SCR213 SD1

WHEREAS, the State is experiencing a severe housing crisis and innovative and unique solutions are needed to increase the supply of housing in the State; and

WHEREAS, most developers of affordable rental housing projects rely on federal and state low-income housing tax credits, which only represent a fraction of the total development costs for a project; and

WHEREAS, developers that utilize low-income housing tax credits are required to rent the units to households making a certain percentage of the area median income, which can further affect a developer's ability to obtain long-term private loans for additional development costs, due to limited projected cash-flow; and

WHEREAS, the remaining "gap" in costs for developers to build affordable rental housing units hinders the rate of development in the State, which is further slowed during times when borrowing power is more limited due to high interest rates; and

WHEREAS, the Rental Housing Revolving Fund, which is funded in part by the real estate conveyance tax and administered by the Hawaii Housing Finance and Development Corporation, provides "equity gap" low-interest loans or grants to qualified owners and developers for the development, construction, acquisition, preservation, and substantial rehabilitation of affordable housing and rental housing units; and

WHEREAS, the Dwelling Unit Revolving Fund is also administered by the Hawaii Housing Finance and Development Corporation to provide loans or grants for the acquisition of real property; development and construction of residential, commercial, and industrial properties; interim and permanent loans to developers; and all things necessary to carry out the purposes of the Housing Development Program, including administrative expenses; and

WHEREAS, utilizing the Rental Housing Revolving Fund and the Dwelling Unit Revolving Fund to enhance credit and guarantee and insure loans that private financial institutions make to developers of affordable housing would enable the State to create much more affordable housing units for the same amounts appropriated to these funds; and

WHEREAS, the Hawaii Housing Finance and Development Corporation is also the designated agency responsible for the administration of the federal and state Low-Income Housing Tax Credit Program; and

WHEREAS, the Low-Income Housing Tax Credit Program uses a point system to facilitate project rankings based on established evaluation criteria; and

WHEREAS, states have discretion over the point system and rating criteria used to score and evaluate project applications for allocation of the tax credits; and

WHEREAS, when the State allocates the tax credit to a developer, the State does not, in return, receive an ownership interest in the development; and

WHEREAS, the State often purchases low-income housing development projects from developers after the required affordability period ends to guarantee tenant stability, resulting in taxpayers paying for projects twice; and

WHEREAS, any profits generated by a housing project stay with the project's developer; and

WHEREAS, unlike certain models similar to Vienna's Limited-Profit Housing Act of 1979, developers in Hawaii are not required to reinvest profits generated by a housing project to build additional housing, and no appropriate incentive exists to require developers to construct additional projects after the completion of a housing project; and

WHEREAS, the development of affordable housing on land already owned by the State creates attractive incentives for private developers to partner with the State to develop or redevelop the state-owned projects, as they exclude the high cost of land from the development cost equation; and

WHEREAS, affordable housing projects on state-owned land also allow the State to ensure that every new affordable housing unit remains affordable in perpetuity, thus increasing the supply of affordable housing; and

WHEREAS, it is in the best interest of the State to modify the evaluation criteria for the Low-Income Housing Tax Credit Program to prioritize the allocation of credits to state-owned development projects and award additional points to developers who are obligated to use all financial surpluses generated by the project to construct more housing to help the State meet its existing and future housing supply demands; and

WHEREAS, when funds from the Rental Housing Revolving Fund are used to provide loans or grants for the development, construction, and rehabilitation of rental housing units, developers often take decades to repay loans, and grants do not have be repaid, resulting in the Rental Housing Revolving Fund relying upon legislative appropriations to replenish the Fund; and

WHEREAS, the Legislature appropriates millions of dollars to the Rental Housing Revolving Fund annually, which is an unsustainable financial burden for the State to shoulder; and

WHEREAS, the Rental Housing Revolving Fund also uses a point system to facilitate project ranking of applicants based on established evaluation criteria, and the State has discretion over the point system and rating criteria used to score and evaluate applications used to award funds; and

WHEREAS, it is further in the State's best interest to amend the priority for which moneys in the Rental Housing Revolving Fund are to be used, to incentivize developers that are awarded a loan or grant to use the profits to build additional housing to ensure the necessary future supply of housing in the State; and

WHEREAS, supportive housing combines affordable housing with access to services to help special-needs populations live more stable and productive lives; and

WHEREAS, supportive housing has been demonstrated to decrease high use of emergency services and public systems, generating significant overall cost savings to taxpayers; and

WHEREAS, according to studies from the Hawaii Pathways Project and City and County of Honolulu's Housing First Program, supportive housing not only benefited individuals with improved housing retention, health, and quality of life but also lowered crime rates and reduced burdens and costs on already stretched public systems; and

WHEREAS, the Low-Income Housing Tax Credit Program is major financing tool for the construction or rehabilitation of low-income rental units; and

WHEREAS, as the State's low-income housing tax credit administrator, the Hawaii Housing Finance and Development Corporation developed a Qualified Allocation Plan, which sets forth criteria to evaluate and allocate the low-income housing tax credit to projects that meet the housing needs of the people of the State; and

WHEREAS, the Qualified Allocation Plan uses a point system to rank projects based on the established evaluation criteria, and up to two points are provided to projects that serve tenants with special housing needs; and

WHEREAS, however, occupancy of these special-needs housing units is restricted to special-needs tenants for the duration of the committed affordability period, which often extends beyond the low-income housing tax credit compliance period; and

WHEREAS, moreover, special-needs housing units must be occupied at all times by a special-needs tenant and must remain vacant until a special-needs tenant occupies the unit, regardless of whether there is a waitlist for the project for the other remaining units; and

WHEREAS, given the dearth of supportive housing units in low-income housing tax credit projects, these restrictions appear to hinder the provision of low-rent housing for special-needs populations; and

WHEREAS, amending the Qualified Allocation Plan could reduce development risks and encourage developers to build supportive housing; and

WHEREAS, the Qualified Allocation Plan could be amended to allow:

(1) Developers to exert their best efforts to restrict the supportive housing units for special-needs tenants for the duration of the committed affordability period or low-income housing tax credit compliance period; and

(2) For the application of a vacant-unit rule that would allow developers to rent a supportive housing unit to an income-eligible tenant after making reasonable attempts to rent the unit, or the next available unit, to a special-needs tenant; now, therefore,

BE IT RESOLVED by the Senate of the Thirty-second Legislature of the State of Hawaii, Regular Session of 2023, the House of Representatives concurring, that the Hawaii Housing Finance and Development Corporation is urged to prioritize the allocation of funds from the Rental Housing Revolving Fund, Dwelling Unit Revolving Fund, and low-income housing tax credits for projects that will make the most efficient use of taxpayer funds and address the most urgent State priorities; and

BE IT FURTHER RESOLVED that the Hawaii Housing Finance and Development Corporation is urged to prioritize the allocation of funds from the Rental Housing Revolving Fund and Dwelling Unit Revolving Fund to be used to enhance credit and guarantee and insure loans that private financial institutions make to developers of housing that is exclusively for Hawaii residents who are owner- or renter-occupants and who own no other real property; and

BE IT FURTHER RESOLVED that the Hawaii Housing Finance and Development Corporation is urged to revise the Low-Income Housing Tax Credit Program's Qualified Allocation Plan to prioritize the development of projects that will be owned by the State, whether outright or through a right of first refusal and purchase option; and

BE IT FURTHER RESOLVED that, with respect to the Qualified Allocation Plan and the criteria point system developed by the Hawaii Housing Finance and Development Corporation, the Corporation is further urged to:

(1) Add a new criteria category that allows for up to twenty percent of the maximum one hundred twenty points on the application criteria point system to be allocated to projects offering to convey ownership of the finished project to the State or an organization obliged to use all financial surpluses generated by the project to construct housing;

(2) Not award additional points for developer fees that are under twelve percent; and

(3) Prioritize applicants who have demonstrated accelerated full repayment into the Rental Housing Revolving Fund of past Rental Housing Revolving Fund loans; and

BE IT FURTHER RESOLVED that the Hawaii Housing Finance and Development Corporation, in its awarding of funds from the Rental Housing Revolving Fund, is urged to prioritize projects that are owned by the State or an organization obliged to use all financial surpluses generated by the project to construct additional housing; and

BE IT FURTHER RESOLVED that the Hawaii Housing Finance and Development Corporation is requested to amend its administrative rules relating to the Rental Housing Revolving Fund to:

(1) Add a new criteria category that allows for up to twenty percent of the maximum two hundred fifty points on the application criteria point system to be allocated to proposed projects owned by the State or an organization obliged to use all financial surplus generated by the project to construct housing; and

(2) Prioritize applicants who have demonstrated accelerated full repayment of past state housing loans; and

BE IT FURTHER RESOLVED that the Hawaii Housing Finance and Development Corporation is urged to promote supportive housing in the State's Low-Income Housing Tax Credit Program; and

BE IT FURTHER RESOLVED that the Hawaii Housing Finance and Development Corporation is urged to amend the 2023-2024 Qualiﬁed Application Plan for the Low-Income Housing Tax Credit Program to facilitate the development of supportive housing and housing for individuals in other high-priority categories, including but not limited to individuals on the waitlist for Department of Hawaiian Home Lands and public employees; and

BE IT FURTHER RESOLVED that certified copies of this Concurrent Resolution be transmitted to the Chairperson of the Board of Directors and Executive Director of the Hawaii Housing Finance and Development Corporation.

Report Title:

Hawaii Housing Finance and Development Corporation; Rental Housing Revolving Fund; Dwelling Unit Revolving Fund; Low-Income Housing Tax Credits; Prioritization

THE SENATE	S.C.R. NO.	213
THIRTY-SECOND LEGISLATURE, 2023		S.D. 1
STATE OF HAWAII