorization for Issue 2016-2 and the Issue

2016-2 Reimbursement Resolution. He referenced the following documents:

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● a memorandum from Lynn Miller, Chief Legal Counsel, dated May 9, 2016, that

described, (1) the documents to be considered, (2) how the authorization for Issue 2016-2 complied with THDA’s Debt Management Policy, (3) the rotation for the bookrunning senior manager, (4) the selling group member that would fill the rotating co-manager position, and, (5) the selling group members;

● a memorandum from CSG Advisors (“CSG”), THDA’s financial advisor, dated May 9, 2016, that recommended authorization of this transaction, through a negotiated sale, in an amount not to exceed $125 million under the 2013 General Resolution;

● the Plan of Financing for Issue 2016-2 in an aggregate principal amount not to exceed $125 million (“Plan of Financing”) that was approved by the Bond Finance Committee;

● the Resolution of the Board of Directors authorizing the issuance and sale of Issue 2016-2 under the 2013 General Resolution, and delegating authority to the Bond Finance Committee to determine all final terms and conditions of the Issue 2016-2 bonds, (the “Authorizing Resolution”);

● the form of Series Resolution for Issue 2016-2; and,

● the Resolution of the Board of Directors authorizing reimbursement of THDA from proceeds of Issue 2016-2 in an amount not to exceed $60 million (the “Reimbursement Resolution”).

Chairman Bills noted a refunding component was not expected to be included in this bond issue. Staff anticipates pricing in August with a September closing. Upon motion by Chairman Bills, second by Ms. Cooke, the Authorizing Resolution and the Reimbursement Resolution were adopted.

Chairman Bills next recognized Trent Ridley, THDA Chief Financial Officer to review recommended changes to the THDA Debt Management Policy (the “Policy”). Mr. Ridley indicated that Part XXII of the Policy calls for an annual review at the same time a Schedule of Financing is considered. He referenced a memo from Lynn Miller, THDA Chief Legal Counsel, dated May 11, 2016, that describes the recommended changes. Mr. Ridley pointed out that the new section added regarding the investment of bond proceeds reflects current policy with no change in policy or practice. Ms. Butterworth noted that in Section XXIV, the word “meeting” should be changed to “meetings” in two places. Upon motion by Chairman Bills, second by Ms. Hess the changes to the Policy, including the changes noted by Ms. Butterworth, were approved.

Chairman Bills next called on Mr. Ridley to present the draft Issue 2016-1 State Form

CT-0253 Report on Debt Obligation (the “Report”). Mr. Ridley explained that the Report is statutorily required for every bond sale, it must be submitted to the Board of Directors for review and filed with the Comptroller’s office. He pointed out that the Report did not reflect all Issue 2016-1 costs because final invoices from all service providers have not yet been received; however, once this information was received, the final Report will be circulated to all Board members and filed with the Comptroller’s office. Mr. Ridley noted that the chart in the referenced memo provided information about the various fees and expenses associated with Issue 2016-1 and prior bond issues for comparison. He indicated THDA’s cost of issuance remains low.

Chairman Bills reported that the Audit & Budget Committee met, but had no action items.

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Chairman Bills then recognized Ms. Cleaves for the Lending Committee report. Ms.

Cleaves called on Dr. Hulya Arik, THDA Economist, to present the recommended Household Income Limit changes. Dr. Arik referenced her memo dated May 13, 2016 and noted that the Lending Committee recommended the income limits based on the FY16 Income Figures. Upon motion by Ms. Cleaves, second by Ms. Brown, the income limits based on the FY 16 Income Figures were approved.

Ms. Cleaves next recognized Cynthia Peraza, Director of Special Programs, who presented

an update on the Hardest Hit Fund.

Chairman Bills then recognized Mr. Baker for the Grants Committee report. Mr. Baker began with the funding recommendations for the 2015-2016 HOME Program and recognized Don Watt, Director of Community Programs, who referenced his memo dated May 11, 2016. Mr. Watt indicated that, the Committee recommended awarding $7.679 million to 19 communities in the rural round and awarding $4.3 million to 11 communities in the urban round, all as more specifically described in the referenced memo. He explained that none of the 4 applications in the CHDO round were complete and they requested only $1.8 million of the $3,185,222 that must be made available to CHDOs, so the Committee recommended a 30-day cure period for each applicant, with funding recommendations to be made in July. Upon motion by Mr. Baker, second by Chairman Bills, the funding matrices, as attached to the referenced memo, for the Urban and Rural Round of the 2015-2016 HOME Program and the 30-day cure period for the CHDO applications were approved.

Mr. Baker next called on Mr. Watt to address the funding recommendations for the 2016

Spring Round of the Housing Trust Fund. Mr. Watt referenced his memo dated May 11, 2016 and noted that the Committee recommended funding for the five applications described in the referenced memo. Upon motion by Mr. Baker, second by Chairman Bills, the funding described in the referenced memo was approved.

Mr. Baker next referenced a memo from Mr. Watt dated May 18, 2016 describing the

funding recommendations for the 2015/2016 Emergency Solutions Grant Program. Upon motion by Mr. Baker, second by Chairman Bills, the funding as described in the referenced memo was approved.

Mr. Baker next called for consideration of the program description for the 2016 HOME

CHDO Mini Round as described and attached to a memo from Mr. Watt dated May 18, 2016. He explained that since an insufficient number of applications from CHDOs was received and the timetable required to meet the revised HUD definition of “committed” changed, an additional round for competitive funding for CHDOs was needed. Upon motion by Mr. Baker, second by Chairman Bills, the 2016 HOME CHDO Mini Round Program Description was approved.

Mr. Baker next called for consideration of the 2016-2017 Emergency Repair Program

Description as described in and attached to a memo from Mr. Watt dated May 11, 2016. Mr. Watt noted that, under the Emergency Repair Program (ERP), the THDA Housing Trust Fund is used to assist elderly low income homeowners and disabled homeowners to correct, repair or replace an essential system and/or critical structural problem. He noted the program is not designed to

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provide comprehensive rehabilitation to the home, but to stabilize the home by making rapid, essential repairs. He explained that ERP is administered through eight Development Districts and the Southwest Human Resource Agency, with a total of $2.7 million distributed equally among these entities. Upon motion by Mr. Baker, second by Chairman Bills, the 2016-2017 Emergency Repair Program Description was approved.

Mr. Baker next presented an update on the National Housing Trust Fund.

Mr. Baker next addressed a contract extension request for the 2011 HOME grant to Sumner

County and noted that this was the fourth extension request for this grant. Kim Ark and Anthony Holt from Sumner County referenced their letter dated May 18, 2016 and described ongoing issues with the homeowner. They noted that construction of the home is completed, the homeowner has been occupying the residence since January of 2016, but has refused to sign off on completed work and necessary documentation. Upon motion by Mr. Baker, second by Chairman Bills, a contract extension to September 30, 2016, was approved with the requirement that if no resolution is found between the homeowner and Sumner County by this date, THDA will pursue relief from HUD.

With no further business to address, meeting was adjourned.

Respectfully submitted, Ralph M. Perrey Executive Director Approved this 26th day of July, 2016.

Tab # 4 Items: Tax Credit Committee Meeting Materials

Tennessee Housing Development Agency

Tax Credit Committee

Monday, July 25, 2016

2:30 p.m. Central Time

AGENDA

1. Call to Order ................................................................................................................... Bills 2. Approval of Minutes from May 23, 2016 ....................................................................... Bills 3. Volume Cap Increase for the Multifamily Tax-Exempt Bond Authority Program Discussion ...................................................................................................... Blade/Miller

4. 2017 Low Income Housing Tax Credit Qualified Allocation Plan Discussion ............ Blade 5. Adjourn ............................................................................................................................ Bills

LOCATION COMMITTEE MEMBERS

Andrew Jackson Building Brian Bills, Interim Chair

502 Deaderick Street, Ground Floor Kim Grant Brown

Nashville, TN 37243 Ron Jones

David Lillard

The Hearing Room Larry Martin

Todd Skelton

TENNESSEE HOUSING DEVELOPMENT AGENCY TAX CREDIT COMMITTEE

May 23, 2016

Pursuant to the call of the Chairman, the Tax Credit Committee of the Tennessee Housing Development Agency Board of Directors met, in regular session, on Monday, May 23, 2016 at 10:00 a.m. Central Time at the Tennessee Tower in the Nashville Room, Nashville, Tennessee.

The following Committee members were present: Brian Bills (Chair), Kim Grant Brown, Ron Jones, Treasurer David Lillard (Courtney Hess for Treasurer Lillard beginning at 11:30 a.m.), Greg Turner for Commissioner Larry Martin and Todd Skelton (for Governor Haslam). Additionally, Mr. Jim Sattler attended the meeting.

Seeing a quorum present, Chairman Bills called the meeting to order and called for approval of the minutes from the prior meeting. Upon motion by Mr. Lillard, second by Ms. Brown, the minutes from the March 21, 2016 meeting were approved.

Chairman Bills recognized Lorrie Shearon, Chief Strategy Officer, to present an update on the National Housing Trust Fund. Ms. Shearon noted that THDA will be receiving $3 million and will have a public comment period from June 6, 2016 to July 6, 2016. She explained that following the comment period, a program description will be drafted and presented to the THDA Board of Directors for consideration.

Chairman Bills then recognized Michael Blade, Director and Assistant Legal Counsel for Multifamily Development who began with an explanation of the appeal hearing process and begin the hearings.

Chairman Bills then called for consideration of appeals from applicants under the 2016 Low Income Housing Tax Credit Qualified Allocation Plan (“QAP”). He indicated that, under the QAP, the Committee was responsible for final determination of appeals and would only consider documentation submitted in compliance with Part VIII of the QAP, regardless of the presence of an applicant or representative. He also indicated that the Committee would consider whether documentation submitted as a result of the Cure Notice, taking into account the THDA staff analysis, was sufficient to meet the requirements of the QAP or was otherwise consistent with the spirit and intent of the QAP.

Chairman Bills reminded Committee members that any contact with the THDA Executive Director, any member of the Committee or any member of the THDA Board by any person or entity on behalf of any Initial Application between the date of the Review Notice and the date of the Review Meeting would be grounds for dismissal of the review request. No Committee member reported such contact.

Chairman Bills recognized Mr. Blade to begin the review process. The Committee considered and disposed of the following appeals:

1. TN16-034 – Other Requirements. The staff recommendation is to deny relief for the following reasons: The property control documents submitted do not support the acquisition costs shown in the online

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application and on Attachment 11 and Attachment 12. The number of buildings, including the community buildings, as shown in the Initial Application and the response to the Cure Notice is inconsistent with the property control documents that were submitted. The file submitted in response to the Cure Notice could not be opened, so this item became a review item. The response to the Review Notice was due at 1:00 p.m. Central time, however, the response was received after 2:00 p.m. No motion for relief was offered, therefore the staff determination stands. Upon motion by Chairman Bills, second by Ms. Brown, the appeal for TN16-034 was reopened to hear Alana Carbone, representing TN16-034, who arrived late. At the conclusion of Ms. Carbone’s remarks, no motion for relief was offered.

2. TN16-042, TN16-043, TN16-044, TN16-045, TN16-046, TN16-047 and TN16-066 The staff recommendation is to deny relief for all of the referenced applications because the units are so large that the proposed developments have been determined to be financially infeasible during preliminary underwriting based on Section 42(m)(2) of the Internal Revenue Code, Part I of the 2016 QAP, Part ll-3 of the 2016 QAP, and Part lV-E of the 2016 QAP. Mr. Blade noted that staff reviewed of these applications in comparison to other units in the counties in which the proposed developments would be located and there were no comparable units in any of the counties. Mr. Blade noted that the large size of the proposed units caused staff to deem the Initial Applications to be financially unfeasible due to the amount of Tax Credits needed on a per-unit basis. No motion for relief was offered, therefore the staff determination stands.

Chairman Bills called on Mr. Blade to present a summary of the April 19, 2016 Developers

Forum held in connection with the development of the draft 2017 Low Income Housing Tax Credit Qualified Allocation Plan (the “2017 QAP”). Mr. Blade presented the following summary of changes developers would like to see in the draft 2017 QAP:

a. Eliminate the tiers in the county needs score. b. Postpone any new set asides until the RAD set asides are complete. New set asides

would be the innovation round, the Scholar House left over credit round. Developers were assured that RAD would be given two years allocations with 2017 designated for those set asides.

c. Eliminate tiers to remedy the issue of the tie breaker being determinative among almost all deals.

d. Developer experience points are still problematic. e. Enterprise Green is too costly. f. Bond program is booming, so developers want to reduce the preservation per

development cap to allow smaller preservation applications to compete for the competitive credit instead of the larger preservation applications that can use the bond program.

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Upon a motion by Chairman Bills, second by Mr. Jones, the Committee directed staff to include in the draft 2017 QAP a limit of one application to receive tax credits in the innovation round.

Upon motion by Chairman Bills, second by Ms. Brown, the Committee directed staff to

pursue the Scholar House as described in the Tax Credit Meeting materials for inclusion in the draft 2017 QAP.

The consensus of the Committee was that staff should include the following items for

consideration in the draft 2017 QAP:

1. Narrowing the scope of current language offering the 130% basis boost to all Initial Applications.

2. Clarifying the language regarding market study requirements to provide more discretion for THDA staff with respect to the requirements of the market studies submitted.

3. Lowering the preservation/rehabilitation per development maximum amount of Tax Credits from $1,100,000 to $800,000; and,

4. Restructuring the County Needs Score to do away with tiers.

With no further business the meeting was adjourned.

Respectfully submitted, Ralph M. Perrey Executive Director

Approved this ____ day of July 2016.

Ralph M. Perrey, Executive Director

Andrew Jackson Building Third Floor - 502 Deaderick St. - Nashville, TN 37243

www.THDA.org - (615) 815-2200 - Toll Free: 800-228-THDA

M E M O R A N D U M TO: THDA Board of Directors FROM: Michael Blade Director & Assistant Legal Counsel for Multifamily Development DATE: July 13, 2016 SUBJECT: July 25, 2016 Tax Credit Committee Meeting The July Tax Credit Committee meeting will focus on prospective changes for the Low-Income Housing Tax Credit (“LIHTC”) 2017 Qualified Allocation Plan (“QAP”) and a request to increase the amount of Multifamily Tax-Exempt Bond Authority (“MTBA”) available for 2016. Attached please find the following:

1. Request for additional 2016 MTBA; 2. Proposed changes for LIHTC 2017 QAP; 3. Summary of and response to public written comments regarding proposed changes

to the LIHTC 2017 QAP; and 4. Copies of public written comments regarding proposed changes to the LIHTC 2017

QAP.

Please contact me, Ed Yandell, or Judith Smith if you have questions.

http://www.thda.org/

Ralph M. Perrey, Executive Director

Andrew Jackson Building Third Floor - 502 Deaderick St. - Nashville, TN 37243

www.THDA.org - (615) 815-2200 - Toll Free: 800-228-THDA

M E M O R A N D U M TO: THDA Board of Directors FROM: Michael Blade Director & Assistant Legal Counsel for Multifamily Development DATE: July 13, 2016 SUBJECT: 2016 Multifamily Tax-Exempt Bond Authority (“MTBA”) As you may know, the MTBA program is currently experiencing very high demand. In order to accommodate this demand, staff is requesting that the amount of MTBA available for allocation in 2016 be increased from $150 million to $200 million. Please contact me, Ed Yandell, or Judith Smith if you have questions.

http://www.thda.org/

TENNESSEE HOUSING DEVELOPMENT AGENCY PROPOSED CHANGES FOR 2017 LOW-INCOME HOUSING TAX CREDIT QAP

JULY 1, 2016 SCORING ISSUES 1) Modify county needs score to remove the tiers, increase weight of “pipeline” and “prior

allocation” components of the formula, and extend the lookback for prior allocation from three to five years. Background: The intent of these modifications is threefold. First, removing the tiers and

assigning a unique score to each county may diversify scoring and reduce the need for the use of the tiebreaker. Second, increasing the weight of the “pipeline” and “prior allocation” components of the calculation may reduce the score for counties that have received prior allocations in the past five years and increase the score for counties that have not received an allocation in the past five years, thus reducing the likelihood of oversaturation in a particular county and dispersing the credits to more counties. Lastly, including five instead of three years of prior allocation gives a more complete picture of recent allocations and also may result in giving more counties the opportunity to compete for credits.

OTHER ISSUES 2) Implement an Innovation Round – please see attached draft language.

Background: The purpose of the Innovation Round is to create the opportunity for allocating Tax Credits to a proposed development that (a) involves an innovative approach to affordable housing, and (b) would be at a competitive disadvantage in the regular competitive round.

3) Implement a Scholar House initiative – please see attached draft language. Background: The purpose of the Scholar House initiative is to create an opportunity for

allocating Tax Credits to a proposed development that will provide affordable housing to students.

4) Modify language describing the (up to) 130% boost in eligible basis to apply only to proposed developments which (a) are located in a HUD-designated Difficult Development Area, or (b) have a Choice Neighborhood Initiative (“CNI”) Implementation Grant, or (c) have a Rental Assistance Demonstration (“RAD”) Commitment to Enter into a Housing Assistance Payments Contract. Background: The broad application of the eligible basis boost that has been in effect in the

QAP for the past several years was implemented during the economic downturn which began in 2007. Current economic and market conditions are much more favorable.

5) Lower the cap on the aggregate maximum amount of Tax Credits allowed to be allocated to proposed developments located in a HUD-designated Qualified Census Tract (“QCT”) from 50% to 40%.

Background: In 2016, for the first time, the aggregate maximum amount of Tax Credits allowed to be allocated to proposed developments located in a QCT was reached. As federal agencies focus more on Affirmatively Furthering Fair Housing in particular and Fair Housing in general, avoiding concentration of poverty is growing in importance. Lowering the cap will help address this issue.

6) Lower the per development Tax Credit cap for Preservation and Rehabilitation in the competitive round from $1,100,000 to $800,000. Background: The market conditions associated with the THDA Multifamily Tax-Exempt Bond

Authority (“MTBA”) program are currently very good. Lowering the per development cap as described above will encourage larger Preservation and Rehabilitation developments to migrate to the MTBA program with noncompetitive Tax Credits, lowering demand for Preservation and Rehabilitation Tax Credits in the competitive round.

7) Address the issue of local jurisdictions “downzoning” the site of a proposed development after the allocation of Tax Credits. Background: If a local jurisdiction downzones the site of a proposed development after the

allocation of Tax Credits, the resulting delays may cause the development to be canceled. Although the Tax Credits can be recaptured and reallocated, the units produced by the reallocation will be placed in service up to several years later than the original units and may not be located in the same jurisdiction. One avenue for addressing this issue is to reduce the per county cap for the jurisdiction in question in a subsequent year or years by an amount equal to the allocation for the canceled development.

Summary and Response to Written Comments to the Proposed Changes to the 2017 Qualified Allocation Plan1

Comment

Include the Innovation Round deals and developments that include market rate units should be included in the eligible basis boost developments.

Staff Response

Staff agrees that there should be some exceptions to the strict application of the basis boost to only deals in QCT’s and SDDA’s; however, staff is not ready at this time to develop a list of all exceptions, but it does expect to offer that list in the 2018 QAP round.

Comment

Larger urban counties should have their needs scores broken down to census tracts or some other smaller sized component.

Staff Response

Staff agrees that it may be prudent in the wake of the disparate impact Supreme Court ruling to utilize the county needs score to identify smaller areas within large urban counties as “needing” tax credit developments, however, Staff is looking to flesh out that idea in the 2018 QAP.

Comment

The tiebreaker should factor in the proximity of other tax credit developments to avoid concentrating poverty.

Staff Response

Staff agrees that this idea may help with better siting of LIHTC deals; however, Staff is looking to flesh out that idea in the 2018 QAP.

Comment

Use proximity to amenities as a scoring criterion to striate scoring.

Staff Response

Staff disagrees with this comment, as our experimentation with proximity to amenities led to many issues with actual amenities and did not provide any scoring striation. If Staff was given more

1 PLEASE NOTE THAT NOT EVERY COMMENT IS INCLUDED. IF MORE THAN ONE COMMENTER MADE THE SAME COMMENT, I HAVE ONLY INCLUDED IT ONCE. ALSO, THE MANY COMMENTS THAT SIMPLY ENCOURAGED STAFF TO CONTINUE TO MOVE FORWARD WITH AN IDEA ARE ALSO OMITTED.

discretion to be the final arbiter of amenities and proximity evaluations, Staff might entertain this idea again.

Comment

Eliminating the tiers will not fix the tiebreaker issue, so THDA needs to fix the tiebreaker and/or add more scoring striation.

Staff Response

Staff agrees that this alone is unlikely to fix all the problems, but what it will do is limit the amount of deals scoring the same, so instead of a tie between 40 deals, it might only be 6 or 7. While not a perfect solution, it is a better one than we currently have, and given the lack of good tiebreaker ideas that can be universally approved, Staff is left with the current tiebreaker.

Comment

There should be smaller size areas for the needs score so that we can only put developments in areas that need them and aren’t inundated with them. You could also striate the points within the counties in this manner to help with the tiebreaker issue.

Staff Response

Staff agrees that this idea may help with better siting of LIHTC deals and perhaps the striating of scoring; however, we are looking to flesh out that idea in the 2018 QAP.

Comment

Change the green building points to striate scoring.

Staff Response

Staff agrees that this idea may help striate the scoring of LIHTC deals; however, however, Staff is looking to flesh out that idea in the 2018 QAP.

Comment

The tiebreaker should be – the most affordable units proposed per credit requested with a minimum square footage for each unit type OR give a preference to the development with the fewest affordable units within a certain radius, then ever increasing the radius until the tie is broken.

Staff Response

Staff believes both ideas might be decent tiebreakers for new construction, but may not be workable for preservation.

Comment

RAD should be eliminated from the QCT cap calculation.

Staff Response

Since the RAD deals are almost exclusively in QCT’s, staff does not have an issue with this idea.

Comment

Ensure gap funding availability for preservation projects.

Staff Response

Staff would love to provide gap funding for any deal that needs it, however, under the current THDA regime, there is precious little gap funding available, but what there is Staff agrees should remain available.

Comment

Provide scoring incentives for developments near good schools, economic development, diversified neighborhoods and other opportunities, and make sure existing developments are not negatively impacted by new developments.

Staff Response

Staff agrees that these priorities should be in the mix when siting developments, and Staff is in favor of crafting a QAP that includes these items in scoring and eligibility, however, rather than make a last minute change and invite unintended consequences, Staff recommends that this be fleshed out in the 2018 QAP round.

Comment

Due to the many challenges it entails, Scholar House should not have its own set aside, at best it should compete in the innovative round.

Staff Response

Staff disagrees that Scholar House will be a problem and believes by using only the left over credit, the impact to the LIHTC program will be minimal.

Comment

Increase the cap for noncompetitive tax credits and bonds to provide the ability to do larger deals

Staff Response

Given the robust nature of the bond program at this time, Staff disagrees that changes need to be made to provide more noncompetitive tax credits or bonds for bond deals.

Comment

Keep County tiers

Staff Response

Staff is neutral on this comment.

Comment

Do not subject RAD deals to county rankings at all.

Staff Response

Staff disagrees with this comment as Staff believes RAD deals should go to the counties with the greatest need, just like other deals.

Comment

Do either Innovation or Scholar House, but not both, to ensure success of the one chosen.

Staff Response

Staff disagrees that picking one will ensure its success and picking both with ensure the failure of one or both.

Comment

Keep QCT limit at 50%.

Staff Response

Staff is neutral on this comment.

Comment

No Innovation round or Scholar House as the program is already too fragmented and there aren’t enough new units being built as it is.

Staff Response

Staff disagrees with this comment and believes that the both set asides will served those families in Tennessee in need of housing just as new construction does.

Comment

Do not eliminate the basis boost by state designation.

Staff Response

Staff is not in favor of eliminating the basis boost, but rather going back to the original intent of the boost with some modification. Currently, any deal that requests the boost gets it, and that was never the intent of the boost. Moreover, the GAO report pursuant to the audit of other State’s use of the boost specifically noted that granting the boost to everyone was improper. Since Tennessee

is likely to be audited at some point, recalibration of the boost is necessary to avoid a negative audit.

Comment

Lower the QCT’s to no more than 40% of the entire program.

Staff Response

Staff is neutral on this comment, except with the understanding that QCT’s tend to be in areas of concentrated poverty, so limiting the siting of LIHTC deals in those locations may be necessary to avoid lawsuits in the future.

Comment

Eliminate the preservation set aside altogether.

Staff Response

Staff disagrees with this comment as there is still a major rehabilitation need in many counties in Tennessee and the bond program is solving some of that, it struggles to solve the smaller development issues.

Comment

Remove Enterprise Green altogether as it is too expensive and therefore costs the program units that could be housing families.

Staff Response

Staff strongly disagrees with this comment. This program is not just about building as many units as is possible, but also about building safe and sustainable units. Enterprise Green is a very low cost alternative to provide something more than cookie cutter units that are not environmentally sensitive nor sound. While there may be slightly less units built in Tennessee because of Enterprise Green requirements, and frankly the empirical evidence is not yet available to assess if that is even true, it is more than made up for by building units that will last longer and be cheaper to heat and cool for the tenants.

Comment

Change the tiebreaker so that rehabilitation automatically wins.

Staff Response

Staff strongly disagrees with this comment. While the tiebreaker is flawed, as it likely is in all 50 states, this type of tiebreaker is not appropriate for this program.

Comment

Remove the county needs score altogether and replace it with something within which all counties can compete for success.

Staff Response

Staff recognizes that the county needs score is not perfect, and staff is certainly willing to listen to ways to tweak it, but to get rid of it completely, without a well thought out replacement at this late date, is not a workable solution.

Comment

Change the tiebreaker to the following: 1) most government leverage, if still tied 2) most private, third-party leverage.

Staff Response

While Staff sees the value in a tiebreaker like this proposal, there are also many pitfalls that have been discussed many times by the Tax Credit Committee, and all of those pitfalls remain no matter how tightly Staff attempts to craft the language. That said, if the Tax Credit Committee found this to be a valid tiebreaker idea, Staff would be neutral on such an idea.

Comment

If you are going to do away with tiers, modify the County allocation caps from dollar amounts to awards, thereby eliminating the possibility of all the awards going to three or four counties. Alternatively, you could limit the first tier to the big urban counties with the first tiebreaker being proximity to recently funded applications (i.e., last 3-5 years).

Staff Response

Staff is neutral on this comment, but does see the possibility of these being valid ideas; however, Staff recommends that this be fleshed out in the 2018 QAP round.

Comment

Allow the basis boost across the board, but offset it with a mandated deferral of the developer fee.

Staff Response

Staff is not in favor of eliminating the basis boost, but rather going back to the original intent of the boost with some modification. Currently, any deal that requests the boost gets it, and that was never the intent of the boost. Moreover, the GAO report pursuant to the audit of other State’s use of the boost specifically noted that granting the boost to everyone was improper. Since Tennessee is likely to be audited at some point, recalibration of the boost is necessary to avoid a negative audit.

Comment

Remove the QCT/CRP set aside altogether since the prior set asides make it moot, or fund it after the non-profit set asides and don’t count non-profit deals in QCT’s against the QCT/CRP set aside.

Staff Response

Staff disagrees with this comment not because it doesn’t make sense, but rather because the QCT/CRP set aside is in the QAP simply to provide the IRS Code (Section 42) requirement that QCT’s be given a preference. Staff realizes that, especially with the RAD set aside, it is a moot set aside, but its purpose is simply to comply with Section 42 of the IRS Code.

Comment

Tiebreaker ideas: 1) amenities to striate scoring, 2) add point scoring opportunities for things like more green building initiatives, proximity to high performing schools, demographic mapping, and favorable market aspects like absorption, market vacancy, etc.

Staff Response

Staff disagrees with the comment portion regarding amenities, as our experimentation with proximity to amenities led to many issues with actual amenities and did not provide any scoring striation. If Staff was given more discretion to be the final arbiter of amenities and proximity evaluations, Staff might entertain this idea again. However, Staff believes the other ideas have merit; however, Staff recommends that this be fleshed out in the 2018 QAP round.

Comment

Cap the number of deals an owner/developer/consultant can be affiliated with to no more than 3 (2 new construction and 1 rehabilitation/preservation/RAC/CNI deal).

Staff Response

Staff is neutral on this comment. Staff would be fine doing this; however, since we haven’t looked at this idea for the 2017 QAP, it is probably more appropriate to include this in the 2018 QAP.

Comment

Investigate expanding the rural set aside, but limit the size of the deals to no more than 64-72 units.

Staff Response

Staff is neutral on this comment. Staff would be fine doing this; however, since we haven’t looked at this idea for the 2017 QAP, it is probably more appropriate to include this in the 2018 QAP.

Comment

The Innovation Round selection panel should be totally independent of THDA and its Board.

Staff Response

Staff is neutral on this comment.

Comment

Rural projects should be eligible for the basis boost.

Staff Response

Staff is neutral on this comment. However, Staff is concerned that a rule allowing the boost for any rural deal would run afoul of the GAO auditors, so Staff does think there should be some criteria for providing a boost for rural deals beyond their rural county location.

Comment

The lowering of the rehabilitation dollar cap to $800,000 is sound, as long as it is only for 9% deals.

Staff Response

Staff agrees with this comment, as it would defeat the purpose to include such a limit for bond/noncompetitive credit deals.

From: Gregory, Justin P.To: Mike BladeCc: Beismann, Sean M.; McGeady, Brian M.Subject: Low-Income Housing Tax Credit 2017 QAP CommentsDate: Tuesday, July 05, 2016 11:45:57 AMAttachments: image001.png

image002.pngImportance: High

Hello Mike, Miller-Valentine Group has the following comments on the proposed QAP modifications for 2017:

1. We heavily support the inclusion of the Innovation Round and the purpose of creatingopportunity for allocating Tax Credits to developments that have never been done inTennessee before and would be at a severe competitive disadvantage during thecompetitive round.

2. We understand THDA’s goal to limit developments that receive the basis boost but offertwo additional scenarios that we believe should qualify for the boost:

a. Innovation Round developments. Given that the Innovation Round’s purpose is togive opportunities to developments that would otherwise be financially infeasible ornoncompetitive; allowing THDA to allocate the boost to an innovative developmentthat would otherwise not be feasible seems consistent with THDA’s goal to be moreselective with the developments that can receive the boost. Additionally, the boostwould be completely at THDA’s and the selection committee’s discretion as theyhave the power and discretion to allocate or not allocate tax credits to anyinnovation set-aside development regardless of other scoring / competitive criteria,and to declare if the development is feasible or not.

b. Developments that include a certain percentage of market-rate units in theirproposal. The current tiebreaker makes this a non-issue, but giving the basis boost todevelopments with a certain percentage of market-rate units will allowdevelopments to be feasible without necessarily leading them to request more taxcredits (especially if the tax credit requests are otherwise capped). This allows adevelopment with 12 market-rate units out of 48 total units to be financially feasible(something that other Housing Finance Agencies have been amenable to in wake ofthe TDHCA vs. ICP Supreme Court decision). In other states we operate in; we haveadvocated for developments with market-rate units receiving the basis boost buthaving a cap on tax credits.

3. MV agrees that the modification to the County Needs Score should provide for moredifferentiation in applications; we propose that larger urban counties (Knox, Davidson,Shelby) should also have needs scores broken down by census tract. This will incentivizedevelopers to target areas in larger counties with need where existing tax creditdevelopments do not already exist and spread housing development throughout the largerhigh needs counties (in the same way the county needs score is designed to spread housingunits throughout the state).

a. We also propose that the tie-breaker should factor in proximity to other tax creditdevelopments, for the same reasons as above.

mailto:Justin.Gregory@mvg.commailto:MBlade@thda.orgmailto:Sean.Beismann@mvg.commailto:Brian.McGeady@mvg.com

b. Although we understand that THDA experimented with and eliminated location toservices / amenities as a scoring item. MV does think that such a scoring method willlead to more scoring differentiation amongst applicants and will lead to moresuccessful and well placed developments.

Thank you,

Justin Gregory Financial Analyst MV Residential Development

Miller-Valentine Group9349 WaterStone Blvd.Cincinnati, OH 45249www.mvg.com513-588-1228 Direct

Follow MVG on LinkedIn

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RE: THDA 2017 Qualified Allocation Plan Memo

Mike Blade

Director of Multifamily Development

7/8/2016

Mr. Blade,

In review of the memo regarding the 2017 Qualified Allocation Plan, I have a few comments and

suggestions.

County Ranking and Tie Breaker:

The proposed adjustment to the county ranking metric will have a limited reduction in the use of the tie

breaker. For Example; if Hamilton County is ranked as the number one county for next year’s QAP, let’s

imagine it receives 7 applications. Only three Hamilton County applications can be funded. The

proposed scoring metric will ensure that the top three applications from Hamilton County will be

funded, as they will have a larger point total than the balance of the state. As all seven of those

applications will tie in total score, the tie breaker will be used to select the top three. It will cause the

exact incentives that the current system does in regard to development costs and design decisions.

In order to eliminate the current development and design decision making, (which is wasteful and

inefficient) there is a need for a secondary adjustment to the scoring metric and/or an adjustment the

current tie breaker.

Secondary Scoring Adjustment Proposals:

THDA should increase location points to dive deeper into the affordable housing needs of each

community. There should be a collective effort between the local municipalities and THDA to designate

and rank clusters of census tracts. I propose 5-10 clusters per county depending on size. In order to limit

“The Antioch Effect”, THDA and the local municipalities would agree upon certain areas of the city that

need affordable housing most. The area with the largest need would receive the largest allotment of

points. This would correspond with the current initiative from HUD to place affordable housing in more

affluent neighborhoods. It would also allow for a further separation in scoring between developments

within each county.

One option in deciding the census tract cluster rankings would be to rank the clusters by least

affordable units per acre within that cluster of census tracts, which would reduce the need for a tie

breaker within each county and drive development to the areas in which the county and state deem

most appropriate. It would also reduce the assurance that each development will consist of location and

design decisions that appeal only to the tie breaker.

Additionally, another option would be to adjust the standardized points for the Green building

certification and allow for a large selection of green technologies and applications, awarding points for

each selection. Additional points would be awarded for tiered green certifications. i.e. 1 pt for Green

Building Cert, 2 pts for LEED silver cert, and so on. This would further incentivize the green initiative, but

allow for developers to only reach for what they deem to be appropriate and feasible for their particular

development. The idea here is that THDA would create enough options for points that it is not an

automatic assumption that developers will “select all” when filling out the application.

Tie Breaker Suggestions:

The current tie breaker is inefficient and drives developers to consider larger than necessary units,

which is wasteful and adds to the rent burden of tenants. I propose that the tie breaker be adjusted to

the following: The most affordable units proposed per credit requested with a minimum square footage

for each unit type. This it would eliminate the incentive for unnecessarily large units and would drive

those unit sizes down toward whatever minimum THDA deems as an appropriate minimum. This

increases efficiency and the total unit count of affordable residences created within each round of

funding.

A different option would be to give preference to the development with the fewest affordable units

within a certain radius. Begin the radius at one mile and increase the radius one mile at a time, until the

tie is broken. This again, gives preference to those developments proposed in areas where there are

limited affordable dwellings.

My suggestions create an environment where location is the driving factor for development decision

making. Location is the driving force in all conventional real estate transactions. It should be the same

with affordable housing.

QCT Maximum Suggestion:

Learning first hand in 2016 that the RAD, Preservation and CNI programs effectively absorb the majority

of the QCT maximum allotment, it is my opinion, that unless THDA wishes to only have developments

within QCTs be in the form of a RAD, Preservation, or CNI and only to be funded within those set-asides,

the RAD program needs to be eliminated from the total percentage of funding under the QCT maximum.

While we are all aware that HUD is pushing an initiative to drive developments out of the areas in which

the QCT has driven affordable developments and into more affluent neighborhoods, there are more

effective methods to accomplish that. With a 40% maximum allocation, the RAD and Preservation set-

asides will cause developers to eliminate any location within a QCT as an option, knowing that the

maximum will be reached before they are funded, and the quality of their application will be rendered

obsolete.

Regards,

Alex Trent

1400 16th St. NW Suite 420

Washington, DC 20036 (202) 939-1750

Fax (202) 265-4435 www.housingonline.com

July 11, 2016 Michael Blade Tennessee Housing Development Agency 502 Deaderick Street, Third Floor Nashville, TN 37243 Dear Mr. Blade: On behalf of the Tennessee Developers Council (TDC), I want to thank the Tennessee Housing Development Agency (THDA) for this opportunity to provide comments on proposed changes to the 2017 QAP. The following comments are given in the order presented from the THDA Proposed Changes Memorandum (the “Memo”).

I. Tiers should remain in the county needs score as it ensures greater geographic diversity than the proposed alternative while the other changes are acceptable under certain circumstances. A. Tiers should remain in the county needs score.

TDC recognizes the need in Tennessee to reduce use of the tiebreaker through creating deeper striation in scoring. We also recognize that the current county needs score system is imperfect in accomplishing this goal. That said, we believe that the proposed change to remove tiers would not significantly impact the tiebreaker and would create additional problems and unintended consequences. Removing tiers creates the problem of concentrating awardees into fewer counties – resulting in less geographic diversity across the state. Without changing specific scoring criteria, it is also unclear how tier removal would result in fewer ties. In fact, it is likely the same number of ties would exist, thus negating the intended benefit. While the tiered system is perhaps not a perfect system, absent creating more scoring striation elsewhere in the QAP it is better than the proposed alternative. We suggest THDA research neighboring states’ methods for reducing ties and are willing to discuss this topic further. As completely changing the county needs score system to create more diversity amongst scoring seems unlikely in the immediate future, it is our suggestion that the tier system remain as is for 2017.

B. Increasing the weight of pipeline and prior allocation components is mostly agreeable.

While TDC sees no inherent harm in increasing the weight of pipeline and prior allocation components in the county needs score methodology, a consideration should be noted. Specifically, these components may not provide the best metrics for considering need for new units in counties where there have been substantial prior allocations dedicated to preservation projects.

II. Only the Innovation Round should be implemented this year rather than both the Innovation Round and the Scholar House initiative to increase the quality of both programs.

Developing two entirely new time and capacity intensive and untested program areas in a single year may likely impede their overall chances for success. We recommend that THDA consider implementing a just a single new initiative in the coming round so that appropriate staff and community resources can be dedicated to its roll-out, testing and design of evaluation protocols. We believe this is more likely to result in greater acceptance from the development community and more success in implementation. TDC suggests piloting a single project Innovation Round first. It is important to consider that a Scholar House development could apply for this round in the first year as an innovative development. The possibility of Scholar House projects applying for the Innovation Round also provides for a metric of the demand for Scholar House projects and provides a trial-run experience before creating a Scholar House initiative in the future. This would also provide more subsidy predictability and more financial viability to a potential Scholar House applicant since they would be assured a full allocation (if they won the innovation round) than the uncertain amount of leftover credits potentially available.

III. The Innovation Set-Aside Selection Group should be composed of an independent panel.

As THDA’s Innovation Set-Aside was inspired by a similar set-aside in Indiana’s QAP, we suggest that, as in Indiana, the Innovation Set-Aside Selection Group be comprised of a panel of experts independent from THDA Staff and Board Members. Several of TDC’s developer-members are active developers in Indiana and have found value in an independent non-agency selection group and the outside perspectives that can come with it. Such a system would also alleviate any appearance of preference or unfairness, as this can be a common concern with any subjective determination. It should also be noted that there is an inconsistency between THDA’s recent Memo and the draft language. The Memo states under Part III-B Insert that no more than one eligible development shall receive tax credits from the Innovation Set-Aside, the Memo later states in Part VIII-E Insert that the Selection Group “may select one or more Innovation Set-Aside Applications to receive a Preliminary Award Letter”. TDC supports the funding of a single project under the Innovation Set-Aside in its inaugural year.

IV. Rural projects should be added to the list of basis boost eligible developments.

TDC finds no objection in limiting the eligible basis boost to specific development types. We acknowledge that financial conditions have changed dramatically since the implantation of the discretionary basis boost in the HERA legislation and that under current conditions limiting the use of the discretionary basis boost will allow THDA to issue additional awards. However, we find it prudent to add rural projects to the list of eligible developments. The economy has improved significantly since 2008 when a broad eligible basis boost was necessary. That said, rural projects still face unique challenges, like lacking economy of scale and lower market rents that necessitate deeper funding. Moreover, equity pricing in rural markets tends to be less favorable than pricing in urban markets further necessitating the need for access to additional credits provided by the basis boost.

V. The cap on HUD-Designated Qualified Census Tract should remain at 50% as lowering it could disproportionately affect non-RAD/CNI deals in QCTs.

Tennessee’s current QAP and the anticipated 2017 QAP places a high priority on RAD and Choice Neighborhood Initiatives projects, most of which projects are be located in a QCT. Given the order of the cascade it is highly likely that RAD and CNI projects combined with the Non-Profit and Preservation set-asides will completely or near completely utilize the proposed 40% aggregate cap on credits for projects located in QCTs. As a result, it is likely that virtually no new construction projects (funded under the general pool) will be located in QCTs regardless of the merits of the project. As such, we do not recommend reducing the QCT cap.

VI. Lowering the per development cap from $1.1 million to $800,000 is sound policy so long as it only applies to the 9% competitive round and more volume cap is dedicated to multifamily bond developments.

Lowering the “per development” cap will facilitate a greater number of preservation transactions. Furthermore, as mentioned in the Memo, this change would encourage large preservation and rehabilitation deals that are better able to leverage the MTBA program. Given the current climate of pricing and low interest rates, and the need for more units, we agree with this change. That said, there is a need for dedicating more volume cap to multifamily bond deals and we hope to see this change as well.

VII. The proposed policy to address “downzoning” unfairly punishes developers and counties interested in developing affordable housing and fails to motivate proper behavior from jurisdictions engaging in “downzoning”.

While we applaud THDA’s efforts to design a policy solution that discourages jurisdictions from implementing negative NIMBY-oriented zoning ordinances we do not believe that the proposed policy solution offered by the Memo will result in an a positive outcome for affordable housing. 1) It punishes an entire county for what may be the actions of one town within that county, 2) it punishes developers wishing to develop in a particular county due to actions unrelated to those developers, and 3) it creates a policy tool for jurisdictions that do not want affordable housing to ensure future affordable housing will not be funded in their jurisdiction.

A more effective tool to encourage proper conduct from municipalities is rigorous enforcement of the Fair Housing Act through litigation. Litigation may likely be initiated by the injured developer or THDA. For this reason, TDC suggests that THDA look to other state QAPs, such as Texas’, where language warns municipalities of the potential liability involved with fair housing issues and encourages them to consult with counsel. We believe that such a measure, for the purposes of a QAP, sufficiently addresses the issue of “downzoning”.

County Needs Score Relating to Projects Funded under the RAD Set-Aside

Given that the RAD Set-Aside was created to address the limited time-frame of the RAD resource as opposed to locational need we recommend that projects funded under the RAD set-aside be ranked based on their physical needs rather than the county needs score. Likewise, we recommend that projects funded under the RAD set-aside not county against the otherwise relevant county caps, as they do not create new units or address housing preservation needs in the non-profit and privately owned subsidized portfolio.

Rehab Requirements in the Bond Program

In previous years TDC has expressed our concerns about the tiered-rehab requirements in the Bond Program Description (BPD). The present BPD requires larger projects to conduct a greater amount of rehab irrespective of the needs at the property simply because of the size of the property. We understand THDA has been reluctant in the past to eliminating the tiered approach to rehab requirements. While we have previously recommended THDA adopt an approach that is based solely on meeting requirements as set out in an independent 3rd party Physical Needs Assessment (PNA) we suggest as an alternative, modifying the current tier system in the BPD be revised to so that each tier is scaled against bond authority requested per unit as opposed to total bonds requested. This will make the rehab requirements neutral to the total number of units in a proposed project, which we feel is a fairer metric and will result in more appropriate rehab based on an individual project’s needs. Once again, TDC appreciates the opportunity to provide THDA with this feedback. We would be very happy to discuss any specifics you might have regarding these comments or other subjects of concern. Please feel free to contact me directly with any questions at 202-939-1753 or tamdur@housingonline.com.

Best Regards,

Thom Amdur Executive Director

mailto:tamdur@housingonline.com

July 12, 2016

Mr. Michael Blade c/o Tennessee Housing Development Agency (“THDA”) Andrew Jackson Building, Third Floor 502 Deaderick Street Nashville, TN 37243

Re: 2017 QAP Comments

Dear Mr. Blade,

Thank you for this opportunity to provide comments for consideration in drafting the 2017 QAP. Please find below Zimmerman Properties’ comments on possible modifications to the current scoring process. We look forward to continuing to work with the Agency in finalizing the 2017 QAP.

As requested, our initial comments related to your proposed changes published on July 1, 2016 are outlined below first, with additional thoughts and comments on other possible changes provided afterwards:

1. Modify County Needs Score:

a. We like the idea of extending the “prior allocation” period from three (3) to five (5) years, and increasing the weight of said “prior allocations” for the scores. These adjustments would “protect” recently awarded deals, thereby allowing each sufficient time to be built and stabilized.

b. Steering away from tiers and assigning a unique score to each County will push all developers to the same County. Not only will this drive up the cost of the land in those highest scoring Counties, but it will also lead to funding multiple deals in a small tranche of Counties, similar to what happened in 2014 (12 deals were funded in 3 Counties…5 in Putnam, 4 in Obion and 3 in Hamblen). We would be okay with this if THDA modified their County allocation caps from dollar amounts to awards…say no more than three (3) awards in a single County, excluding the major metro Counties. THDA could limit funding to one (1) deal within a jurisdiction but up to three (3) in the County (ex. 1 deal in Cookeville, 1 deal in Algood, and 1 deal in Unincorporated Putnam County), or no more than two (2) new construction deals in a County plus 1 rehab / preservation deal, but no municipality limitations, only County (could all be in Cookeville).

i. Another possibility as far as County scoring…decrease the number of Counties in each of the top tiers, and only make the top tier the metro Counties which should get deals funded each year. For this tier alone, THDA could implement a first tie-break of proximity to recently funded applications in the previous 3- to 5-years. That way awards aren’t funded on top of other recent awards, and those metro Counties aren’t initially hit with the credit per unit/sqft tie-breaker.

2. Innovation Round:

a. We would like to hear more about this potential set-aside before commenting.

3. Scholar House Initiative:

a. Our initial concern would be compliance oversight on operations for what is essentially “student housing”

4. HERA 30% Basis Boost:

a. Unless the current tie-break of lowest credit per unit/square foot is removed, there will probably not be a need for the HERA basis boost. We do appreciate the intent to try and focus this mechanism to proposed developments which would truly need the boost. However, even CNI and RAD deals are typically located in markets that garner the highest equity prices. With all this being our opinion though, we would like to suggest applicants being able to take the HERA basis boost as needed, but maybe THDA offsets the boost with a mandated deferral of the developer fee. Example: if requesting a 10% / 20% / 30% HERA basis boost, applicant must defer 5% / 10% / 15% of the developer fee (half of the HERA basis boost request is the percent of DDF).

5. Limit on QCT Development Awards:

a. We agree with THDA’s proposal.

6. Per Deal Preservation / Rehab Award Limits:

a. We agree with THDA’s proposal.

7. Site “downzoning”:

a. We agree with THDA’s proposal.

8. QCT and CRP Set-Aside:

a. Given prior set-asides essentially wipe out any chance of getting funded in the QCT set-aside, either remove entirely, or fund the QCT set-aside after the Non-Profit set-aside. Also, don’t count any QCT developments funded in the Non-Profit set-aside against the QCT set-aside.

9. Current Scoring and Tie-Breaking System:

a. We would like to encourage THDA to consider any and all ways to avoid the current tie-breaking system whereby all applications score the same, and those requesting the least amount of credits per unit / square feet get the award. This is a detrimental means of awarding deals that will not be fully evidenced until 5- to 7-years from award, when those deals start to show signs of wear-and-tear from cost cutting measures, or residents move because they can no longer afford the utilities in the larger-than-market unit sizes. Below are some ideas we have proposed to other States that currently have similar means of determining awards:

i. Go back to scoring sites based on proximity to services, but only use online mapping systems such as Google Maps, Bing, etc…no Walkscore.

ii. Add point scoring options for additional items such as…

1. Higher green building initiatives

2. Proximity to high performing schools (must be within district to qualify for points)

3. Demographic mapping…being located in low poverty census tracts

4. Favorable market aspects such as absorption, market vacancy, capture rates, demand / penetration rates

iii. Cap the number of deals an owner / developer / consultant can be affiliated with to no more than 3…2 x new construction and 1 x rehab / preservation / RAD / CNI.

1. Regarding this allocation cap, THDA should look at limiting awards to not only owners / developers, but any person, entity or group who acts as a consultant for owners / developers and benefit from a funded development through the payment of a consultant fee, or percentage of the developer fee to be earned from the deal.

2. Other benefits of limiting the number of awards:

a. Applicants are less likely to cut their credit request

b. More geographic distribution of awards…one of the primary goals listed each year in the QAP

c. More sharing of credits amongst developers…also one of the primary goals listed each year in the QAP

iv. THDA could look at expanding the Rural set-aside, but limit the size of deals to no more than 64 to 72 units. Since these would compete only against themselves, they could have less strict distances to services / amenities, and it would ensure more deals are geographically distributed across the State. These deals would also not be at a competitive disadvantage to non-Rural applications due to leveraging of resources, options for amenities, etc.

Should you or anyone else with THDA have any questions as it relates to the suggestions proposed above, please do not hesitate to call or email me any time. We thank you again for your work thus far for the 2017 QAP.

Sincerely,

Tab Bullard, VP of Development

From: Evan HolladayTo: Mike BladeSubject: FW: Tenn. Dev. Council: Draft QAP & Hearing UpdatedDate: Sunday, July 10, 2016 7:49:48 PMAttachments: 5FB487B1-01F6-4045-B96B-0BDAA1996868[118].png

JULY-2016-FORUM-MEMO.pdfJULY 2016 THDA QAP Memo.pdf

Hey Mike,

Hope all is well. Glad we finally got The Paddock at Grandview closed and construction underway. Thank you again for your help on that deal – it will do wonders for North Nashville.

For the comments on the QAP/Bond Program Description, we have a few deals in our pipeline that are all new construction and large in scale:

Larger cap for annual tax credits on a bond deal. We are currently looking at a 288 unit new construction deal in Nashville and would require around $1.7 million annually, far exceeding the current cap. Same on the bond side as well. We are looking at a bond sizing of $23 million needed for this same deal.

With new construction deals, which historically haven’t been created too often with THDA and bonds, they require more tax credits and bonds to do much more work. But this work creates brand new units that are on par with market rate apartments in the same communities. New construction bond deals are a great way to create much needed units in TN and to supplement the 9% rounds.

Thank you for taking this into consideration and have a great rest of your weekend. Call/email if you have any questions.

Thank ya,

Evan HolladayDevelopment Manager

LDG Development, LLC1469 S. 4th StreetLouisville, KY 40208Cell: 859-307-8652Office: 502-638-0534 ext. 229Fax: 502-638-9197http://ldgdevelopment.com

From: Thom Amdur Reply-To: "tamdur@dworbell.com" Date: Friday, July 1, 2016 at 4:52 PMTo: Evan Holladay Subject: Tenn. Dev. Council: Draft QAP & Hearing Updated

NH&RA's Tennessee Developers CouncilLearn more at: http://www.housingonline.com/TennesseeCouncil.aspx

mailto:eholladay@ldgdevelopment.commailto:MBlade@thda.orghttp://ldgdevelopment.com/index.phpmailto:tamdur@housingonline.commailto:tamdur@dworbell.commailto:tamdur@dworbell.commailto:eholladay@ldgdevelopment.comhttps://services.housingonline.com/nhrassa/ecmssamsganalytics.click_through?p_mail_id=E33449A1427656B1C224427

Ralph M. Perrey, Executive Director

Andrew Jackson Building Third Floor - 502 Deaderick St. - Nashville, TN 37243

www.THDA.org - (615) 815-2200 - Toll Free: 800-228-THDA

MEETING NOTICE TO: All Interested parties FROM: Multifamily Development Division DATE: June 15, 2016 SUBJECT: Developer Forum for the Low-Income Housing Tax Credit 2017 Qualified

Allocation Plan and the Multifamily Tax-Exempt Bond Authority 2017 Program Description

The Multifamily Development Division is beginning the process of developing the Low-Income Housing Tax Credit 2017 Qualified Allocation Plan (the “2017 QAP”) and the Multifamily Tax-Exempt Bond Authority 2017 Program Description (the “2017 PD”). As part of this process, THDA will host a developer forum. The forum will give interested parties the opportunity to provide input to Multifamily Development Division staff regarding changes that the development community would like staff to consider and elements of the 2016 QAP and the 2016 PD that the development community would like to remain unchanged.

The forum will be held on Monday, July 25, 2016 from 1:00 PM to 2:00 PM Central Time in the Nashville Room of William R. Snodgrass Tennessee Tower located at 312 Rosa L. Parks Avenue, Nashville, Tennessee.

Please note that the forum is not intended to be a question and answer session with THDA staff. The forum is the development community’s opportunity to provide input to staff prior to the creation of the draft 2017 QAP and the draft 2017 PD. We anticipate posting proposed changes for the 2017 QAP to THDA’s web site (www.thda.org) on July 1, 2016. Please submit written comments to Michael Blade, Director & Assistant Legal Counsel for Multifamily Development, at MBlade@thda.org no later than 9:00 AM Central Time on Monday, July 11, 2016. We anticipate posting the draft 2017 QAP to THDA’s web site in August of 2016. We anticipate posting the draft 2017 PD to THDA’s web site in October of 2016.

The periods for submission of written public comments regarding the 2017 QAP and the 2017 PD will be in July and September, respectively. Specific dates for the 2017 PD comment period will be announced later. Please do not submit written comments outside these periods, and, if possible, please limit your written comments to no more than four pages including any attachments and supplementary materials.

http://www.thda.org/

mailto:MBlade@thda.org

Ralph M. Perrey, Executive Director

Andrew Jackson Building Third Floor - 502 Deaderick St. - Nashville, TN 37243

www.THDA.org - (615) 815-2200 - Toll Free: 800-228-THDA

M E M O R A N D U M TO: Persons Interested in the Low-Income Housing Tax Credit Program FROM: Multifamily Development Division DATE: July 1, 2016 SUBJECT: Proposed Changes for the Low-Income Housing Tax Credit 2017 Qualified

Allocation Plan The following document lists the proposed changes for the Low-Income Housing Tax Credit 2017 Qualified Allocation Plan (the “2017 QAP”). The proposed changes include changes suggested by members of THDA’s Board of Directors, changes suggested by the public, and changes suggested by THDA staff. The proposed changes in the following document may be accepted, rejected, or modified in any respect. Changes or modifications not currently reflected in the following document may also be made. By posting these proposed changes, no representations are being made about any item that may be included, excluded, or modified in the preparation and approval of the final 2017 QAP. Please submit written comments to Michael Blade, Director & Assistant Legal Counsel for Multifamily Development, at MBlade@thda.org no later than 9:00 AM Central Time on Monday, July 11, 2016. If possible, please limit your written comments to no more than four pages including any attachments and supplementary materials.

http://www.thda.org/

mailto:MBlade@thda.org

TENNESSEE HOUSING DEVELOPMENT AGENCY PROPOSED CHANGES FOR 2017 LOW-INCOME HOUSING TAX CREDIT QAP

JULY 1, 2016 SCORING ISSUES 1) Modify county needs score to remove the tiers, increase weight of “pipeline” and “prior

allocation” components of the formula, and extend the lookback for prior allocation from three to five years. Background: The intent of these modifications is threefold. First, removing the tiers and

assigning a unique score to each county may diversify scoring and reduce the need for the use of the tiebreaker. Second, increasing the weight of the “pipeline” and “prior allocation” components of the calculation may reduce the score for counties that have received prior allocations in the past five years and increase the score for counties that have not received an allocation in the past five years, thus reducing the likelihood of oversaturation in a particular county and dispersing the credits to more counties. Lastly, including five instead of three years of prior allocation gives a more complete picture of recent allocations and also may result in giving more counties the opportunity to compete for credits.

OTHER ISSUES 2) Implement an Innovation Round – please see attached draft language.

Background: The purpose of the Innovation Round is to create the opportunity for allocating Tax Credits to a proposed development that (a) involves an innovative approach to affordable housing, and (b) would be at a competitive disadvantage in the regular competitive round.

3) Implement a Scholar House initiative – please see attached draft language. Background: The purpose of the Scholar House initiative is to create an opportunity for

allocating Tax Credits to a proposed development that will provide affordable housing to students.

4) Modify language describing the (up to) 130% boost in eligible basis to apply only to proposed developments which (a) are located in a HUD-designated Difficult Development Area, or (b) have a Choice Neighborhood Initiative (“CNI”) Implementation Grant, or (c) have a Rental Assistance Demonstration (“RAD”) Commitment to Enter into a Housing Assistance Payments Contract. Background: The broad application of the eligible basis boost that has been in effect in the

QAP for the past several years was implemented during the economic downturn which began in 2007. Current economic and market conditions are much more favorable.

5) Lower the cap on the aggregate maximum amount of Tax Credits allowed to be allocated to proposed developments located in a HUD-designated Qualified Census Tract (“QCT”) from 50% to 40%.

Background: In 2016, for the first time, the aggregate maximum amount of Tax Credits allowed to be allocated to proposed developments located in a QCT was reached. As federal agencies focus more on Affirmatively Furthering Fair Housing in particular and Fair Housing in general, avoiding concentration of poverty is growing in importance. Lowering the cap will help address this issue.

6) Lower the per development Tax Credit cap for Preservation and Rehabilitation in the competitive round from $1,100,000 to $800,000. Background: The market conditions associated with the THDA Multifamily Tax-Exempt Bond

Authority (“MTBA”) program are currently very good. Lowering the per development cap as described above will encourage larger Preservation and Rehabilitation developments to migrate to the MTBA program with noncompetitive Tax Credits, lowering demand for Preservation and Rehabilitation Tax Credits in the competitive round.

7) Address the issue of local jurisdictions “downzoning” the site of a proposed development after the allocation of Tax Credits. Background: If a local jurisdiction downzones the site of a proposed development after the

allocation of Tax Credits, the resulting delays may cause the development to be canceled. Although the Tax Credits can be recaptured and reallocated, the units produced by the reallocation will be placed in service up to several years later than the original units and may not be located in the same jurisdiction. One avenue for addressing this issue is to reduce the per county cap for the jurisdiction in question in a subsequent year or years by an amount equal to the allocation for the canceled development.

Part III-B Insert

6. Innovation Set-Aside

a. No more than one (1) eligible development involving innovation (as specified in Part VII-A-2-f) shall receive an allocation of Tax Credits from the Innovation Set-Aside, subject to the requirements of Part VIII-E.

Part VI Insert

E. Innovation Set-Aside

1. THDA will accept proposals for consideration in the Innovation Set-Aside (“Innovation Set-Aside Proposa