New Guidance on Deployment of American Recovery Plan Funds (aka State/Local Recovery Funds)

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by Michael Bodaken

For background information on ARPA Allocations, how to use them, and examples of ARPA uses by local jurisdictions, check out this ARPA info sheet.

On July 27, the Treasury Department released new updated guidance, providing more flexibility in the deployment of American Recovery Plan funds for affordable housing purposes. See: updated FAQs.

There were 4 principal changes relevant to your work:

1. The guidance increases flexibility to use State/Local Recovery Funds (SLRF) to fully finance long term affordable housing loans, i.e., with maturities after December 2026.

The original Treasury guidance essentially provided that SLRF funds could only be used to subsidize interest rate costs, for loans extending beyond December 31, 2026. That original guidance was shelved, and now SLRF funds may be used for the entire cost of such a loan, including loan principal, interest, etc. The justification for the change is as follows:

“Notwithstanding the above requirements for loans with maturities beyond December 31, 2026, Treasury has determined that SLFRF funds may be used to finance certain loans that finance affordable housing investments, as it is typical for state and local governments to finance such investments through loans and because the features of these loans significantly mitigate concerns about funds being deployed for purposes of recycling funds, potentially for ineligible uses, following the SLFRF program’s expenditure deadline.”

To be eligible:

  • The loan must have a term of 20 years or more
  • For loans to finance Low Income Housing Tax Credit properties, the owner must agree to waive any right to opt out of the program at the end of the compliance period and to repay the loan funds when the property is no longer compliant with the requirements of the extended affordable housing commitment.

Loan modifications are permitted if the modifications do not result in repayment of all or substantially all funds to the lender prior to the end of the affordability period.

2. Expanding Presumptive Eligibility for Federally Assisted Affordable Housing Developments: 

In previous guidance, presumptive eligibility for affordable housing projects financed with SLRF funding was limited to HOME and National Housing Trust Fund income limits. Presumptive eligibility means that when a project or program qualifies for a certain federal program, it is Presumed to be (i.e. automatically) eligible for ARPA SLRF funding.

The new guidance expands SLRF presumptive eligibility to the following programs:

  • The National Housing Trust Fund (HTF); 
  • The Home Investment Partnerships Program (HOME);
  • The Low-Income Housing Tax Credit (administered by Treasury); 
  • The Public Housing Capital Fund; 
  • Section 202 Supportive Housing for the Elderly Program and Section 811 Supportive Housing for Persons with Disabilities Program; 
  • Project-Based Rental Assistance (PBRA) and
  • Multifamily Preservation & Revitalization program (administered by USDA). 

The justification for this change is:

“Given the severity of the affordable housing shortage, and the ways in which the pandemic has exacerbated the need for affordable, high-quality dwelling units, Treasury has determined that the households served by these federal housing programs have been impacted by the pandemic and its negative economic impacts and that development of affordable housing consistent with these programs is a related and reasonably proportional response to those impacts.”

3. Presumptive Eligibility for Other Affordable Housing

Treasury will presume that an investment in the development, repair, or operation of any affordable rental housing unit is an eligible use of SLFRF funds to respond to the negative economic impacts of the pandemic if the unit has a maximum income of 65% area median income (AMI). This presumption is available even if the project does not align with the federal housing programs specified above. Treasury’s new Guidance makes clear that jurisdictions may use State/Local Recovery Funds for “mixed income” projects by deploying SLRF funds for any apartments that meet the maximum income standard of at or below 65% of median income.

4. How-To Guide for Use of SLRF Funds

Treasury has worked with the Department of Housing and Urban Development to publish a How-to Guide for Affordable Housing. The purpose of the guide is to assist recipients in implementing their funds for affordable housing. It provides a summary of relevant SLFRF guidance and provides information on ways recipients can combine various sources of federal funds.

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CCI is supported by the Robert Wood Johnson Foundation, The Kresge Foundation, JPMorgan Chase & Co, and The California Endowment.

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