Washington State Housing Authorities have a broad range of
finance powers, including the
ability to finance their own
projects, sell housing to low-income people, to make loans to
low-income people or to finance
loans to private non-profits and for-profit entities alike to
encourage low and moderate income housing.
HOUSING AUTHORITY- OWNED PROJECTS
Housing authorities can build, own and
operate “housing communities” and rent them to low-income
persons. (RCW 35.82.070(2)). A housing authority also may own
or manage a mixed income building, development or mobile home
park so long as at least 50% of the units are devoted to
low-income persons. (RCW 35.82.070(5)). Housing authorities
can obtain or create housing by new construction,
rehabilitation, lease or purchase. (RCW 35.82.070(2)-(4)).
“Housing Communities” include a broad range of undertakings:
buildings, recreational, social service, infrastructure, garden
and other facilities in urban and rural areas.
(RCW35.82.070(9). Housing communities can also include
commercial space. (RCW 35.82070(3)-(5)). The income of
“persons of low income” is usually fixed at 80% of median income
or less for state law purposes, but this rule is not cast in
concrete by statute.
JOINT OWNERSHIP AND PARTNERSHIPS
Housing authorities may enter into joint
ownership or development arrangements. Partnerships with
private entities are permitted by RCW 35.82.070, (4)-(5). In
addition a housing authority may participate in the organization
or operation of a private non-profit entity. Housing
authority/nonprofit “joint ventures are fairly common as are low
income housing tax credit partnerships with for-profit
investors. Joint development arrangements with cities and
counties are permitted under RCW 35.82.070 (6) and RCW 35.82.070
(1) together with Housing Cooperation Law (Chapter 35.83 RCW).
Upon the request of a city/county housing authorities are
permitted by RCW 35.82.070 (12) to exercise the powers of an
urban renewal agency under RCW 35.81 or a public corporation
under RCW 35.21. Coordinated action with other housing
authorities is governed by RCW 35.82.100.
DEVELOPMENT OF HOUSING FOR SALE TO
LOW INCOME PERSONS
Washington housing authorities have the
express power to sell housing, including sales at less than fair
market value to low-income persons. RCW 35.82.070 (5).
Combining an authority’s sale and lease powers also authorizes a
rent-to-own program.
LOANS TO
FINANCE LOW-INCOME HOUSING OWNED BY OTHER ENTITIES
Housing authorities may issue bonds and
lend the proceeds to other housing authorities, private
non-profit corporations, public corporations, and private
for-profit developers. State and federal tax rules vary based
on the category of borrower. Under RCW 35.82.070(18), any
housing authority financed project is subject to a requirement
that at least 50% of the units in the project must be devoted to
low income housing for 20 years. The owner must promise “to use
its best efforts in good faith” to maintain affordable rents for
that period. If the financing is for a building owned by a
for-profit entity at least 50% of the units must be rented to
persons whose incomes are at 50% of the area median or less, and
those persons’ rents cannot exceed 15% of the area median
income, these restrictions are removed only when rental
subsidies (Section 8) are provided. These restrictions are also
modified where the for-profit owner is controlled by a
governmental entity or bona fide non-profit and they have an
option to acquire the property. In which case the requirement
is that 50% of the units be rented to persons whose incomes are
at 60% of area median or less and there are no rent
restrictions. Individual housing authorities are free to impose
additional restrictions.
TAX EXEMPT BOND ISSUANCE’S
Federal Tax Law affects every
authority-financed transaction using tax-exempt bonds. Federal
tax requirements are easily met for authority owned projects or
where loans to other governments or 501 © (3)’s involved.
Privately owned “multifamily rental housing” communities are
usually subject to Internal Revenue Code requirements that for
at least 15 years either 20% of the units must be made available
to people at 50% of median income or less, or that 40% of the
units must be made available to persons at 60% of the median
income or less. Loans to private for-profit developers
are generally more complicated and
require an allocation of the state ceiling on private activity
bonds. Certain projects may be ineligible for tax-exempt bond
funding, or meeting federal tax requirements may be very costly,
or time consuming; in either case, project sponsors or the
housing authority may prefer to use taxable obligations, which
housing authorities may issue. FEES: Housing
authorities often charge fees to cover their costs related to a
financing. The amounts vary, based on the authority involved,
project size and purpose.
RATING CONCERNS, DIRECT LOANS OR
PRIVATE PLACEMENTS
Until recently, housing authority bond
issues have rarely been rated by rating agencies, such as
Standard & Poor’s or Moody’s. Some projects are financed
directly by banks rather than publicly offered. Because
financings are usually unrated, and because often the only
security is the financed property itself, extra care must be
taken in disclosure documents for publicly offered obligations.
BANK DESIGNATION: Housing authorities may “bank
designate” their tax exempt bonds under S265 (b) (3) of the
Internal Revenue Code when the bonds
finance projects that are owned by government entities or
501(c) (3) corporations. This means that if an authority issues
less than $10,000,000.00 in tax exempt bonds in those categories
in any year, its bonds carry special tax advantages for banks
that purchase them, and it lowers the interest rate even more.
