Low income housing tax credit properties : non-profit disposition strategies in the Commonwealth

Abstract

This thesis examines how non-profit owners in Massachusetts have maintained affordability and ownership of Low-Income Housing Tax Credit (LIHTC) properties after the initial fifteen-year compliance period, at the lowest possible cost. The intent is two-fold: to inform non-profit project sponsors about strategies leading to low-cost outcomes, and to advocate for policies that promote such low-cost outcomes. The impacts of the players in LIHTC deals, Massachusetts state policy, the original capital structure, and legal partnership arrangements on the strategies that non-profit owners can pursue to maintain control of tax credit properties are considered. Specific outcomes described include bargain sale and charitable contribution, debt-plus-taxes or right of first refusal, and transfer of the limited partnership interest. Themes include the tension between for- and non-profit partners, public and private interests, and federal and state policies. Because the LIHTC is administered on a state-by-state basis, the Massachusetts regulatory environment and state housing resources play a central role in shaping disposition outcomes in the Commonwealth.

(cont.) This thesis looks at how the recent lack of recapitalization funding for LIHTC properties has revealed an opportunity for the Commonwealth to improve the existing HUD preservation paradigm. Massachusetts' previous policies and current political environment create an opportunity for the state to promote new model of preservation that breaks from the federal paradigm of prodigal public payments to investors. I recommend that the Commonwealth prevents original, private investors from receiving additional public subsidy at the back end of LIHTC deals by separating the disposition and recapitalization of properties.