Organize Site Compliance Criteria into Valuable Reference Tool
Do you have a simple system that allows your staff to quickly locate key compliance criteria in a user-friendly format? Whether your site is new or has been up and running for years, putting together a development binder that contains all of the governing documents for that site is crucial for the success of the property, says housing credit compliance expert Elizabeth Moreland, author of Practical Solutions for Managing Tax Credit Developments. “The day of having a simple tax credit property is gone. Properties are more complicated today because owners receive financing from so many different sources. If you have multiple subsidies or a large portfolio, a development binder helps you to keep track of all of the criteria.”
By making sure that the site's compliance information is well organized and accessible, you provide site staff with a useful resource to help them stay in compliance, as well as a framework for ongoing training. A development binder can also help to make your next audit go smoothly. That's something that Moreland learned firsthand when she was overseeing a large compliance department.
“Auditors are generally impressed when you take the time to assemble the binder and all of the compliance criteria,” she says. “Their perception is that, if you're that well organized, your files are going to be, as well.”
How to Create a Development Binder
Think of the development binder as the site's user manual for your staff—“it includes everything that has to do with that property in one book,” Moreland says. She offers the following guidelines for putting one together.
Step #1: Gather relevant documents. The first step is to gather all of the pertinent governing documents for your site. Those include:
Application for credit allocation;
Land Use Restriction Agreement (LURA)/regulatory agreement/restrictive covenant;
IRS Form 8609;
Funding agreements (such as HUD Section 8, HOME, RHS, etc.);
Qualified allocation plan; and
Utility allowance documen-tation.
In the beginning, many of these documents will not be available because they're not released to the owner until the owner places all of the buildings in service, Moreland says. In that case, start with the application for credit allocation. “That document will reveal all of the promises the owner has made, even though they haven't been documented in a regulatory agreement yet,” she points out.
One thing to be aware of when requesting a copy of the application from the owner: It is a large document, and typically consists of three or four binders. Request from the owner only the part of the document that deals with all of the compliance elections, she says, which will be contained in a specific section of the application. “That will show the minimum set-aside, the targeted fraction, how many buildings there are, and then all of the promises—the rent, income, and any other services or amenities that the owner will get points for.”
You will be able to collect the other documents as they become available over time. Moreland suggests placing a checklist of the needed documents in the binder, which you can then check off as they are added.
Step #2: Read through documents and create summary sheet. Once you have collected the pertinent documents, read through them carefully.
“Regulatory agreements are written in the best legalese and are sometimes frustrating for an inexperienced person to read,” Moreland says. “So you want to read them only once.”
She recommends going through each document with a highlighter, and transferring the key compliance information in each onto a summary form, or development criteria sheet. For instance, as you're reading through the application for credit, you'll want to make a note of the minimum set-aside, applicable fraction, and the different rent and income elections.
Step #3: Marry the compliance criteria—look for conflicts. As you begin to summarize all of the different documents in the development binder, you will probably find some conflicting information in the compliance criteria. For instance, in the application for credit, the owner might have agreed to rent 50 percent of the units at or below 60 percent of the area median gross income, and the other 50 percent at 50 percent. But then one of the funding documents lists a completely different set of income and rent restrictions. How do you figure out how to stay in compliance?
The final step is to marry all of the compliance criteria to determine the lowest common denominator that will allow you to be in compliance while maximizing your rent revenues, explains Moreland.
“This is not a task that you can hand off to your site manager unless that person has years of experience,” she points out. “This is something that the owner or a compliance officer with a good understanding of the tax credit program has to do.”
Once the development binder is complete, and the final compliance criteria has been summarized, make sure that the home office, regional office, and the tax credit site each has a copy.
Use Development Binder to Train Staff
In addition to providing your staff with a blueprint of your site's compliance requirements, the development binder is a great training tool to help staff expand their knowledge of the tax credit program.
Moreland recommends reviewing the development binder as part of their education process. For instance, start by having your staff read the application for credits, and then have a follow-up discussion to ensure that they understand the information that it contains and to answer their questions. Then move on to the next document.
“Teach as much about the program as possible to your site staff. When they understand the full picture, they'll do a better job,” she says. “Most people don't operate well if they don't understand why. If they're going to be good managers, they need to understand the ‘why’ behind the process.”
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