OIG Audit Finds Missouri Complied with Section 1602 Rules
The Treasury Department’s Office of the Inspector General (OIG) released an audit of the Missouri Housing Development Commission regarding payment under the Section 1602 cash grant exchange program. The Section 1602 program was enacted by the American Recovery and Reinvestment Act of 2009.
The Recovery Act was intended to provide relief from the conditions caused by the economic crisis at the time. As part of that relief, grants were awarded to states for low-income housing projects in lieu of low-income housing allocations. The purpose of Section 1602 was to fill the gap left by the reduced demand for low-income housing tax credits that would enable low-income housing projects to continue or begin in cases where developers couldn’t obtain private investment, as well as increase the availability of affordable housing. The Secretary of the Treasury is responsible for carrying out the requirements of Section 1602.
Under the Recovery Act, state housing credit agencies were allowed to exchange a portion of their low-income housing credits for Section 1602 funds. The maximum funds available to a state couldn’t exceed its “Low-Income Housing Grant Election Amount” as determined under Section 1602. In turn, state housing credit agencies would disburse funds to eligible sub-awardees to help finance either the construction or the acquisition and rehabilitation of qualified low-income housing projects. Section 1602 also provided that sub-awarded projects be subject to the same eligibility and compliance requirements as the low-income housing credits found in Section 42 of the IRC.
In addition to following the IRC Section 42 eligibility and compliance requirements, Section 1602 required that state housing credit agencies establish a process to ensure that applicants who were allocated low-income housing credits demonstrate “good faith efforts” to obtain investment commitments for credits elsewhere; perform asset management functions to ensure sub-awardee compliance with Section 42 of the IRC and the long-term viability of projects; and recapture funds in the event of sub-awardees’ noncompliance payable to Treasury.
The audit found that the Missouri Housing Development Commission (MHDC) generally complied with Section 1602 Program terms and conditions. MHDC substantially met the applicable requirements for receiving its $75,876,174 award as well as requirements for sub-awarding those funds to 25 eligible low-income housing projects.
However, OIG did find that MHDC disbursed $28,967 of its Section 1602 Program funds to a developer whose project cost was later modified. As a result of that modification, the audit said that the agency should have applied the excess payment to another qualified project expense or returned the funds to Treasury. MHDC did neither, but subsequent to notifying MHDC of this matter, management did return the funds to Treasury.
Also, the audit found that MHDC established a process for monitoring the long-term viability of projects and their compliance with Section 1602 Program requirements. It also met Treasury reporting requirements.