HFAs receive tax credit allocations. Developers apply to the states for tax credits. HFAs award tax credits to selected housing projects. Investors receive tax benefits. IRS Revised Guidance and States Modified Qualified Allocation Plans to Implement the HERA Changes

Because the LIHTC program is jointly administered by federal and state  governments, agencies at both levels played roles in implementing  HERA’s changes to the program. At  the state level, HFAs modified their QAPs for allocating tax credits. IRS and Treasury Have Issued Guidance and Are Considering and Acting on Implementation Issues

HERA made changes to the LIHTC program that affected various parties,  including taxpayers, HFAs, and project owners, and IRS and Treasury  provided guidance and took other actions into 2012 to implement these  changes. Program stakeholders we spoke with, including HFAs, industry  associations, syndicators, and developers, generally said that IRS’s  actions to implement the HERA changes were sufficient, and that they  were satisfied with the agency’s efforts. HUD’s LIHTC Database, the largest source of federal  information on the LIHTC program, aggregates project-level data that are  voluntarily submitted by HFAs. It  does not maintain the information needed to assess a housing production  program, such as the types of tenants targeted and whether projects are  in urban or rural areas. For  example, HUD’s database showed that one state had between 23 and 49  projects placed in service each year from 2006 through 2009, but only 2  projects in 2010. When we followed up with the HFA in this state, HFA  officials provided us with documentation showing that they had reported  37 projects for 2010. An official from this state’s HFA told us  that the actual number for 2008 was 96 properties. Even when HUD did receive project data, much of it was incomplete,  omitting information on project characteristics such as the type of  location, construction, and tenants targeted. For example, the proportion of missing information on the types of tenants  targeted increased from 5 percent in 2006 to 28 percent in 2010. A HUD  official noted that the HERA provision requiring HFAs to collect data on  the characteristics of tenants in LIHTC projects had made it more  challenging for HFAs to also report the project data with existing  resources. Without more  complete data on the number, location, and characteristics of LIHTC  projects, the federal government’s ability to continue evaluating program  outcomes and overall federal efforts to provide affordable housing is  limited. Available Data Provide Limited Insight into Trends in the Number and Characteristics of LIHTC Projects

According to HUD data as of July 2012, the 42 HFAs that submitted  information for each year from 2006 through 2010 reported that more  than 5,300 LIHTC projects were placed in service over the 5-year period  (see table 4). Stakeholders Said HERA Provisions Helped the Financial Feasibility of Some LIHTC Projects

State and industry officials we spoke with said that isolating the effect of  the HERA changes on the overall LIHTC market was difficult because of  other program changes (e.g., creation of the Exchange Program) and  economic developments (e.g., the recession and financial crisis) that  occurred around the same time. In particular, they  cited the temporary increase in per capita credit allocations, the  temporary 9 percent floor, and the HERA basis boost as three provisions  that helped the financial feasibility of some projects and likely prevented  even further decreases in LIHTC projects after 2008. Some state officials we spoke with said that they allocated the additional  credits to projects already under development and to new projects. Through HERA, Congress made a number of  changes to the program and sought analysis of credit allocations made  before and after the act’s implementation. Without improvements in the database, the federal government’s  ability to evaluate basic program outcomes—such as how much housing  was produced—and other aspects of federal housing policy may suffer. Recommendation for Executive Action

HUD has taken steps to improve its data collection process and faces  resource constraints. Therefore, we recommend that the  Secretary of Housing and Urban Development (1) evaluate options for  improving the completeness of HUD’s LIHTC Database, including  following up on data anomalies and enhancing the role of HUD’s  contractor in data collection and quality control; and (2) based on this  evaluation, take additional steps to improve the data. Appendix I: Objectives, Scope, and Methodology

This report discusses (1) how the Internal Revenue Service (IRS) and  selected housing finance agencies (HFA) implemented the Housing and  Economic Recovery Act of 2008 (HERA) changes to the Low-Income  Housing Tax Credit (LIHTC) program, (2) what the Department of  Housing and Urban Development’s (HUD) data on LIHTC projects show  about the number and characteristics of projects completed from 2006  through 2010 and any data limitations, and (3) the views of program  stakeholders about the effects of the HERA changes on these projects. We also interviewed IRS and Department of the  Treasury officials.
Why GAO Did This Study

IRS and state HFAs administer the LIHTC program, the largest source of federal assistance for developing affordable rental housing. HFAs are allocated tax credits on a per capita basis and award them to developers. By acquiring project equity from developers, investors may become eligible for the credits, which offset federal tax liabilities. As part of HERA, Congress made changes to the program that included increasing credits allocated to states, setting a temporary floor on the most common LIHTC rate (the portion of eligible project costs for which a developer can receive credits), and giving HFAs more discretion in "enhancing" (i.e., increasing) awards. HERA also required GAO to study the changes, including the distribution of credit allocations before and after HERA. This report discusses (1) how IRS and selected HFAs implemented the HERA changes, (2) what HUD's data show about the number and characteristics of projects completed from 2006 through 2010 and any data limitations, and (3) stakeholders' views on the effects of the HERA changes on LIHTC projects. GAO reviewed IRS and state guidelines, analyzed HUD data on LIHTC projects, and spoke with federal, state, and industry officials.

What GAO Found

Federal and state agencies implemented changes made in 2008 to the Low-Income Housing Tax Credit (LIHTC) program by revising program guidance and modifying plans for allocating tax credits. The Internal Revenue Service (IRS) implemented the changes made by the Housing and Economic Recovery Act of 2008 (HERA) by, among other things, issuing notices and revenue procedures. Program stakeholders that GAO contacted said that IRS's actions were generally sufficient. But as of October 2012, IRS and the Department of the Treasury were still working on implementation issues, such as developing guidance on the provision designed to ease restrictions on using tax credits to acquire existing federally or state-assisted buildings. At the state level, housing finance agencies (HFA) implemented the HERA changes by modifying their tax credit allocation plans, which provide criteria for awarding credits. For example, in their plans, some HFAs cited financial need as the only criterion for awarding HERA-created enhanced credits. Others planned to target specific types of projects, such as those using "green building" practices.
The Department of Housing and Urban Development (HUD) voluntarily compiles the largest public database on LIHTC projects, but the data it collects from HFAs are incomplete. Despite HUD efforts to improve its data collection process, the database may undercount projects, in part because HUD did not follow up on potentially incomplete information. For example, HUD's database showed that one state had between 23 and 49 completed projects each year from 2006 through 2009, but only 2 projects in 2010. However, officials from this state's HFA provided GAO with documentation showing that they had reported 37 projects for 2010. Further, much of the project data that HUD has received does not include characteristics such as the type of location, construction, and tenants targeted. A HUD official noted that a HERA provision requiring states to collect tenant-level data (e.g., race and income) had made collecting project data more challenging because HUD did not receive additional resources and available resources had to be divided between tenant and project data collection. Without more complete data on the LIHTC program, the federal government's ability to evaluate basic program outcomes--such as how much housing was produced--and overall federal efforts to provide affordable housing may suffer. Data from 42 HFAs that reported each year from 2006 through 2010 provide limited insight into the actual number and characteristics of LIHTC projects. The number of reported projects completed exceeded 5,300, and most were in metropolitan areas and were new construction. However, missing data prevented analysis of trends over the 5-year period. For example, the proportion of missing information on the types of tenants targeted increased from 5 percent in 2006 to 28 percent in 2010.
Program stakeholders told GAO that the broad effects of the HERA provisions on the LIHTC market were difficult to determine but noted that certain provisions enhanced the financial feasibility of some individual projects. For example, stakeholders said the temporary increase in per capita credit allocations, temporary credit rate floor, and discretion to use enhanced credits improved the financial viability of some projects by allowing states to award more credits per project. Some state officials also said that the larger awards especially benefited projects in rural areas that can be difficult to finance because they tend to have lower rents and are less attractive to investors than projects in urban areas.

What GAO Recommends

GAO recommends that HUD evaluate and implement additional steps to improve its LIHTC Database. HUD agreed with the recommendation but said the report could better describe the agencys efforts to improve data collection despite resource constraints. In response, GAO added further information on HUDs changes to its collection process.