Last week, HUD published a notice in the Federal Register titled “Administrative Guidelines: Subsidy Layering Review for Project-Based Vouchers.” Subsidy layering reviews (SLRs) ensure that excessive public assistance is not used when combining Housing Assistance Payments (HAP) from project-based vouchers with other forms of public assistance from federal, state, or local agencies including through tax assistance or credits. Subsidy layering reviews are not required when a project is already subject to a project-based voucher (PBV) contract (even if it is recapitalized with outside funding) or when PBVs are the only assistance provided to a development. Subsidy layering requirements are required when a PBV project includes other governmental assistance. The Department and, in certain cases, the local Housing Credit Agency are the entities that conduct the review. This notice provides information about subsidy layering reviews with appendices on PHA submissions required, a sample notice of intent to participate in subsidy layering reviews by housing credit agencies, and a sample housing credit agency certification.
When performing a subsidy layering review, the applicable organization reviews the development and operating costs of a project to determine whether costs are within a reasonable range taking into consideration certain factors. Projects which have costs that fall within the safe harbor standards may move forward, while those that do not will require additional justification and documentation.
This notice establishes safe harbor standards for development costs and operating costs. Under development costs, general contractor fees should not exceed fourteen percent, nor should developer fees exceed fifteen percent. Under operating costs, the debt coverage ratio should be between 1.10 and 1.45 (a trending analysis is used to evaluate the debt coverage ratio over time). Additionally, cash-flow may not exceed ten percent of total operating expenses.
For mixed-finance projects that include PBVs, the SLR is performed as part of the mixed-finance review process.
If HUD completes a review and determines that PBV assistance will not result in excessive subsidy, HUD will certify compliance. If HUD determines the subsidy is excessive, it will notify the PHA and recommend a reduction in the amount of PBV assistance. If a HCA completes a SLR and determines that PBV assistance will not result in excessive subsidy, the HCA will notify the PHA and submit a certification to HUD. If the HCA determines the subsidy is excessive, it must notify HUD and the PHA with a recommendation to lower the subsidy (either the PBV subsidy or the low-income housing tax credit subsidy).
A PHA may not execute an agreement to enter into a HAP contract until the SLR is complete and approved by the appropriate entity.
The complete notice can be found here.