New TCAC policy on over-income tenants

In response to the recent uptick in resyndication applications, the California Tax Credit Allocation Committee (TCAC) and the California Debt Limit Allocation Committee (CDLAC) have issued a new policy to address the issue of over-income tenants in deeply targeted units. TCAC has long required that owners meet the income targeting requirements for deeply targeted units on a continuing basis based on tenants’ last recertifications. However, if a tenant’s income increased so as to place them over the income eligibility requirements, under the terms of the tax credit and bond leases the owner cannot evict the tenant simply for being over income. In some cases these conflicting requirements can make it impossible for a project owner to meet the project’s income targeting requirements at the time resyndication.
Generally, the TCAC regulations require resyndicating projects to maintain the rent and income targeting from the original regulatory agreement. Additionally, for projects resyndicating with 9% tax credits and obtaining points for serving households at 30% AMI the TCAC regulations require those 30% units to be distributed across unit sizes. The CDLAC regulations have similar requirement that 50% units be distributed generally among unit sizes.
TCAC and CDLAC will continue their current practice of reviewing and underwriting projects pursuant to the targets proposed by the applicant for all 4% tax credit projects subject to an existing public regulatory agreement and for 9% tax credit projects proposing rent and income targets that are “substantially similar” to an existing public regulatory agreement, without consideration to the incomes of the current residents. However, they will require applicants to begin moving towards the targeted income levels immediately.
On May 15, 2016, TCAC and CDLAC began implementing this policy
Where a project cannot meet the deeper income targeting requirement, independent of unit sizes, when the placed service package is submitted, the owner shall designate units that are occupied by the households not receiving rental assistance who have the lowest incomes as a percentage of AMI as the deeply targeted unit. As units become vacant, the owner must offer each vacant unit to prospective tenants whose incomes meet the deeper targeting income restrictions, until the more deeply targeted levels committed to under the new CDLAC and TCAC reservation have been satisfied.  Subsequently, as vacant units are occupied by tenants meeting the deeper targeting income qualifications, the owner may then increase the targeting and rent on a unit occupied by the higher income household.
Additionally, when reviewing the placed in service application for compliance, TCAC will allow the applicant to temporarily allocate the 30% units to 30% AMI households (under the 9% tax credit) or the 50% units to 50% income-eligible tenants (under the CDLAC requirements)  without regard to unit size. If there is a mismatch of unit sizes upon submission of the placed in service application, as a unit with an underrepresented unit size becomes vacant the owner must lease that unit as a 30% unit or 50% unit (as applicable). The owner may then increase the targeting and rent on a unit in the overrepresented unit size.