ABSTRACT
The low-income housing tax credit (LIHTC) is one of the premier affordable-housing programs in the United States. From 1987 through 2000, the LIHTC allocated $4.75 billion annually for federal tax credits granted for the production of 1,163,000 units of affordable housing. This chapter focuses on the application of the LIHTC in Indian country and reaches the following major conclusions:
The LIHTC has been implemented only to a modest degree in tribal areas. There are about 130 LIHTC projects encompassing approximately 5,000 housing units in Indian country. The tribal area LIHTC activity is modest when viewed against the nationwide LIHTC allocation of almost 1.2 million housing units and given the need, estimated by the Indian Housing Plans, for nearly 100,000 low-income housing units in and near Indian country.
We have only sketchy and disparate information about the profile of LIHTC activity in Indian country. The projects often obtain nonprofit sponsorship and consist almost entirely of low-income housing units. They are characterized by both new construction and rehabilitation construction strategies and often draw additional support from other housing subsidies, such as Section 515 mortgages from the Rural Housing Service (RHS). Many of the same characteristics apply to all LIHTC projects throughout the United States (e.g., they are mostly low-income housing projects); however, some of the traits (e.g., nonprofit sponsorship and RHS utilization) are more pronounced in LIHTC development in Indian country.
LIHTC projects in Indian country enjoy some relative advantages when compared with those outside Indian country. For example, LIHTC projects typically do not incur land or property taxes and may enjoy an easier approval process.
Countering the advantages to LIHTC projects in tribal areas are the many constraints posed by land and legal, economic and financing, infrastructure, life skill, and governance matters (see table 9.1).
Our research has both data and policy implications. The existing LIHTC data are limited in scope, disparate in source, and dated. With few exceptions (e.g., Abt data are prepared under HUD sponsorship), the data are not available to the public. The LIHTC program in the United States would be better understood if more current data integrating the multiple dimensions of the endeavor were made available—for example, the program’s financial, owner, tenant, and other profiles. Enhancement of the LIHTC data, including a notation to identify LIHTC projects in tribal areas, would also improve understanding of tax-credit activity in Indian country.
Policies to address the many constraints to LIHTC projects in Indian country should be considered. Table 9.1 presents ameliorative strategies. For example, states could adjust their selection criteria to proactively favor, or at least not penalize, LIHTC activity in tribal areas. Summary of Challenges to and Strategies for LIHTC Projects in Indian Country
Challenges to LIHTC Projects
Strategies for LIHTC Projects
LAND AND LEGAL CONSTRAINTS
LAND AND LEGAL RESPONSES
Because of the nature of trust status, trust lands cannot be sold to a limited partnership seeking to develop an LIHTC housing project
Tax-credit projects must include restrictions (e.g., concerning affordable rents and compliance periods) that are enforceable in state court. However, such restrictions are by and large not subject to enforcement in state court for Indian country projects located on trust lands
Investors seek waivers of sovereign immunity while tribes view such requests as a manifestation of lack of good faith
Virtually no tribes have legal provision in their law-and-order codes for the creation of tribal limited partnerships
Title insurance and title abstract companies have generally been unwilling to provide title insurance for trust land
Execute a long-term lease in lieu of a land sale
Record restrictions both in the state (usually at the county land office) and at the BIA title plant. Recorded restrictions are enforceable in tribal court. (See also title insurance)
Work at reaching a compromise on this issue
Amend tribal law to allow for the creation of tribal limited partnerships
Obtain a title status report (TSR) from the BĪA. Explain to investors that federal trust status on its face and the BIA’s approval of a land lease offer sufficient title clearance
ECONOMIC AND FINANCING CONSTRAINTS
ECONOMIC AND FINANCING RESPONSES
Construction costs in Indian country are high
The area median income (AMI), such as the income of the county containing the tribal area, can be low, thus limiting the rents that can be charged to pay for project expenses
Certain state Qualified Allocation Plan (QAP) criteria can disadvantage LIHTC applications from Indian country
Boost the eligible basis beyond 30 percent when extremely high costs are encountered
Other factors partially offset the cost challenge:
— Indian country LIHTC projects have no land costs and typically do not pay property taxes
— Projects in Indian country typically do not encounter zoning restrictions, and they face an easier approval process (e.g., less “NIMBYism” opposition)
Secure subsidies in addition to the tax credits
— Depending on the preference of the tribe, NAHASDA can provide a secure source of soft money for LIHTC projects in Indian country
Allow higher AMIs (e.g., apply the statewide AMI rather than the AMI of the county in which the tribal area is located)
States can adjust their QAP to proactively favor, or at least not penalize, LIHTC activity in tribal areas
INFRASTRUCTURE CONSTRAINTS
INFRASTRUCTURE RESPONSES
Road, water, sewer, and other infrastructure deficiencies impede LIHTC housing development and add to costs
States can amend their LIHTC QAPs to allow infrastructure costs to be included in the project development budget
Upgrade infrastructure in Indian country through varied means (see the Navajo case study in this monograph)
LIFE SKILL CONSTRAINTS
LIFE SKILL RESPONSES
There is a general lack of tribal familiarity and sophistication concerning private housing finance and development (e.g., dealing with limited partnerships)
There is a perceived lack of housing management expertise in Indian country (e.g., regarding rent collection, maintenance, and long-term asset preservation)
Nonprofit developers, important to LIHTC production nationwide, are in a nascent stage in Indian country
Syndicators may not be aware of opportunities in LIHTC projects in Indian country, or they may avoid Indian country projects
Because the tax-credit program has been so little utilized in Indian country, the Office of Native American Programs at HUD has not acquired experience and expertise in assessing tax-credit projects. States also have misconceptions concerning LIHTC activity in Indian country (e.g., denying status to limited partnerships formed between non-American Indian limited partners and tribally chartered general partners)
The situation can be improved with training and experience
See above. Additionally, offsetting factors can improve the stability of Indian country LIHTC projects. These factors include lease-purchase provisions and requiring occupants to sign “social contract” agreements regarding appropriate tenant behavior
The situation can be improved with training and experience
The situation can be improved with training and experience
The situation can be improved with training and experience
GOVERNANCE/OTHER CONSTRAINTS
GOVERNANCE/OTHER STRATEGIES
There is a persistent belief by many attorneys and investors that non-American Indian plaintiffs cannot receive a fair and impartial hearing if that hearing is held in tribal court
Potential investors are concerned that tribes or tribal housing authorities will not sustain the compliance standards required of LIHTC projects (e.g., housing units must be fit for habitation and be occupied by income-qualified tenants) or that they will in other ways interfere with the timely receipt of tax credits
Improve tribal court impartiality
Improve tribal housing and administrative capabilities. Nearly all LIHTC projects in Indian country have agreed to abide by the recommendations made by outside compliance monitors paid for through project funds. There are also offsetting factors, such as the frequently long waiting lists of qualified families seeking housing in Indian country; this existing demand can allay investors’ concern that LIHTC units may remain vacant
Sources: Bland (1999) and CUPR.277The chapter first presents background information on the LIHTC, including a review of the databases on the housing program. The most appropriate data are used to profile LIHTC activity in Indian country and to compare it with tax-credit projects nationwide. Next, the barriers to LIHTC projects in tribal areas are described and strategies for addressing them are presented.
