The Project Timetable
The PJ might receive a request for HOME funds for an LIHTC project either before the owner has applied for tax credits, or after the project has received a tax credit reservation.
Project Review Pre-LIHTC Award
If the PJ receives the application for HOME funds when the project is in the preliminary stage, the PJ is able to conduct only a preliminary review of the project since the owner has only sketch plans, has not received bids for the construction work, has not yet asked for or received any first mortgage commitment, and does not yet know how many tax credits might be awarded.
Accordingly, the limited availability of information limits the depth of the PJ’s initial review. Based on this preliminary review, the PJ can provide only a conditional commitment of funding
that makes HOME funding subject to certain conditions that must be met. PJs should talk to the state allocating agency about the HOME commitment being an “up to” award amount subject to the maximization of the LIHTC allocation, as HOME funds are meant to provide the gap in funding sources.
Since many states give preference to tax credit projects that have local support, a PJ’s conditional funding commitment can help a tax credit project application. In a conditional funding commitment, the PJ specifies in writing the all the terms and conditions that the owner needs to satisfy before the PJ makes a firm commitment to the project and enters into a written agreement with the owner, developer, or sponsor. This should include the condition that the project receives an allocation of LIHTCs.
Project Review Post-LIHTC Award
If the PJ receives the application after LIHTCs have been awarded to the project, the PJ will have considerable information about the project and will be able to do a more thorough review.
However, it must be sensitive to the fact that the LIHTC project sponsor must meet certain strict LIHTC deadlines in order to keep its reservation of funds: carryover requirements and placed in service requirements (discussed in Section 1.2 of this chapter). For HOME-LIHTC projects, this deadline can be a difficult one to meet if the funding application is received after the “clock has started ticking.”
LIHTC developers often plan to purchase the land in order to meet part of the initial 10 percent requirement for a carryover allocation. HOME rules prohibit the PJ and developer from incurring any project costs (including the purchase of land) until environmental clearance has been received. For some PJs, this is a time-consuming step in the development process. (See Chapter 3 for a more detailed discussion of the environmental clearance process.) Upon application of a funding request that already has LIHTCs, the PJ may want to consider initiating its environmental review process at the same time that it completes its project review (i.e., before a firm funding commitment is made).
Consulting Services We Provide
- Review public works preconstruction contracts
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This email is intended for general information purposes only and should not be construed as legal advice
or legal opinions on any specific facts or circumstances.