Program Oversight

IRS and allocating agencies jointly administer the LIHTC program, with  other entities providing additional types of oversight, as follows. Agency and local requirements. LIHTC Project Costs Varied across Selected Allocating Agencies

As shown in figure 7, the median per-unit cost of new construction  projects across the 12 selected allocating agencies ranged from a low of  about $126,000 in Texas to a high of $326,000 in California. As also shown in figure 7, within individual allocating agencies, the cost  difference between the least and most expensive project was as little as  $104,000 per unit (Georgia) and as much as $606,000 per unit  (California). We previously noted that the median per-unit cost for  new construction was about $50,000 higher than the per-unit cost for  rehabilitation projects, but after controlling for other characteristics, we  estimated this difference to be $39,000. Specifically, we estimated that the per-unit cost of  projects with more than 100 units was about $85,000 less than projects  with fewer than 37 units (see fig. Local housing market and economy. Credit allocation limits. Fee limits. Some Allocating Agencies Have Enhanced Cost- Verification Requirements to Manage a Fraud Risk, but LIHTC Policies Do Not Require It

While a few allocating agencies have implemented additional cost- certification controls—such as contractor-level certifications—to help  address the risk of fraud involving misrepresentation of contractor costs,  there are no LIHTC requirements to do so. 12). Weaknesses in Data Quality and Federal Oversight Constrain Assessment of LIHTC Costs

		Data Limitations Hinder Detailed Evaluation of LIHTC Development Costs

Data limitations, including inconsistencies among allocating agencies in  the collection, definition, and format of key variables, constrain analysis  and oversight of LIHTC development costs. However, IRS does not specifically require  allocating agencies to collect and report cost-related data that would  facilitate programwide assessment of development costs. Although the LIHTC program represents the largest source of federal  assistance for developing affordable housing, Congress has not  specifically designated an agency to evaluate the program’s  performance. The current IRS cost-certification requirement for LIHTC projects is  limited to aggregated developer costs and does not directly address a  known fraud risk. In the absence of a federal  agency designated to collect data and assess program performance,  greater standardization of cost data by allocating agencies would lay a  foundation for deeper analysis of cost drivers and cost-management  practices by allocating agencies and industry stakeholders. This  analysis could be used to help increase the efficiency of the LIHTC  program. Treasury and HUD did not provide comments. IRS disagreed with our recommendation to require general contractor  cost certifications for LIHTC projects. In response, we modified the recommendation  in our final report to give IRS greater flexibility in promoting  standardization of LIHTC cost data in ways consistent with its authority. For this reason, our report also states Congress should  consider designating an agency to regularly collect and maintain specified  cost-related data from allocating agencies and assess and report on  LIHTC project-development costs. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to analyze (1) development costs for  Low-Income Housing Tax Credit (LIHTC) projects completed in 2011– 2015 in selected locations and factors affecting these costs, (2) steps  allocating agencies have taken to oversee LIHTC development costs, and  (3) factors limiting assessment of LIHTC development costs. Data Used in Our Analysis of Costs and Characteristics

To analyze the development costs of LIHTC projects completed in 2011– 2015 in selected locations and characteristics associated with project  costs, we created and analyzed a database of costs and characteristics  for the 1,849 LIHTC projects that submitted final cost certifications to the  12 selected allocating agencies in that period and for which the cost  certification was available.
Why GAO Did This Study

LIHTCs encourage private investment in low-income rental housing and have financed about 50,000 housing units annually since 2010.The LIHTC program is administered by IRS and credit allocating agencies (state or local housing finance agencies). The program has come under increased scrutiny following reports of high or fraudulent development costs for certain LIHTC projects. GAO was asked to review the cost-efficiency and effectiveness of the LIHTC program.
This report examines (1) development costs for selected LIHTC projects and factors affecting costs, (2) allocating agencies' oversight of costs, and (3) factors limiting assessment of costs. GAO compiled and analyzed a database of costs and characteristics for 1,849 projects completed in 2011–2015 (the most recent data available when compiled) from 12 allocating agencies. The agencies span five regions and accounted for about half of the LIHTCs available for award in 2015. GAO also reviewed the most recent allocating plans and related documents for 57 allocating agencies and reviewed federal requirements.

What GAO Found

GAO identified wide variation in development costs and several cost drivers for Low-Income Housing Tax Credit (LIHTC) projects completed in 2011–2015. Across 12 selected allocating agencies, median per-unit costs for new construction projects ranged from about $126,000 (Texas) to about $326,000 (California). Within individual allocating agencies, the variation in per-unit cost between the least and most expensive project ranged from as little as $104,000 per unit (Georgia) to as much as $606,000 per unit (California). After controlling for other characteristics, GAO estimates that
larger projects (more than 100 units) cost about $85,000 less per unit than smaller projects (fewer than 37 units), consistent with economies of scale.
Allocating agencies use measures such as cost and fee limits to oversee LIHTC development costs, but few agencies have requirements to help guard against misrepresentation of contractor costs (a known fraud risk). LIHTC program policies, while requiring high-level cost certifications from developers, do not directly address this risk because the certifications aggregate costs from multiple contractors. Some allocating agencies require detailed cost certifications from contractors, but many do not. Because the Internal Revenue Service (IRS) does not require such certifications for LIHTC projects, the vulnerability of the LIHTC program to this fraud risk is heightened.
Weaknesses in data quality and federal oversight constrain assessment of LIHTC development costs and the efficiency and effectiveness of the program. GAO found
inconsistencies in the types, definitions, and formats of cost-related variables 12 selected agencies collected.
allocating agencies did not capture the full extent of a key indirect cost—a fee paid to syndicators acting as intermediaries between project developers and investors that IRS requires be collected.
IRS does not require allocating agencies to collect and report cost-related data that would facilitate programwide assessment of development costs. Further, Congress has not designated any federal entity to maintain and analyze LIHTC cost data.
Even without a designated federal entity, opportunities exist to advance oversight of development costs. In particular, greater standardization of cost data would lay a foundation for allocating agencies to enhance evaluation of cost drivers and cost-management practices.

What GAO Recommends

Congress should consider designating a federal agency to maintain and analyze LIHTC cost data. GAO also makes three recommendations to IRS to enhance collection and verification of cost data. IRS disagreed with the recommendations and said it lacked certain data collection authorities. GAO maintains the recommendations would strengthen program oversight and integrity and modified one of them to allow IRS greater flexibility in promoting data standards.