Maximizing Economic Development and Job Creation with the 2011 Universal Cycle

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Myles Holt
5 years ago
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1 Maximizing Economic Development and Job Creation with the 2011 Universal Cycle In preparing our response to the Draft White Paper posted on the FHFC website regarding Jobs Created by New Construction and Rehabilitation we start with reframing the question. We believe the appropriate question is; What revisions to the 2011 Universal Cycle Rule Making are recommended to maximize the economic development and job creation of the Federal Housing Tax Credit allocation while maintaining consistency with the public purpose of the FHFC and the Federal Housing Tax Credit program? The discussion is not a question of the merits of Preservation vs. New Construction, nor merely a question of whether Preservation/Rehab Construction or New Construction creates the most economic impact and job creation. It is rather, whether the allocation of Federal Housing Tax Credits for Preservation or New Construction has the greatest economic impact and job creation. In order to properly evaluate this, we need to develop a projection of the allocations that will result from the current draft of the 2011 Universal Cycle Application and a projection of the allocations that will result from rule revisions that would reduce the Preservation Set Aside to 10% of the allocation. As we are all aware, FHFC has modified the Ranking and Selection Criteria for the 2011 Universal Cycle such that the properties with the best proximity tie breaker scores will have the highest probability of being awarded allocations. The proximity tie breaker scoring has added points for additional services over and above the services that provided additional points in prior year s applications. Extensive research of the sites that have the necessary entitlements to meet the Threshold and Scoring criteria and the highest tie breaker scoring provides insight into the Counties that have the greatest probability for receiving awards of allocation of Federal Housing Tax Credits. In addition, research into the location and size of the properties eligible for the Preservation Set Aside and their proximity tie breaker scoring provides insight into the potential developments that have the highest probability of being awarded Federal Housing Tax Credits under the Preservation Set Aside. Attached is our Exhibit A that identifies the projected awards based upon the current draft rules. Exhibits B, C & D provide the projected awards based upon proposed revisions to the current draft rules, which reinstate a Housing Credit Distribution Limitation by County and reduce the Preservation Set Aside to 10% of the allocation. After identifying the potential applications that have the highest probability of receiving awards for allocation of Federal Housing Tax Credits, we can then tabulate the total costs resulting from the most probable awards for allocation of the Federal Housing Tax Credits. These costs are broken down into the categories necessary for evaluation of the economic impact generated from the developments that have the highest probability of receiving the awards of Federal Housing Tax Credit Allocations. Exhibit A provides the total cost breakdowns based on the projection of allocations under the current draft rules and Exhibits B through D provide the same data based upon proposed revisions to the rules reinstating a Housing Credit Distribution Limitation by County and reducing the Preservation Set Aside. In order to develop each of the scenarios of award of Housing Credit allocations, we utilized data regarding the number and location of Preservation eligible properties and data regarding the location of eligible New Construction properties that have the greatest probability of achieving the highest proximity tie breaker scores. We utilized available data regarding the Preservation eligible properties to achieve a reasonable estimate of Preservation development size in each County. We utilized historical 2008 and 2009 Housing Credit allocation applications and credit underwriting data to achieve a reasonable estimate of the construction cost breakdown for each property in each County projected to be allocated Housing Credits in the 2011 Universal Cycle.

2 Maximizing Economic Development and Job Creation with the 2011 Universal Cycle Page 2 of 3 Based upon these projections using the current draft rules for scoring and ranking criteria, we were able to estimate the number of communities and units that would receive awards for allocation of Housing Credits in both the Non Preservation and Preservation category and the related cost breakdowns for each of those projected awards. Below is the outcome of the four scenarios that we evaluated; Scenario 1) Current Draft 50% Preservation, 50% Non Preservation 10 New Communities 982 New Affordable Rental Units 21 Preservation Communities 2127 Preservation Affordable Rental Units $336,087,469 in Development Costs exclusive of Bldg & Land Acquisition and Developer Fees Construction Job Creation based upon FHFC Findings (340/217) = 7,957 New Long term recurring jobs based upon NAHB study findings = 373 New Taxable Value based upon affordable rents = +/ $39,280,000 Scenario 2) 50% Preservation, 50% Non Preservation Housing Credit Distribution Limitations of 20%, 10%, 4% 11 New Communities 1099 New Affordable Rental Units 20 Preservation Communities 2174 Preservation Affordable Rental Units $342,154,871 in Development Costs exclusive of Bldg & Land Acquisition and Developer Fees Construction Job Creation based upon FHFC Findings (340/217) = 8,080 New Long Term recurring jobs based upon NAHB study findings = 418 New Taxable Value based upon affordable rents = +/ $43,960,000 Scenario 3) 10% Preservation, 90% Non Preservation 20 New Communities 1931 New Affordable Rental Units 6 Preservation Communities 443 Preservation Affordable Rental Units $342,789,724 in Development Costs exclusive of Bldg & Land Acquisition and Developer Fees Construction Job Creation based upon FHFC Findings (340/217) = 8,102 New Long Term recurring jobs based upon NAHB study findings = 734 New Taxable Value based upon affordable rents = +/ $77,240,000 Scenario 4) 10% Preservation, 90% Non Preservation Housing Credit Distribution Limitations of 20%, 10%, 4% 23 New Communities 2032 New Affordable Rental Units 4 Preservation Communities 419 Preservation Affordable Rental Units $361,054,950 in Development Costs exclusive of Bldg & Land Acquisition and Developer Fees Construction Job Creation based upon FHFC Findings (340/217) = 8,688 New long term recurring jobs based upon NAHB study findings = 772 New Taxable Value based upon affordable rents = +/ $81,280,000

3 Maximizing Economic Development and Job Creation with the 2011 Universal Cycle Page 3 of 3 We have consulted with Fishkind & Associates, (Principal Dr. Henry Hank Fishkind), a well established and reputable professional economic and financial consulting firm specializing in real estate and fiscal impact analysis, to discuss the economic impact of each of the referenced Scenarios. They indicated that the IMPLAN v3 model for economic impact analysis is not well suited to this comparison as it does not differentiate between types of construction, nor does it differentiate between acquisition costs and construction costs. Although the data indicates a higher construction term economic impact with new construction, they consider the difference in development costs across all scenarios, exclusive of Acquisition and Developer Fees, to be minor and relatively immaterial. They concur that the jobs created in New Construction are longer term than those created in Preservation, however the construction term economic impact over the 24 month period among all scenarios, although slightly higher for new construction, is not materially different. According to Fishkind & Associates, the more significant issue is the long term economic impact and job creation resulting from development of new communities vs. preservation of existing communities. Scenario 1 (50%/50%) has less than half of the long term economic impact and job creation of Scenario 4 (10%, 90% with HCDL). With existing affordable rental communities being preserved and rehabbed there is almost no relative long term economic impact, as the services are not being materially changed and the tax base is not being changed, as the taxable value is based upon the restricted rents. The predominantly new construction Scenarios creates substantial and significant long term economic impact and job creation in addition to long term increased tax base for the community. As identified in the information provided on the prior page, the predominantly new construction Scenarios produce over double the taxable value for the State. This value has significant long term economic impact. Given the relatively immaterial difference in construction term economic impact of the four scenarios, it would seem prudent and consistent with the Governor s agenda for economic development and job creation, to proceed with the Scenario that produces the greater long term economic impact, job creation and increased tax base. Any other decision would be a policy decision to accept a reduced long term economic impact, job creation and tax base in exchange for preservation of existing affordable rental units, which according to the 2010 Rental Market Study prepared by the Shimberg Center; "...The rental assistance contracts may be renewed by HUD and the property owner, usually on a year-toyear basis, so the expiration date does not mean the automatic end of rent and income restrictions at the property." "...With the weak rental housing market, however, profit-motivated owners are far less likely to opt out of rental assistance contracts in search of higher paying residents." The establishment and broadening of the Location A criteria has provided the methodology in the 2011 Universal Cycle to prevent cannibalizing existing affordable rental communities while still attempting to address the needs of the +/ 618,000 cost burdened low income renter households in the State, through development of new affordable rental communities throughout the State in areas of documented need. In summary, the allocation of Federal Housing Tax Credits for New Construction has a significantly greater long term economic impact for the State of Florida than an allocation for Preservation.

4 Exhibit A

5 Exhibit B

6 Exhibit C

7 Exhibit D

Florida Housing Finance Corporation Qualified Allocation Plan Low Income Housing Tax Credits Program

Florida Housing Finance Corporation 2016 2017 Qualified Allocation Plan Low Income Housing Tax Credits Program I. Introduction Pursuant to Section 420.5099, Florida Statutes, the Florida Housing Finance