15 Ark. Code of Rules § 86-902

15 CAR § 86-902. Combining low-income housing tax credits with HOME funds.
(a) Rental projects that combine HOME funds with low-income housing tax credits (LIHTCs) must be structured to ensure compliance with the requirements of both programs.
(b)(1) Tax credit projects must meet one (1) of two (2) minimum set-asides:
(A) 20/50; or
(B) 40/60.
(2) 20/50 means that at least twenty percent (20%) of the units must be rented to tenants with incomes at or below fifty percent (50%) of the area median income.
(3) The 40/60 set-aside means that at least forty percent (40%) of the units must be rented to tenants earning at or below sixty percent (60%) of area median income.
(c) When combining HOME and tax credits, occupancy requirements depend on the type of:
(1) Credit taken; and
(2) HOME funding provided.
(d)(1) In order to take the nine percent (9%) credit in conjunction with below-market HOME loans, joint HOME/tax credit projects must meet a higher occupancy standard than either the tax credit program or the HOME program.
(2) Together, they require forty percent (40%) of the units to be occupied by tenants with incomes at or below fifty percent (50%) of area median income.
(3) Such projects are not eligible for the one hundred thirty percent (130%) increase in basis for projects in qualified census tracts or difficult development areas.
(4) To receive the one hundred thirty percent (130%) increase, the project must either:
(A) Take the four percent (4%) credit; or
(B) Use the HOME funds at or above the applicable federal rate.
(e)(1) In all other cases (when HOME funds are provided in some for other than a below-market interest rate loan) projects must ensure that they meet both sets of program rules.
(2) For example, a project receiving a market rate loan can comply with both sets of rules by establishing a twenty percent (20%) set-aside for households with incomes at or below fifty percent (50%) of the area median income (as long as all remaining HOME-assisted units are leased to tenants with incomes at or below eighty percent (80%) of the area median income).
(3) If there is an additional LIHTC set-aside (thirty percent (30%) unit designation), thirty percent (30%) LIHTC units may not be used to satisfy affordability requirements of any additional funding sources including but not limited to HOME-assisted housing units.
(4) The owner must identify separate units to satisfy the thirty percent (30%) and fifty percent (50%) designated units as outlined in the agreements.

Rules For Combining HOME Funds And LIHTC

Tax Credit Rule
Combining Tax Credits with HOME

Occupancy Requirements
At least 20 percent of units must be reserved for households with incomes at or below 50 percent of area median income OR 40 percent of the units must be
reserved for households with incomes at or below 60 percent of area median income.
If HOME funds are provided at below the market interest rate, at least 40 percent of the units must be reserved for households with incomes at or below 50
percent of area median income to qualify for the 9 percent credit. Otherwise, at least 20 percent of units must serve households at or below 50 percent of area median income to meet HOME requirements.

Rent Requirements
Rents for qualified units must not exceed the rent limit set for the LIHTC program. HUD limits are set by bedroom size and are based on the qualifying incomes of an imputed household size.
For units to qualify as both tax credit and HOME- assisted units, rents cannot exceed either program limit. Low HOME rent units are subject to Low HOME rents and tax credit limits, whichever is lower. High HOME rent units are subject to High
HOME rents and tax credit limits, whichever is lower.

Establishing Tenant Eligibility
Documentation: All sources of income must be verified.
Acceptable documentation of income must be provided.
Documentation: Initial tenant eligibility documentation for both programs is the same. Use the Section 8 definition of income.

Definition: The tax credit program defines income using the Section 8 definition of annual gross income.
Definition: Use the Section 8 definition of income.

Asset Income: Assets of $5000 or less: tenants certify asset amount and income. Use actual income.
Assets above $5000: verify amount and income. Use larger of actual income from assets or imputed asset income.
Asset Income: Follow more stringent HOME rules and verify all asset income.

Reexamination of Income
Re-examinations are performed annually following the same
procedures as at initial certification.
The project must follow the more stringent tax credit requirements.

Over-Income Tenants
Rent for over-income tenants remains restricted.
HOME rules defer to tax credit rules-rent remains restricted. In no case can the rent exceed limits set by the tax credit program.

Monitoring
Over-income is defined as 140 percent of the project rent limit.
ADFA will monitor HOME/tax credit projects in accordance with guidelines of each program. In case of a conflict, the more stringent rule will apply.

Projects are monitored within 180 days following the initial credit year and once every three years throughout the affordability period. A random selection of 20 percent of tenant
files and units will be reviewed.
ADFA will monitor rental projects based on total number of units and annually for other HOME- assisted projects.

Affordability Period: IRS mandates a 15-year affordability period. Developers will extend the affordability period an additional 15 years, for a total of 30 years, by terms of a land use restriction agreement.
The HOME affordability periods are as follows: up to $15,000=5 years $15,000-$40,000=10 years;
$40,000 or more= 15 years. For a refinance of Rehabilitation project=15 years; New construction = 20 years

Owners must submit a statement of compliance annually, and must update ADFA's web-based computer system
Recipients must update ADFA's web-based and submit annual statement of compliance.