NEW YORK STATE ASSOCIATION FOR AFFORDABLE HOUSING 5925 Broadway Bronx, New York 10463 Phone: 718-432-6940 Fax: 718-432-2400 info@nysafah.org www.nysafah.org MEMORANDUM TO: Commissioner Deborah VanAmerongen FROM: Bernard Carr SUBJECT: 2008 Draft Qualified Allocation Plan DATE: December 21, 2007 Thank you for the opportunity to comment on the draft QAP. This document clearly represents a major effort to rethink how the state s scarce tax credit resources are allocated. We applaud the new policies that it reflects, most importantly its new focus on green buildings and sustainable development. Our members look forward to building projects that will put New York State at the cutting edge of affordable housing development nationally. We are concerned that along with the policy changes the document contains a level of ambiguity and subjectivity that will make it difficult for both experienced and new developers to implement these new policies. We also believe that important criteria from the current QAP such as readiness have been deemphasized so that the quality of projects may be affected. Finally, we are concerned that the draft QAP could make the application process less transparent. Here is a detailed list of our comments, compliments, and concerns: Transparency: In the current QAP, DHCR has the ability to go outside the point rankings to make awards if the higher-ranked applications do not meet the state s housing goals as long as a written explanation is made available to the general public. This section 2040.3 (f) (14) is deleted in the proposed QAP and effectively replaced by the addition of language to 2040.3 (g) (1) (i) which allows the agency to go outside the point rankings without giving an explanation. While we agree that DHCR should have discretion to make awards outside the point rankings if this is the best way to meet the state s needs, we believe that a written justification should be provided. Threshold criteria: Several of the threshold criteria, while representing important goals, are ambiguous and potentially very expensive. We recommend they be moved to the Design Manual as mandates. That way they can be incorporated into the design process. Several of the energy improvements specified as threshold criteria in 2040.3 (e) (18) are confusing and should be modified and moved to the Design Manual. For instance, the subsection requiring applicants to where appropriate select and utilize native trees and plants, while undoubtedly an important consideration, is too ambiguous to be listed as a threshold criterion. Also, the requirement to use Energy Star appliances and heating systems is also 1
problematic, since ranges, stoves, and heating systems do not currently come with Energy Star ratings. The visitability criterion in 2040.3 (e) (14) is also a challenge that should be addressed in the design process. While an important goal which we support, it poses serious problems for both construction and design. Visitability would require slab-on-grade construction and/or long handicap ramps for all units. This would virtually eliminate cost effective crawl space construction and community compatible buildings with porches and entries raised above grade. Townhouse construction, in particular, is designed so that the first floor is two to three feet above grade with steps leading to a porch or landing. Ramps are not a solution as they are expensive, hard to use and visually unappealing. Further, requiring visitability in adaptive re-use is tantamount to requiring ramps since it is virtually impossible to change the grade of existing buildings. It will make urban projects in historic districts virtually impossible to do. The result, both upstate and downstate, will in many cases be more expensive buildings that do not fit in with the surrounding communities and will look like housing projects. Finally, setting the visitability standard at as many LIHC-assisted units as feasible does not provide an applicant with sufficient guidance. Again, we agree that visitability is an extremely important consideration and should be incorporated whenever and wherever feasible. However, we do not believe it should be addressed as a threshold criterion. Readiness: The importance of project readiness has been significantly reduced. The previous benchmarks for readiness (timeframe, status of local approvals, environmental conditions, and status of permanent financing) have been replaced by a single criterion, the status of financing commitments which is not defined. The total number of points available has been reduced from 15 to five. We are supportive of DHCR s decision to make awards based more on community impact and less on how quickly a project can get in the ground. However, we are concerned that such a substantial reduction to the readiness criterion will lead to awards for projects that will be substantially delayed because, for example, the applicant cannot receive the necessary local approvals. The result will be funds that will be encumbered but not spent for years. Given the immediacy of the housing crisis facing the state, we feel that the applicant s demonstrated ability to go forward with a project should remain an important part of the selection process. Community impact: Section 2040.3 (f) (1), the housing needs sections of the current QAP scoring system, has been replaced by a new section called community impact/revitalization, which is worth 15 points. We recognize and agree with DHCR s decision to place an emphasis on community impact to encourage projects in areas where development has been difficult or non existent. However, this section as it is currently written may instead harm urban redevelopment efforts, particularly in upstate cities. Specifically, points under subsection (i) ( limited or no affordable housing production within the primary market area ) may not be achievable in upstate distressed cities because the only housing production is affordable housing. Points under subsection (ii) may also not be achievable for inner-city developments where neighborhood vacancy rates often do exceed 5%. Many of these vacant units are substandard. However, the problem is the quality of the housing stock, not the vacancy rate. Finally, (iii) appears to be limited to the use of existing buildings, so a new construction redevelopment effort 2
would not qualify. Under these standards, it is possible that large scale new construction redevelopment efforts in Rochester, Buffalo, Niagara Falls, Syracuse, or Albany would not qualify for any points in this section. Also, it is generally not possible for any application to score the full 15 points in this section. We suggest restoring subsection 20403 (f) (1) (iv) from the current QAP (an application is supported by the implementation of significant measures including but not limited to infrastructure improvements, real property tax relief and rezoning ) for five points and permitting an applicant to meet any three of the requirements to reach 15 points. Accessibility and adaptability: Section 2040.3 (f) (6) gives up to six new points for making up to 10% of the units fully accessible and adapted for persons with mobility impairments and 4% accessible and adapted for persons with vision and hearing impairments. While finding appropriate apartments for disabled people is an important goal which we fully support, completely adapting such a large number of apartments in advance may not be the most efficient way to do it. Often it is difficult to find handicapped families to live in fully adapted units, and most families prefer to live in units without lower countertops, roll in showers, etc. We suggest that in lieu of providing adapted units, points should be available to applicants who agree to adapt units at their own expense as requested by tenants. New York City s Department of Housing Preservation and Development has had extensive experience in affirmatively marketing adaptable units to the disabled which may provide useful guidance to DHCR. Developer s fee: We recommend that the developer s fee be based on the entire development cost rather than just the cost of developing the low income units as a means to encourage mixedincome development, as is allowed in many other states. Tax credit basis is not affected and as long as the developer fee on the non-low income portion is paid from other than LIHC equity, DHCR s underwriting should also not be affected. On high acquisition cost projects, the proposed language in 2040.3 (g) (2) (ii) which bases the developer s fee on the division s assessment of risk assumed by the project owner makes the underwriting process overly subjective while making development more unpredictable. While we do not support a developer s fee being inflated by excessive acquisition costs, we believe that formulas can be developed to make this more predictable. For instance, the developer's fee on acquisitions costs could be limited to 10% of the adjusted acquisition cost basis where that adjustment reduces the acquisition cost for the purpose of calculating the developer's fee to 33.3% of the combined hard and soft costs, excluding the developers fee. To provide an example, if a project had an acquisition cost of $5 million and hard and soft costs of $5 million, then the developer s fee would be calculated at 15% of the hard and soft costs, plus 10% of $1.67 million (33.3% of $5 million equals $1.67 million). Joint ventures between for-profit and not-for-profit developers: The proposed QAP gives an advantage to local not-for-profit organizations that act as sole general partner. Only a handful of such organizations in New York State are willing and able to take on the complete responsibility, including financial risk, of developing affordable housing. This provision will discourage joint ventures between for-profit developers and smaller not-for-profits. This will hurt both the notfor-profits by making it difficult for these organizations to develop the expertise to join the ranks of experienced not-for-profit developers and for-profit developers who depend on their not-for- 3
profit partners for their ability to understand and meet community needs (see sections 2040.3 (e) (6) and (f) (13)). It will also disadvantage communities that are not served by one of the few notfor-profits that have the capacity to do projects on their own. We support the restriction of not-for-profit organizations to groups operating in their primary market area or county and understand the need to make sure that not-for-profits really do participate in projects and are not merely used as window-dressing to win points. Our concern is that these new provisions go too far and will either encourage under-capitalized not-for-profits to try to do projects on their own for which they are not qualified or prevent them from gaining the necessary assets and expertise to do projects independently in the future. Green buildings: We support DHCR s decision that the QAP should provide major incentives to developers to build environmentally sound buildings. However, the proposed green building criteria are in some cases vague and potentially expensive. For instance, the surface water plan that is made part of the application in 2040.3 (f) (4) (e) is normally developed and approved by various government agencies during the site plan development process. It is often required by law and can be an expensive, complicated undertaking. Thus, it should not be required in the application but should be part of predevelopment. Elsewhere in section 2040.3 (f) (4) (i), more clarification is required to define subsections a, e, f, and g adequately. For example, the green development plan as referenced in subsection (a) is not defined. The criteria in sections (f) (safe materials and practices) and (g) (ventilation measures to promote air quality) represent important goals but should be clarified. In subsection (ii), how are the three points awarded? Can the rehabilitation of an existing building located on a brownfield receive points? And how feasible is the use of photovoltaic panels in upstate New York? Finally, we suggest that section 2040.3 (f) (9) regarding participation with NYSERDA be incorporated into the ten points in the green building section. It is also not clear what participating with NYSERDA means or how it will be evaluated and monitored. Miscellaneous comments: Sec.2040.2 Definitions (q) The requirement that a preservation project averts the loss of affordable housing seems to exclude Rural Development projects which are operating under fifty year regulatory agreements. Many of these projects have exceeded their useful lives and need to be rehabilitated. (s) To correspond with IRS regulations, we recommend adding: (3) 25% or more of the units are rent restricted and occupied by individuals whose income is 60% or less of AMI. (t) We recommend replacing nominal return on equity with reasonable return on equity or commercially reasonable debt service coverage ratio. 4
Sec. 2040.3 DHCR Allocation Process Threshold criteria: (e) (6) The use of and/or makes this section ambiguous. We are also concerned that the proposed change will disadvantage joint ventures between for-profit and not-for-profit developers (see separate section on this topic). We suggest replacing developer, owner, and/or manager with principal members of the development team. (e) (9) We support the replacement of the $20,000 per unit cap with an amount to be specified in the NOCA. This will give DHCR the flexibility to adapt the program to changing conditions. (e) (10) The use of an independent, pre-qualified market study analyst is an important addition that will prevent worthy projects from being eliminated because unqualified analysts use inappropriate methodologies. Scoring: (f) (2) Financial leveraging: It is not clear how this section is scored, since points are not broken down between the subcategories (i) through (v). Further, if the points for this section are based on other funding sources, how would net syndication proceeds (subcategory iv) and credit per unit (subcategory v) be evaluated, since they derive from DHCR resources? Perhaps these items should be in a separate category. (f) (15) Project amenities: This section is unclear and should specify how points are awarded for providing some or all of these amenities. Conclusion: We offer these questions and comments in the hope that they will help you make the QAP a clear and effective guide for reaching the important goals that we all share. We congratulate you on this massive undertaking, which is the most far reaching revision of the QAP that anyone can remember and which contains thoughtful and significant new policy directions. The plan s implementation will no doubt provide both the applicants and the agency with tremendous opportunities but also may present a number of unanticipated challenges. We look forward to a continuing dialogue with you in the future on QAP implementation. 5