P.O. Box 7511, Atlanta, GA 30357-0511

Georgia Affordable Housing Coalition, Inc.

P.O. Box 7511, Atlanta, GA 30357-0511

September 11, 2015

Ms. Laurel Hart

Division Director

Housing Finance and Development

GA Department of Community Affairs

60 Executive Park, South, NE

Atlanta, GA 30329

Dear Laurel,

Thanks to you and your staff for meeting with our group over the past couple of weeks to discuss the upcoming 2016 QAP. Below is a list of GAHC’s concerns, comments and recommendations for the 2016 QAP, as well as feedback on selected items DCA mentioned in the listening sessions. Please note that while we have provided detailed reasoning behind our recommendations, we have noted our specific formal recommendations by placing them in italics and underlining them.

ISSUES RAISED BY GAHC

Please see the issues and recommendations below in response to the items discussed at our meeting with DCA on August 13th:

Jurisdictional Limits: In an attempt to create a wider geographic disbursement of tax credits, DCA last year instituted Geographic Allocation Limits as detailed below:

A) DCA will not select more than one phase of a planned multi-phase development.

B) DCA will select only one Rural project located in the same Local Government area with the exception that a new construction and an occupied, in-place rehab may be selected.

C) DCA will select up to two flexible pool projects of a different tenant base (senior vs family) located in the same Local Government area. In the City of Atlanta, up to three different projects may be funded provided one is an occupied, in-place rehab.

This jurisdictional limitation, when coupled with numerous scoring categories (deeper targeting through new PBRA contracts, HUD Choice Neighborhoods, leveraging through local government resources, off site improvements, amenity and facility investment , target population preference within the Integrated Supportive Housing scoring criteria) caused many traditional tax credit developments not to be submitted in the 2015 competitive round even though they scored competitively state wide, because those developments would have been outscored by a local PHA that was submitting an application in the same jurisdiction.

This has the larger effect of not allowing for housing to be produced for citizens that fall in the middle (those around 50% or 60% of area median income (“AMI”) that are not fortunate enough to receive public rental assistance). Many of the larger markets are in dire need of housing that serves this segment of the population.Simply demolishing and replacing public housing will not serve the residents that need it most, which in this caseis those residents at 50% and 60% of AMI. As you are aware, market rate apartments in many of these areas are either out of the price range of these residents or are in severe disrepair. Citizens in these municipalities simply can’t afford to live in market rate apartments and thus must live in sub-standard housing if a sufficient supply of new affordable housing can’t be produced in these markets.

GAHC’s desire is that the geographic allocation limits be removed entirely, and that DCA allow market conditions to dictate where housing is placed, and proposes that DCA consider doing just that in the metro areas; GAHC recommends that at least 2 new construction deals should be allowed in the rural areas, and that preservation deals should not count against the limit. Our recommended change to the Geographic Allocation section would be

B) DCA will selecttwo New Construction (one family, one senior)Rural Pool projects in a Local Government Area;preservation deals in the rural pool will not count against the Rural Pool limit

C) Projects in the Flex Pool will not be subject to any jurisdictional limit

This will allow market forces to play a role in site selection by driving affordable housing to the areas where it is most needed.

HOME Consents: Over the years, GAHC has recommended that the award of HOME funds should be separate from the 9% round. Rather than awarding credits to good real estate deals based on market, location, etc…HOME Consents in 2015 were awarded to developers largely (if not entirely) on the number of previous developments that utilized HOME/HUD funds. Furthermore, receiving a HOME Consent essentially ensure that a development will be awarded a tax credit allocation (given the leveraging points that follow the HOME Consents). Therefore, not only is the award of HOME Consents nearly entirely based upon non-development level issues, much of the 9% competitive tax credit awards are based on the same parameters.

In discussions with DCA, it appears that HOME funds being married to the 9% tax credit round was the preferred method and was unlikely to change. That being the case, within the next week, GAHC will make a formal, detailed recommendation on prospective ways to make the award of HOME Consents based on “deal level” real estate parameters that include the elements of experience, site and market considerations.

Incentive for “Georgia Focused Developers”: Each year, more and more developers who have not previously shown an interest in affordable housing in Georgia enter the 9% competitive round. While we appreciate and welcome robust competition for Georgia’slimited resources, we also feel it is incumbent upon all parties to encourage and incentivize developers who have historically shown a focus on Georgia and have a successful track record of providing affordable housing to the residents of Georgia.

Please understand that the comments in this section focus on a developers’ experience in Georgia and other states and that the actual residency of those developers, be it personal or business residency is not relevant to this discussion. We would also like to make clear that GAHC is not requesting, hasnever requested nor will ever request any incentives in the QAP to favor developers who may reside or hold office space in the state of Georgia.

All states that surround Georgia incentivize developers that have shown a focus on their state by rewarding them with points in their scoring criteria. Given that Georgia does not provide this incentive, Georgia Focused Developers are at a decided disadvantage regarding ensuring that they will be able to continue developing, operating and managing affordable housing in Georgia. Quite simply, developers that have been focused on providing affordable housing in Georgia simply can’t compete in the surrounding states; while non-Georgia focused developers can compete in Georgia, while maintaining a large competitive advantage in surrounding states. This may cause many Georgia focused developers to cease to exist and will have a long term negative effect on affordable housing in Georgia. We believe it is inGeorgia’s best interest to help sustain the dependable developers of Georgia projectswho have demonstrated ability to successfully develop, operate and manage high quality housing in Georgia and who have made a commitment to and shown a long term focus on Georgia.

Please see the summary below which details out the scoring incentives that are available to developers who have a shown a focus and successful track record in other contiguous states.

Florida: In order to claim maximum experience points, an applicant must have completed at least one LIHTC development in Florida since 1/1/2005. Completion means the development must receive certificates of occupancy or 8609s.

South Carolina: An applicant who has received 8609s on two SC deals in the last eight years will receive two points.An applicant who has received 8609s on one SC deal in the last eight years will receive one point.

North Carolina: An applicant needs to have received 8609s on at least one tax credit project in North Carolina to even be able to participate (threshold). In order to claim maximum experience points an Applicant either needs to have seven awards of 9% credits in North Carolina in the last seven years or to have his/her principal office in North Carolina (residency/domicile requirement).

Alabama: In order to claim maximum experience points, an applicant must have received 8609s or have closed an AHFA HOME loan on three projects in Alabama in the last 10 years. Three points are awarded to applicants that have three or more projects that meet these criteria, two points for two projects and one point for one project.

Tennessee: In order to claim maximum experience points, an applicant must have three Tennessee developments with 8609s in the last 15 years. Three points are awarded to applicants that have three or more projects that meet these criteria, two points for two projects and one point for one project.

Therefore, GAHC recommends that DCA institute the following scoring criteria to incentivize the continued participation and success of Georgia Focused Developers:

• Applicants that have been an owner/developer (since project inception) on three Georgia LIHTC developments that received 8609s in the last 10 years should receive 2 points (Applicants must currently have an ownership interest) OR
• Applicants that have been an owner/developer (since project inception) on three Georgia LIHTC developments that have a record of acceptable compliance and remain in compliance with all regulations should receive 2 points (Applicants must currently have an ownership interest)

ISSUES RAISED BY DCA

At the August 13 meeting with GAHC,and subsequent public listening session on September 3rd, DCA raised several important issues that GAHC would like tocomment upon.

• Financial Structuring/Underwriting: DCA staff expressed their intention to spread tax credits out in an effort to fund additional deals in the 9% round and are investigating how to incentivize more leveragingthereby attempting to discern exactly how much it costs to develop affordable housing and determine how many credits are really needed for each development. DCA has identified four possible methods of attaining this goal:

1. Tiered Reservation/Allocation Process: The idea was floated that rather than receive a binding allocation of tax credits, a successful applicant would receive an award and non-binding reservation of tax credits. Then after further underwriting (to include construction cost review, equity pricing review, etc.) to occur subsequent to the initial award and non-binding allocation of credits, DCA would modify the credits as DCA deemed appropriate based on this additional underwriting and issue a binding tax credit reservation. The uncertainty created by this process would further complicate the process of obtaining financial commitments and expose those who were awarded a non-binding reservation of tax credits to additional financial risk as they would be forced to incur predevelopment costs atdrafting of plans, geotechnical exploration, etc.that may become the cost of the developer in the event a development becomes infeasible due a reduction in credits from the initial non-binding reservation. Furthermore it will cause extreme delays in regards to closing on financing, obtaining permits and entering into a construction contract. This increase in the time frame adds more risk to each development in and of itself in that the risk of construction costs increases rises when more time is added between the filing of the tax credit application and the signing of a construction contract. These facts make it highly unlikely that additional 9% tax credit projects would be awarded by utilizing this approach. GAHC recommends that DCA discard the idea of tiered allocation/reservation process and continue with the traditional method of making tax credit allocations binding, and allowing tax credits to be adjusted at cost certification after a third party audit review of costs.

1. Review Gap Calculation: DCA’s goalis to ensure that the precise amount of tax credits required to complete a development are awarded and by extension the assurance that the project pro forma isshowing the absolute maximum amount of debt that the project can bear. DCA has raised the question of whether tax credits should be relied upon to fill the gap between cost and debt and whether DCA should be providing credits sufficient to pay only a portion of the gap.This puts the onus on the developer to determine how to bridge the void, whether that be through reducing development costs which typically results in diminished project quality and amenities ordeferring a greater amount of developer fee. Despite the best efforts and estimates made at application, paid developer fees are often going to slip - especially in the current environment of rapidly increasing construction costs, and healthy developer fees are absolutely essential if the state wants healthy developer/ owners who can withstand the incessant (and increasing) risks associated with affordable deals and can afford to handle problems when they arise. Given that affordable housing properties need to operate for the long term and provide a much needed resource for lower income families and seniors with limited financial resources, it is in the interest of everyone—the tenants, DCA and the developer/owner, to ensure that rents are affordable enough to meet the needs of the residents and that the financing is accomplished in such a way that the units will be able to be properly maintained for many years. Furthermore, projects must be able to pass the stress test and not be over-leveraged or we run the risk of creating an environment where the long term viability and affordability of awarded deals will be placed in peril. While funding more projects in a tax credit round is a worthwhile goal,if the changes needed to fund those additional projects changes the program such that thehousing that does get developed is of poorer quality, results in the need for higher rents and lower expenses, includes no “green initiatives” or quality amenities and results in additional deferred developer fees, then it will not have been a proud achievement and may be a decision we come to regret. GAHC recommends that DCA provide a sufficient amount of tax credits sothat projects arenot over-leveraged and are able to successfully operate for the long term. To that end we believe that the 2015 QAP accomplished this goal via total development cost limitations and maximum debt service coverage levels that require developers to appropriately size their permanent debt.

1. Review Discretionary Basis Boost: DCA has raised the question of whether the discretionary basis boost should be available only to those projects that best meet DCA’s goals. DCA is trying to strike a balance between “areas of opportunity” and “concerted revitalization efforts”, and the reality is that areas of opportunity—where there are high performing schools, higher incomes, and jobs are more costly and often less inviting of affordable housing. Land costs are high, zoning isn’t always in placeand community and political opposition combine to make getting an affordable multi-family project approved and completedvery time consuming and costly. Additional credits can help mitigate some of these costs and help affordable housing get built in these desirable areas. GAHC recommends that DCA use the basis boost for projects that need assistance in helping with fair housing requirements. We further recommend that DCA not make the boost a totally discretionary tool and that applicants should have some certainty as to whether their developments will qualify for the boost. To this end, we recommend that DCA continue to use the basic formula that DCA currently uses in the QAP. Specifically GAHC recommends the following:

1. The state designated basis boost should be automatic to flexible pool applicants that qualify for at least 3 points under the stable communities scoring category. (This would be more stringent than the 2 points under the 2015 QAP and thus would provide for a more strategic use of the basis boost).
2. The state designated basis boost should be automatic to rural pool applicants that qualify for at least 2 points under the stable communities scoring category. (This use of the state designated basis boost would be reduced from the blanket application in rural areas under the 2015 QAP).

1. Cost Containment via Publicly Bid Construction Contracts: At the recent public listening session, DCA introduced the idea of requiring developers who receive a tax credit reservation to conduct a public competitive bid for construction contracts and take the lowest bid. This change, if sanctioned, would have far-reaching consequences on the program. First, developers have cultivated trusted, professional and often long-term relationships with the contractors they use. These relationships help make the construction and reporting process as smooth as possible and help ensure timely tax credit delivery, as both parties are familiar with each other and the ins and outs of the tax credit program.Both parties understand that a high quality product that will last for many years is of paramount importance. Secondly, a competitive, public bidding process is time consuming. Itrequires a major investment of time on the part of the developer to meet with prospective contractors, review the overall plans for the project, delve into the minutia, conduct conferences, etc… and can take months for the process to run its course. Thirdly, and perhaps most importantly, taking the lowest bid on any project, especially from an unfamiliar firm, is replete with minefields, from underestimating, cost-over-runs, sub-contractor issues, insurance issues, reporting issues, quality issues etc….GAHC recommends that DCA abandon the idea of developers publicly bidding construction and allow developers to enter into contracts with general contractors of their choosing, and require a contractor’s cost certification at project completion on ALL PROJECTS regardless of whether or not the contractor is a related party.

• Market Studies: DCA expressed concern that the market studies have been too broad and vary greatly from one analyst to the next, and that new projects are hurting older projects. Proximity, comparability and the size of the market area seem to be of the most concern. GAHC recommends that the market study process remain unchanged. Developers have a vested interest in ensuring that market studies are prepared accurately. Furthermore, while DCA may only receive market studies that show that a project is feasible, that is due to the fact that upon receiving a negative market study, the developer either changes the unit mix/structure of the deal per the market analyst’s recommendations or decides not to move forward with the project because of insufficient market. We believe the relationship between developers, market analyst and DCA should remain unchanged.

In addition, GAHC proposes the following regarding DCA processes: