Auditor Logo Susan Montee

Report No. 2008-47
July 2008

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Improvement Needed in Affordable Housing Assistance Tax Credit Program Administration
This audit evaluated the Missouri Housing Development Commission's (MHDC) administration and the costeffectiveness of the state's Affordable Housing Assistance Tax Credit (AHATC) Program. The credit is designed to induce contributions by business firms of cash, equity, professional services, and real or personal property to not-for-profit organizations involved in the construction or rehabilitation of specific developments that will have affordable housing units. For each fiscal year, $11 million in tax credits ($10 million for projects and $1 million for not-for-profit organization administrative costs unrelated to projects) are available for distribution. The credit is not to exceed 55 percent of the value of the contribution. This means for every $1 of AHATC issued, $1.82 in cash, property, or services goes toward affordable housing. MHDC records show that from fiscal year 1991 to 2007, an estimated $186 million has been donated through the AHATC Program, resulting in $102.3 million in AHATCs being issued. Approximately $72.5 million in tax credits has been redeemed through fiscal year 2007, leaving $29.8 million in credits outstanding. MHDC data shows 7,895 units of affordable housing have been placed in service from fiscal year 1991 through 2007 utilizing the tax credit. State law requires the State Auditor to perform a cost-benefit analysis of all state tax credit programs, and this report is part of ongoing work.

Evaluation of appraisals for donated properties needs improvement
MHDC did not adequately ensure the value of property donated through the AHATC. During 2006 and 2007, a not-for-profit organization received a donation of 20 apartment properties, containing 464 total units, with the donor receiving $5,092,007 in AHATCs (28 percent of tax credits issued for housing production during the period). Our review of appraisals for 3 of the 20 donated properties showed the method of calculating the value of the property was not consistent with other appraisals reviewed. An appraiser, who reviewed the appraisals at our request, told us the method used to appraise the value of these three properties was not consistent with the typical and accepted method used to value properties of this type. MHDC's appraiser also reviewed one of the appraisals at our request and concluded the appraisal was insufficient. He said he would have recommended sending the appraisal back to the appraiser for revision. One company performed all 20 appraisals for the properties donated. MHDC staff said they did not ask the staff appraiser to evaluate the appraisals on these properties at the time of the donation because they considered the donor's submitted appraisals sufficient. (See page 8)

Donated services need more evaluation
MHDC uses insufficient procedures to ensure the value of donated services. Our review of project files showed invoices from donors typically supported documentation of services provided; however, the invoices did not always include details such as the number of hours spent and the hourly rate charged for the services. (See page 9)

Use of AHATCs to fill LIHTC funding gaps provides minimal benefit
The AHATC is commonly used with projects receiving state and federal Low Income Housing Tax Credits (LIHTCs). For fiscal years 2006 and 2007, approximately 45 percent ($8.3 million) of production AHATCs went to projects that also received federal and state LIHTC funding. Of the $8.3 million in AHATCs combined with LIHTC projects, $1.6 million (19 percent) had been applied for and obtained to fill funding gaps or cover cost Evaluation of appraisals for donated properties needs improvement Donated services need more evaluation Use of AHATCs to fill LIHTC funding gaps provides minimal benefit overruns in projects where LIHTCs had already been awarded with construction already underway. When state LIHTC funding is already being used to build rent restricted housing, the use of AHATCs in this manner provides minimal return to the state due to the limited number of units allocated for AHATC purposes. (See page 10)

Economic benefit overstated
The economic impact being reported to the General Assembly regarding AHATCs is overstated. For the fiscal year 2009 state budget process, the General Assembly received information showing 1,956 and 1,910 units of housing placed in service for 2006 and 2007, respectively. Data provided to us by MHDC shows only 698 and 546 AHATC units, respectively, actually placed in service during those years. MHDC staff said the number of units reported may have been total overall units, which would include LIHTC units as well as AHATC units. (See page 11)

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