States Begin Issuing Average Income Set-Aside Guidance

A number of states have now begun to issue guidance regarding the implementation of the “Average-Income” minimum set-aside test, which was signed into law as part of the Consolidated Appropriations Act of 2018. Eight states have provided formal guidance.

  • Alaska – will not permit owners to elect income-averaging for LIHTC sites. Only the 20/50 or 40/60 minimum set-aside will be permitted;
  • California – will allow applicants to use the average income set-aside for new projects. When doing so, the property wide average income based on unit designations must be no higher than 50%, as opposed to the 60% average permitted under Federal law. In addition, owners must make all buildings in the project part of a multiple building project as reflected on the Line 8b election on Form 8609;
  • Georgia – will permit income averaging beginning in 2018, but LIHTC resyndications and properties with a commitment of HOME funds from the State Agency (DCA) will not be allowed. Also, the 8609, Line 8b election must be made and the number of income averaging designations will be limited to no more than four – 30, 50, 60, and 80 percent;
  • Indiana – owners with an allocation of 2018 credits may request use of the average income option unless doing so would reduce either the number of LIHTC units or the application point score. Documentation requirements include an updated market study;
  • Iowa – income averaging will not be permitted for 2018 credit allocations, but may be for 2019;
  • Texas – agency staff may approve income averaging as long as no representations made in the application for credits change. If there is any change from what was offered in the application for credits, approval may only be granted by a vote of the agency board. Owners will also need an updated market study and approval from funding sources. Texas will also permit units to “float,” as long as the overall low-income percentage remains the same as the original commitment;
  • Ohio – a draft 2019 QAP permits income averaging as long as (1) all units are low-income [i.e., no market rate units]; (2) at least 50% of all units must be occupied by persons earning 60% of AMI or less; (3) applicants may need a legal opinion regarding compliance with other subsidies; (4) in the case of a resyndication, there can be no increase in rents or occupancy limits for any LIHTC unit; and (5) owners will need to make the 8b election on the Form 8609s; and
  • Wisconsin – will permit income averaging in 2018 for 100% affordable 4% deals (i.e., bond financing will be required).

Guidance from additional states will be forthcoming, but no owner of a LIHTC property should consider making the Average Income election without first discussing doing so with the applicable state agency.