Final GAO Report on LIHTC Program – September 18, 2018

On September 18, 2018, the Government Accountability Office (GAO) issued its fourth and final report on the Low-Income Housing Tax Credit (LIHTC) program. This report is titled “Improved Data and Oversight Would Strengthen Cost Assessment and Fraud Risk Management.” The three prior reports examined IRS and State Housing Finance Agencies (HFA) performance relative to the program and the role of syndicators.


All four reports were prepared at the request of Senator Charles Grassley, Chairman of the Senate Judiciary Committee. This final report was requested due to reports of high or fraudulent development costs for certain LIHTC projects. The GAO was asked to review the cost efficiency and effectiveness of the LIHTC program.


The report examined (1) development costs for selected LIHTC projects and factors affecting costs; (2) HFA oversight of costs; and (3) factors limiting assessment of costs.


1,849 projects built from 2011 to 2015 from 12 different HFAs were examined.


Primary GAO Recommendations


  1. Congress should designate a federal agency to maintain and analyze LIHTC cost data; and


  1. The IRS should enhance collection and verification of cost data.


More detail on specific recommendations is provided below.


What the GAO Found


  • There is a wide variation in average development costs.
    • Ranging from $126,000 per unit in Texas to $326,000 per unit in California.
    • The lowest cost project reviewed was a Georgia project ($104,000) and the highest was a project in Northern California ($606,000).
    • Larger projects (100+ units) cost $85,000 less per unit than small projects (less than 37 units). [This would be consistent with expected economies of scale].
    • Projects in urban areas cost $13,000 more per unit than rural projects.
    • Senior units (1/3 of all projects) cost $7,000 per unit less than family units. [The smaller size of senior units would account for this difference].
  • Few agencies guard against misrepresentation of contractor costs (a known fraud risk).
  • Many agencies do not require detailed cost certification, and the IRS does not have such a requirement.
  • There are significant inconsistencies between HFA policies;
  • One IRS requirement (tracking of fees paid to syndicators) is not being consistently done by HFAs.
  • There is no IRS requirement for HFAs to collect and report cost-related data.


HFAs That Took Part in the Study


  • Arizona Department of Housing
  • California Tax Credit Allocation Committee
  • Chicago Department of Planning & Development
  • Florida Housing Finance Corporation
  • Georgia Department of Community Affairs
  • Illinois Housing Development Authority
  • New York City Department of Housing Preservation & Development
  • New York State Division of Housing & Community Renewal
  • Ohio Housing Finance Agency
  • Pennsylvania Housing Finance Agency
  • Texas Department of Housing & Community Affairs
  • Washington State Housing Finance Commission


These 12 agencies accounted for 50% of the total 9% credits allocated in 2015.


Other Findings


The median cost of LIHTC projects was about $204,000 per unit but vary greatly by construction type.


  • New Construction: $218,000
    • Urban: $230,000
    • Rural: $192,000
  • Rehab: $169,000
    • Urban: $196,000
    • Rural: $124,000


While some HFAs have adopted measures requiring detailed cost certifications, it is not required by the IRS that they do so.


Cost Limits


  • 39 of the 57 HFAs set limits on project Total Development Cost (TDC) or limits on eligible basis (or both).


Cost Monitoring


No federal agency monitors and assesses LIHTC development costs. The GAO recommends that HUD be the lead agency in this effort, but Congress has taken no action in this area.


Study Conclusions


  1. Congress has not designated an agency to evaluate program performance. For this reason, Congress lacks the information needed to properly oversee the program.
  2. The current IRS cost certification requirement is limited to aggregated developer costs and does not address the known fraud risk of including costs not actually incurred.
    1. General contractor cost certifications should be required.
  3. Better standardization of cost data collection by HFAs can offset the weakness of not having data collection by a federal agency.
  4. The IRS should provide guidance to the HFAs on how syndication expenses (including upper-tier) should be collected and reviewed.


GAO Recommendations for Executive Action


  1. The IRS should require general contractor cost certifications for LIHTC projects to verify consistency with developer cost certifications;
  2. The IRS should encourage HFAs and other stakeholders to develop more standardized cost data; and
  3. The IRS should provide guidance on how to collect information on and review LIHTC syndication expenses, including upper-tier partnership expenses.


It is worth noting that the IRS has disagreed with all three recommendations.


The report was not critical of the LIHTC program itself, and in fact acknowledges that the LIHTC program “plays an important role in addressing the housing needs of low-income renters…” What the analysis does is provide a broad perspective on development costs across a range of allocating agencies and illustrates the types of insights that would be gained from standardizing data collection on project costs and characteristics.

Whether Congress will take any action based on the four GAO reports is unknown. However, as an industry, it is important that we study closely the issues identified by the GAO as program weaknesses, and work for improvement in those areas. HFAs should work to improve on the issues noted in the second GAO report (issued in June 2016) and the entire industry should be cognizant of the fraud issues that have been identified in recent years. Working to create program transparency and eliminating the “bad actors” will play a big role in keeping the program vibrant and active for years to come.