Might not pencil out

One way to provide lower-income housing to residents is to use Low-Income Housing Tax Credits (LIHTC) through an IRS program administered by the Wyoming Community Development Authority (WCDA) for the state of Wyoming.

One of these LIHTC developments is currently under construction in Jackson, Wyoming, said Mark Feilmeier, state director with the Department of Housing and Urban Development.

The LIHTC program has also helped fund the building of three developments in Rawlins, said Christopher Volzke, Deputy Executive Director of the Wyoming Community Development Authority.

These programs have also been used to fund projects in the rural Wyoming communities of Hulett, population 318, and Guernsey, population 1,138.

One local contractor said the cost of construction in Saratoga, which is about 30 percent more expensive than other areas, would make constructing a project with the use of these tax credits not financially feasible.

Feilmeier said it could be done, but the cost of construction and hiring a consultant to handle the government requirements would make it difficult to underwrite.

“Building smaller-sized rental communities, due to the nature of project scaling and compressed margin, makes them complex,” Volzke said. “That said, the federal programs that we administer have been used successfully by developers in other rural communities for affordable housing, both Hulett and Guernsey come to mind.”

The LIHTC program requires residents to meet specific income eligibility guidelines.

Although it varies somewhat by program, the residents in this type of housing cannot earn more than 60 percent of the area median income (AMI) as calculated on a county-by-county basis, Feilmeier said.

Volzke said based on data from the U.S. Census, “there should be a portion of the [Saratoga] population that would fit the basic income requirement for a LIHTC community. The median income for a non-family household in Saratoga was $35.6K with an estimated 9.6% of the city population at poverty level.

A LIHTC development is currently under construction in Jackson, Wyoming, he said.

“Jackson was very proactive in getting this done,” he said. They saw a crucial need to provide workforce housing. The town got creative and put together a public/private partnership.

“The local municipality incentivized the development by donating the land, waived certain fees and removed normal bureaucratic barriers to development,” he said.

“The Low-Income Housing Tax Credit (LIHTC) program is the most important resource for creating affordable housing in the United States today,” as stated on the huduser.gov website. “The Low-Income Housing Tax Credit (LIHTC) program created by the Tax Reform Act of 1986 provides to local allocating agencies $9 billion annually for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.”

Jackson’s LIHTC project is called Flat Creek Apartments at 400 West Snow King Avenue, said April Norton, director of Jackson/Teton County Affordable Housing. This development serves households earning less than 30% and less than 50%, Norton said.

“This partnership with BlueLine Development and Snow King Partners will result in 48 Affordable Rental units (84 bedrooms) serving households earning 30-60% of median family income, or less than $66,420 for a family of three,” as stated in the 2023 Housing Supply Plan on the affordable housing website. “The Town is providing the land for the development via a long-term ground lease plus $1 million.”

“Seventeen apartments will serve households earning less than 50 percent Median Family Income and 30 apartments will serve households earning less than 60 percent MFI,” as stated on the website.

The LIHTC is defined in the IRS Tax Code as follows:

Developers submit applications to the Wyoming Community Development Authority, Feilmeier said. “Development applications are then vetted and, if selected, receive an award of tax credits which they can sell to investors through a syndicator.”

These credits provide an equity stream that offsets the cost of building, he said. In return, the developers must satisfy an “affordability component.” The affordability component means the population living in the housing must meet income eligibility requirements.

The WCDA administers three of these lower-income programs.

“In Carbon County we have helped fund the building of four communities. All four are in Rawlins,” Volzke said. One was [HUD] HOME funds only, two were LIHTC only, and one was LIHTC+HOME.”

He said WCDA administers these programs used for the financing of affordable multi-family housing. They are the Low Income Housing Tax Credit program, HUD Home and the National Housing Trust Fund.

“HUD annually calculates estimates of median family income for every area of the country,” as stated on the website huduser.gov. “These estimates are used to calculate various income limits, which are defined as percentages of median family income, and vary by the number of persons in a household. HUD uses income limits to define low-income status and resulting eligibility for many of its housing assistance programs.”

The LIHTC income eligibility limit is 60 percent of area median income, Volzke said. In Carbon County, the limit for a rental for a two-person household is $44,520. For one income, it is $38,940.

Under the National Housing Trust Fund, if the housing is a rental, then the two person income cannot exceed 30 percent of the area median income or $22,250, he said. Under the HUD Home program the limit is 50 percent AMI. The limit for a rental for a two-person income is $37,100.

These income eligibility tables are updated by HUD annually and change slightly year-over-year, he added. Developers have to compete to get these tax credits and typically they apply to all three programs, he said.

Wyoming received $3.5 million this year in LIHTC tax credits, he said. For example, out of 12 applications the WCDA might receive, that amount is only enough to do about three projects. These tax credits supplement the private funding which developers contribute.

Kristen Stocks, co-owner of Octagon Construction Group based in Wyoming, said she would not apply to the LIHTC program because it would not be financially feasible in Saratoga.

“Saratoga is no less than 30 percent more expensive to build than any average location in the United States,” Stocks said. Saratoga is not local to any major market, which increases the cost of transporting the building materials.

Citing a hypothetical, she said a 20–unit apartment complex built in Saratoga at a $1,000 a unit rent rate would raise only $20,000 a month in income. The cost of a loan, even with tax credits, would be about $33,000 a month.

“I would be losing about $13,000 a month,” she said.

Hypothetically it can be done, Feilmeier said, but realistically, it would be challenging. The cost of construction would be high and the developer might have to hire a consultant to take care of the government requirements.

A small project in Saratoga might not “pencil out” and be difficult to underwrite because of the loan-to-cost comparison.