Original Notice.

Preproposal statement of inquiry was filed as WSR 01-03 [01-03-144].

Title of Rule: Tax credit program.

Purpose: The rules provide procedures pursuant to which the commission will allocate or award tax credits.

Statutory Authority for Adoption: RCW 43.180.040(3).

Statute Being Implemented: RCW 43.180.050.

Summary: The existing rules establish the framework of the commission's tax credit program. The proposed changes to these rules reflect changes in Section 42 of the Internal Revenue Code of 1986, as amended ("code"), which authorizes tax credits for the construction, acquisition and rehabilitation of residential rental projects meeting the requirements of the code.

Reasons Supporting Proposal: The existing rules provide applicants to the commission's tax credit program with clear direction regarding the fundamental principles under which tax credits will be allocated or awarded by the commission. The proposed rules will modify these rules to reflect the recent changes to the code.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Margaret Sevy, 1000 Second Avenue, Suite 2700, Seattle, WA, (206) 464-7139.

Name of Proponent: Washington State Housing Finance Commission, governmental.

Rule is necessary because of federal law, 26 USC 42, as amended by 114 stat. 2763 (2000).

Explanation of Rule, its Purpose, and Anticipated Effects: The Washington State Housing Finance Commission has been designated as the state agency in Washington responsible for implementing the tax credit program authorized under Section 42 of the code. The commission's plan for allocating or awarding tax credits has been approved by the governor of the state of Washington. The existing rule establishes the framework for the commission's tax credit program and provides applicants to the tax credit program with clear direction regarding the principles by which the commission will allocate or award tax credits. The proposed rules will modify the existing rules to reflect the recent changes to the code.

Proposal Changes the Following Existing Rules: The only changes that have been made are those necessary to reflect modifications to Section 42 of the code.

No small business economic impact statement has been prepared under chapter 19.85 RCW. Under RCW 19.85.061, because the proposed rule implements the requirements of Section 42 of the code, the proposed rule does not in and of itself impose any burden on small businesses in an industry and a small business economic impact statement is not required.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. Under RCW 34.05.328 (5)(b)(iii), because these rules would be "rules of other Washington state agencies" not listed in section (5)(a)(i), section 201, chapter 403, Laws of 1995 does not apply.

Hearing Location: 1000 Second Avenue, Suite 2700, Seattle, WA 98104-1046, on April 26, 2001, at 1:00 p.m.

Assistance for Persons with Disabilities: Contact Margaret Sevy by April 18, 2001, (206) 464-7139.

Submit Written Comments to: 1000 Second Avenue, Suite 2700, Seattle, WA 98104-1046, fax (206) 587-5113, by April 25, 2001.

Date of Intended Adoption: April 26, 2001.

January 25, 2001

Margaret Sevy, Director

Tax Credit Division

OTS-4697.2

AMENDATORY SECTION(Amending WSR 93-01-122, filed 12/21/92, effective 1/21/93)

WAC 262-01-110   Contents of the qualified allocation plan.   (1) The commission shall adopt a qualified allocation plan as required under section 42 of the code (the "plan"), which shall:

(a) Set forth selection criteria to be used to determine housing priorities of the commission which are appropriate to local conditions;

(b) Give preference in allocating housing credit dollar amounts among projects that:

(i) ((Serving)) Serve the lowest income tenants; ((and))

(ii) Are obligated to serve qualified tenants for the longest periods; and

(iii) Are located in qualified census tracts and the development of which will contribute to a concerted community revitalization plan; and

(c) Provide a procedure which the commission shall follow in monitoring projects for ((compliance with section 42 of the code)) noncompliance and for notifying the Internal Revenue Service of such noncompliance ((which the commission shall become aware of)) and in monitoring for noncompliance with habitability standards through regular site visits.

(2) The plan shall include the following selection criteria among others, for allocating housing credit dollar amounts: Project location, housing needs characteristics, project characteristics (including whether the project includes the use of existing housing as part of a community revitalization plan), sponsor characteristics, ((participation of local tax-exempt organizations,)) tenant populations with special needs, use of public housing waiting lists, tenant populations of individuals with children, projects intended for eventual tenant ownership, project feasibility, and viability as a low-income housing project.

[Statutory Authority: RCW 43.180.040. 93-01-122, 262-01-110, filed 12/21/92, effective 1/21/93.]

(2) As part of its application, each applicant shall submit, among other things:

(a) Its federal identification number or, if the applicant is an individual, its Social Security number;

(b) Evidence that it has control of all land necessary for completion of the project;

(c) A comprehensive market study of the housing needs of low-income individuals in the area to be served by the project;

(d) If applicable, a relocation plan for residents approved by the appropriate governmental authority;

(((d))) (e) Evidence that the project is consistent with the applicable state or local consolidated plan;

(((e))) (f) A written commitment to notify the relevant local public housing authority of the availability of units in the project;

(((f))) (g) Evidence of the financial capacity and experience of the development team; and

(((g))) (h) Evidence of the experience of the property management team.

(3)(a) The commission will rank projects proposed by tax credit applicants based upon the degree to which they meet the criteria set forth by the commission in subsection (5) of this section. The commission may decline to consider a project that fails to meet minimum standards established by the commission for such an evaluation.

(b) Notwithstanding applicant characterization, the commission may determine the scope of or otherwise define a "project" or "projects" for purposes of ranking applications and reserving and allocating tax credit.

(4) In order to qualify to receive tax credit, a project shall meet all of the requirements of section 42 of the code. ((At a minimum, a project shall:

(a) Be rent restricted;

(b) Have:

(i) Twenty percent of the units set aside for individuals whose income is fifty percent or less of area median gross income; or

(ii) Forty percent of the units set aside for individuals whose income is sixty percent or less of area median gross income;

(c) Be constructed for use by the general public;

(d) Be used on other than a transient basis; and

(e) Include separate and complete facilities for living, sleeping, eating, cooking and sanitation.))

(5) For the purposes of ranking projects and allocating credit dollar amounts, the commission will give preference to projects ((serving)) that serve the lowest income tenants ((and to projects)), that are obligated to serve low-income tenants for the longest periods, and that are located in qualified census tracts and the development of which will contribute to a concerted community revitalization plan. In determining housing priorities, the commission will consider sponsor and project characteristics. The commission will give weight to those projects which, among other things:

(a) Are located in areas of special need as demonstrated by location, population, income levels, availability of affordable housing and public housing waiting lists;

(b) Set aside units for special needs populations, such as large households, the elderly, the homeless and/or the disabled;

(c) Preserve federally assisted projects as low-income housing units;

(d) Rehabilitate buildings for residential use;

(e) Include the use of existing housing as part of a community revitalization plan;

(f) Are smaller projects;

(((f))) (g) Have received written authorization to proceed as a United States Department of Agriculture - Rural Housing Service multifamily new construction project approved by the commission;

(((g))) (h) Are historic properties;

(((h) Are sponsored by local nonprofit organizations;))

(i) Are located in targeted areas;

(j) Leverage public resources;

(k) Maximize the use of credits; ((and))

(l) Demonstrate a readiness to proceed;

(m) Serve tenant populations of individuals with children; and

(n) Are intended for eventual tenant ownership.

(6)(a) The commission will reserve at least ten percent of the state housing credit ceiling for a calendar year for projects in which qualified nonprofit organizations have an ownership interest and materially participate in the development and operation of the projects throughout the compliance period, all as described in the code. A qualified nonprofit organization is an organization described in section 501 (c)(3) or (4) of the code, which is determined by the commission not to be affiliated with or controlled by a for-profit organization and one of whose exempt purposes includes the fostering of low-income housing.

(b) The commission may also reserve a portion or portions of its state housing credit ceiling for other types of projects or sponsors.

(7) The commission will determine the amount of tax credit necessary for the project's financial feasibility and viability as a qualified low-income housing project. The commission will not allocate or award to a project more than the minimum amount of tax credit required to ensure a project's financial feasibility and viability.

(8) The commission may:

(a) Restrict the maximum amount of development costs on a per unit basis;

(b) Limit the maximum rehabilitation contingency and the maximum construction contingency;

(c) Restrict the maximum annual amount of tax credit for each low-income housing unit;

(d) ((Prohibit funding project reserves with equity derived from tax credit;

(e))) Establish a maximum amount of credit an applicant may receive;

(((f))) (e) Establish a maximum amount of tax credit a project may receive;

(((g))) (f) Establish maximum developer fees and consultant fees; and

(((h))) (g) Limit the amount of contractor's profit and overhead.

The commission may also limit the amount of credit received or establish other limits for other reasons.

(9)(a) As a condition of receiving tax credit, an applicant shall enter into agreements with the commission, in forms acceptable to the commission, which contain the terms under which the commission reserves credit for a project and, if applicable, provides a carryover allocation for a project.

(b) As a condition to receiving tax credit, an owner shall enter into an extended use agreement with the commission, in a form acceptable to the commission, which restricts the use of the project for a minimum of thirty years and which describes the applicable commitments and covenants made by the owner. The extended use agreement shall be recorded in a first lien position as a restrictive covenant running with the land.

(10) In order to qualify for a carryover allocation, an applicant shall demonstrate, among other things, that:

(a) The applicant has either acquired the land or has a long term lease on the land;

(b) The applicant's basis in the project (((as of the close of the calendar year of the tax credit allocation))) is more than ten percent of the applicant's reasonably expected basis in the project; and

(c) The applicant has received a conditional commitment for financing.

(11) An applicant that has received a carryover allocation of tax credit shall demonstrate to the commission's satisfaction that the applicant has made substantial progress towards completion of the project.

(12) An applicant shall demonstrate to the commission's satisfaction substantial compliance with all contractual obligations to the commission before the commission issues an Internal Revenue Service low-income housing credit certificate.

(13) Unless the commission makes an exception, a transfer of an interest in a project shall require the prior approval of the commission. A transfer or assignment without the commission's prior approval may result in a cancellation of tax credit for a project.

(14) To participate in the tax credit program, an applicant shall pay all required commission fees and comply with all applicable requirements and deadlines. Failure to do so may result in disqualification or cancellation of the project, application or tax credit reservation, allocation or award.

(15) For purposes of awarding tax credit, certain rules in this section do not apply to tax credit projects financed with tax-exempt bonds.

(16)(a) The commission may perform on-site inspections of projects, interview residents, review residents' applications and financial information, and review an applicant's or an owner's books and records. The applicant or owner shall provide the commission with all requested documentation, including periodic reports and certificates; shall provide the commission access to the project; and shall retain records as required by the code and the extended use agreement.

(b) The commission will monitor compliance of the projects receiving credit with the code and with contractual commitments to the commission. The commission will notify the Internal Revenue Service when instances of noncompliance come to its attention.

[Statutory Authority: RCW 43.180.040(3). 97-20-086, 262-01-130, filed 9/29/97, effective 10/30/97.]

Washington State Code Reviser's Office