Two of the most troublesome aspects of selecting project-based voucher proposals have been selection based on previous competition and selection of public housing agency-owned units.
A version of this article was previously published in the Pennsylvania Association of Housing & Redevelopment Agencies (PAHRA) Monitor (Summer 2015). It is reprinted here with permission.
The procedure for selecting project-based voucher (PBV) proposals has long been a thorny issue. This article reviews two of the most troublesome elements: (1) selection based on previous competition and (2) selection of public housing agency (PHA)-owned units under the most recent Department of Housing and Urban Development (HUD) guidance.
To put these issues in context, here are two scenarios that you may have encountered at your agency:
Scenario #1: A local developer calls you. She tells you about a fantastic project that she has in the works in your jurisdiction. She intends that this development will serve a population that your agency has identified as in great need of affordable housing. She tells you that she intends to apply for an allocation of 9% low-income housing tax credits (LIHTCs) in your state allocating agency’s (Agency’s) next funding round. She asks for a letter from you for her application stating that you will provide an allocation of PBVs to the development. What is your response? What does your administrative plan say with respect to the procedures for submission and selection of PBV proposals? Has this developer’s project already been competitively selected for housing assisted under a federal, state or local government housing assistance, community development or supportive services program? If so, (a) when and (b) did that proposal involve any consideration that the project would receive PBV assistance?
Scenario #2: Your agency administers the voucher program. Your PHA directly owns a building that does not contain public housing units and does not receive PBV assistance. A member of your staff suggests that this building would benefit from PBV assistance. Is this a good idea? How do you select PHA-owned units? What are the complications and what oversight is required with PHA-owned units? Who may be a party to the contract for PBV assistance?
Selection Based on Previous Competition
Two Options for PHA Selection of PBV Proposals
The PHA administrative plan must describe the procedures for owner submission and PHA selection of PBV proposals. The PHA must select PBV proposals by either of the following two methods. One option is to issue a request for PBV proposals; this is the competitive procurement option that a PHA uses in other contexts. The second option — and the one that receives particular attention in the context of 9% LIHTCs — is selection based on previous competition.
Earlier Competitively Selected Housing Assistance Proposal Did Not Involve Any Consideration that the Project Would Receive PBV Assistance
The regulation providing for selection based on previous competition states:
[t]he PHA may select, without competition, a proposal for housing assisted under a federal, State, or local government housing assistance, community development, or supportive services program that required competitive selection of proposals (e.g., HOME, and units for which competitively awarded [LIHTCs] have been provided), where the proposal has been selected in accordance with such program's competitive selection requirements within 3 years of the PBV proposal selection date, and the earlier competitively selected housing assistance proposal did not involve any consideration that the project would receive PBV assistance.1
Selection of a PBV proposal without competition is an attractive option for PHAs wishing to support things like 9% LIHTC developments. However, that approach is problematic at the LIHTC application stage. As one commenter to HUD’s proposed rule2 phrased it, it puts “PHAs and owners in an untenable position since they cannot compete for vouchers without tax credits and cannot compete for tax credits without PBV assistance.”3
Commenters requested that the requirement that “the earlier competitively selected housing assistance proposal did not involve any consideration that the project would receive PBV assistance” be dropped from the regulation or, alternatively, limited to instances “in which points were awarded for the inclusion of such vouchers.” HUD, however, did not choose to do so, and in the final rule responded as follows:
Deleting the restriction would allow for the inclusion in a competitive selection process that a project will receive PBV assistance prior to an actual PBV selection. HUD believes that accepting the commenters’ suggestion would lead to the distortion of both the competitive nature of the PBV program and the legitimacy of the rationale allowing for the selection of units that have undergone other recent legitimate competitive selections. Eliminating the requirement, as suggested, would give an advantage to prospective PBV project owners in the competitive selection upon which a PHA is relying to select units under the PBV program which would result in a HUD program requirement that could possibly taint the outcome of another Federal, State or local housing program.4
Thus, PHAs that desire to select PBV proposals for proposed developments prior to the submission of a competitive LIHTC application should have in their PHA administrative plan the procedures for owner submission and PHA selection of PBV proposals in accordance with 24 C.F.R. § 983.51(b)(1) by issuing a request for PBV proposals. Such competitive procurement should be scheduled to take place sufficiently in advance of the Agency’s deadline for submission of applications for an allocation of LIHTCs.
Selection of PHA-Owned Units
The selection of dwelling units owned by the PHA that administers the voucher program (PHA-owned units) has also been a trouble spot. “PHA-owned” means that the PHA, its officers, its employees or its agents hold a direct or indirect interest in (a) the building in which the units are located, including an interest as titleholder, lessee, stockholder, member, general partner or limited partner, or (b) an entity that holds any such direct or indirect interest.
Selecting a Proposal for PHA-Owned Units
A PBV proposal for PHA-owned units may be selected in accordance with the procedures in the PHA administrative plan after the HUD field office or a HUD-approved independent entity reviews the selection process and determines that the PHA-owned units were appropriately selected based on the selection procedures specified in the PHA administrative plan. Notice PIH-2015-05(HA)5 (the Notice) cautions that “[t]he PHA’s selection procedures must apply to all PBV proposals and must be designed in a manner that does not effectively eliminate the submission of proposals for non-PHA-owned units nor gives undue preferential treatment (e.g., additional points) to PHA-owned units.”
Independent Entity Requirements
Following selection review, an independent entity’s services will be required for such things as establishing contract rents, determining the term of the housing assistance payment contract and any renewal, and inspecting PHA-owned units. The PHA may compensate the independent entity from the PHA’s ongoing administrative fee income (including amounts credited to the administrative fee reserve), but it may not use other program receipts.
The Notice expands on the nature of the independent entity as follows:
The entity and PHA must possess an autonomous relationship. Therefore, the parties must not be connected legally, financially (except with regard to compensation for services performed for PHA-owned units), or in any other manner that could cause either party to be improperly influenced by the other. The independent entity must perform its responsibilities in an unbiased manner, and the PHA must not take any action that could prevent the independent entity from making unbiased determinations related to its responsibilities. The PHA must submit to the HUD field office documentation that demonstrates or supports the independent nature of the parties’ relationship.
The PHA must submit to its local HUD Office of Public Housing for approval each independent entity it plans to use and must identify the function the entity will perform under the following conditions:
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If the entity will review the selection of the PHA’s proposal for PBV assistance, the PHA must provide its notice when it notifies HUD of its intent to project-base.
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If the independent entity will perform functions other than selection, the PHA must provide its notice for approval prior to entering into the a Housing Assistance Payments contract for new construction and rehabilitation or prior to selection for existing housing.
Parties to a Contract for PHA-Owned Units
The Notice also discusses the parties to a contract for PBV assistance at PHA-owned units. In particular, it states that the contract administrator and the owner cannot be the same legal entity and that the PHA must establish a separate legal entity to serve as the owner. The Notice does not impose any restrictions on such an entity, provided that it is legally acceptable under Pennsylvania law, and it specifically notes that it may be a nonprofit affiliate or instrumentality of the PHA.
Thus, when considering the submission of a PBV proposal for PHA-owned units, PHAs need to be prepared for the complications that will arise if PBVs are attached to PHA-owned units. These complications may include additional time required before entering into the AHAP contract for new construction and rehabilitation or prior to selection for existing housing, as well as the costs involved with the required services of an independent entity and the establishment and use of a separate legal entity owner.
With this information in hand, you should be prepared for the next phone call or staff suggestion that arises regarding PBV assistance, and you will be ready to address the issues they present.
Endnotes
1 24 C.F.R. § 983.51(b)(2) (emphasis added).
2 The Housing and Economic Recovery Act of 2008 (HERA): Changes to the Section 8 Tenant-Based Voucher and Section 8 Project-Based Voucher Programs, 77 Fed. Reg. 28,742 (proposed May 15, 2012) (to be codified at 24 C.F.R. pts. 5, 982, 983), available at http://www.gpo.gov/fdsys/pkg/FR-2012-05-15/pdf/2012-11638.pdf.
3 The Housing and Economic Recovery Act of 2008 (HERA): Changes to the Section 8 Tenant-Based Voucher and Section 8 Project-Based Voucher Programs, 79 Fed. Reg. 36145, 36155–56 (June 25, 2014) (to be codified at 24 C.F.R. pts. 5, 982, 983), available at http://www.gpo.gov/fdsys/pkg/FR-2014-06-25/pdf/2014-14632.pdf.
4 Id.
5 HUD, Notice PIH-2015-05(HA) (Apr. 1, 2015), available at http://portal.hud.gov/hudportal/documents/huddoc?id=15-05pihn.pdf.
