P RESERVA TION OF LI H T C A N D O T H E R I N C O ME -

QUALI FIED HOUS IN G I N M CL E A N CO U N T Y

ISSUE 2B
UPDATED MAY 2023

Introduction

The purpose of this paper is to convey the role of the Low-Income Housing Tax Credit (LIHTC) in affordable housing
initiatives and provide options to decision-making stakeholders to preserve LIHTC units as restrictions expire.
Approximately 90% of affordable housing development in the United States are LIHTC units.1 Investors purchase
these tax credits, which are used to decrease housing construction costs. In return, the property owner must commit
to at least 30 years of rental affordability. The state’s housing agency is responsible for administering and monitoring
the program. LIHTC units vary per property owner on the income restrictions for tenant’s eligibility, but most LIHTC
units are reserved for individuals who earned 60% or less of the Area Median Income (AMI) for rent. In Illinois, the
“greatest need for rental housing is for households earning less than $20,000 annually, where 25% of households
fall into this income level,” as the Illinois Housing Development Authority (IHDA) indicates in the Illinois 2022 Housing
Blueprint.2 The Housing Blueprint is the State of Illinois’ official statewide plan to meet the state’s ongoing housing
needs.

Local leaders and stakeholders must collaborate to preserve affordability after these restrictions expire. This requires
rehabilitating current LIHTC units to improve housing conditions and incentivizing LIHTC property owners to retain
affordable units. LIHTC property owners currently have state and federal-based incentives to keep units affordable
and maintained, including operating subsidies for affordable housing developments, reducing the cost of maintaining
and preserving their units and the rental income that comes with less tenant turnover. Property owners who choose
to exit the LIHTC program may (1) keep their prices comparable, (2) decide to apply for additional financing with
affordability restrictions, (3) raise their rent to market rates, or (4) neglect and allow units to deteriorate over time.

Although the affordable housing crisis started well before 2020, the COVID-19 pandemic significantly exacerbated
the housing shortage. According to a 2022 Statewide Resident Survey, 58.5% of Illinois “respondents indicated that
COVID-19 pandemic made housing costs unaffordable,” up from 40.9% from 2021. Inflation rose to historic highs,
peaking at 9.1% nationally in June 2022, which discouraged housing developers from starting construction. “High
housing prices and lower supply disproportionately affect households of color and people with low and moderate
incomes, by among other things, limiting their access.” As inflation continues to stay at historic highs, the need for
affordable housing becomes more pressing. Also, affordable housing policies and funding remain fundamental in
ending homelessness, according to the United Nations.3

Local governments that can help preserve and maintain affordable

housing by utilizing several strategies such as initiating or networking
with a pre-existing Social Impact Fund(s) or creating new property
tax abatements. It is imperative that local leaders and stakeholders
preserve and maintain LIHTC units to sustain housing for McLean
County’s most marginalized residents and to understand the options
to preserve the community’s affordable housing as a whole.

Preservation of LIHTC and Other Income-Qualified Housing in McLean County 1

 McLean County Context

The McLean County Regional Planning Commission (MCRPC) maintains

a database of income-qualified housing units in McLean County which is
updated annually with data from the Illinois Housing Development Authority
(IHDA), U.S. Department of Housing and Urban Development (HUD), and
U.S. Department of Agriculture (USDA). According to the database, there
are 21 active LIHTC properties with 1,416 income-qualified units in McLean
County as of 2022.

Despite LIHTC incentives, the ongoing housing supply shortage has

impeded economic growth in McLean County. High housing costs have
made homeownership less attainable for low to moderate earners, and
made relocation to employment centers more challenging with low housing
supply. 43.70% of renters are paying more than 30% of their income on
rent. In the Bloomington Metro Service Area (MSA), a resident would need
to work 47 hours per week earning the minumum wage of $13/hour to
afford a modest one-bedroom market-rate rental; 58 hours for a two-bedroom. Housing rehabilitation is another
issue; according to IHDA and 2019 ACS estimates, 63.6% of Illinois’ rental housing stock was built prior to 1979, and
in the Bloomington region it is 57.7%. Thus, landlords in McLean County may be less inclined to renew their LIHTC
contract, since the it may more profitable to charge market rate than the tax credit that LIHTC renewal offers.4

IHDA indicated in the 2022 Housing Blueprint that Champaign and Bloomington have the greatest need for adequate
rental housing for households earning less than $20,000 annually, with a surplus/deficit ratio of 19.4% and 17.1%
respectively. LIHTC units in McLean County decreased from 1,721 in 2019 to 1,416 in 2022. LIHTC units are reserved
for households earning 50-60% or less of the Area Median Income. The following table illustrates AMI household
income limits in the Bloomington-Normal Metro Area as of May 2023, which HUD calculates annually.5
Household Size Extremely Low Income Very Low Income Low Income
(30% AMI) (50% AMI) (80% AMI)

One person $23,200 $38,650 $61,800

Two person $26,500 $44,150 $70,600
Three person $29,800 $49,650 $79,450
Four person $33,100 $55,150 $88,250
Five person $35,750 $59,600 $95,350

In April 2023, MCRPC staff interviewed the owners and managers of five LIHTC properties in McLean County with tax
credits expiring within the next 4 years. The purpose of the interviews was to gather data and analyze the inventory
the affordable housing inventory in the County, and help housing leaders and decision-makers to understand the
local market conditions.

In terms of future plans for the properties, all five property managers/owners stated that they would exit the LIHTC
program when their contract expires. Two owners/managers responded that they will maintain income restrictions for
the foreseeable future, in which they will accept Housing Choice Vouchers (HCV) as housing subsidies. The remaining
three property managers/owners stated that they would convert the units to market-rate as soon as their LIHTC
contract expires. In total, 96 units are expected to transition from affordable to market-rate between May 2024 and
July 2026, whereas only 24 units will retain their affordability through the HCV program.

All five LIHTC property owners/managers reported that the LIHTC program lacked incentives to renew the tax credit
contract with the State of Illinois, after the end of the compliance period. Notably, the two properties that will maintain
affordability through the HCV program alone are both located in rural communities outside of Bloomington-Normal:
Gridley and Lexington. These sites receive subsidies through USDA Rural Development funding. Two of the three
properties that will convert LIHTC units to market rate are in Normal, which is located in a tighter, competitive rental
housing market. The three property owners/managers that are converting their LIHTC units to market-rate stated that
the administrative requirements to adhere to LIHTC regulations were burdensome and costly, such as compliance
inspections. The most frequently cited reason for converting LIHTC units to market-rate was profitability due to
increased demand for rental housing.

Preservation of LIHTC and Other Income-Qualified Housing in McLean County 2

 LIHTC property owners/managers acknowledged the increase in profit margins made possible by the competitive
rental housing market and rising costs. In past interviews, LIHTC property owners/managers also admitted that it
would be helpful to have a local funding source for larger rehabilitation projects to reduce the need to solely rely on
LIHTC funding. Another observation that was made about the LIHTC market in general was that not-for-profits are
increasingly becoming involved as partners and owners in LIHTC properties as they can access capital at lower rates.

Strategies for Preserving LIHTC units

Implement Code Enforcement- This strategy requires state and local enforcement and fines on non-compliant LIHTC
properties, such as unsafe or unaffordable standards for tenants. The advantages of using code enforcement include
increasing funds for affordable housing initiatives on the state or local level, holding LIHTC landlords accountable
for violating code restrictions and ensuring units are safe and livable. However, this requires more capacity on the
corresponding Housing Authority or municipality to enforce, direct feedback from tenants and housing inspections.

Examples:
• Rockford, Illinois implemented a proactive code enforcement program
• Chicago launched a pilot program in 2018 to enforce health and safety compliance
• California imposes Compliance Violation Fines
• Greensboro, North Carolina
• Newark, New Jersey

Access Government Capital – Governmental bodies can provide current LIHTC owners grants or low-interest loans
to connect the latter with access additional capital and capacity. Government subsidies can lower the cost of debt
services for affordable housing and promote economic stability for property owners and housing stability for tenants.
These subsidies require policy-making and government funding to develop and maintain.

Examples:
• Chicago Housing Authority Multi-Family Affordability through Upfront Investment
• Minnesota Housing Finance Agency
• Philadelphia Housing Trust Fund
• Santa Cruz Affordable Housing Trust Fund

Initiate County Property Tax Abatement Incentives – Local governments can create property tax abatements
for LIHTC property owners. Property tax abatements incentivize property owners to maintain and rehabilitate LIHTC
units. This is considered an additional tax incentive separate from LIHTC altogether. Although this may benefit the
tenants in the form of lower rent costs, studies suggest that investors, developers and financial companies gain the
most financially, making this option less equitable than other options.

Examples:
• Cook County- Class S Tax Incentive lowers total assessed value
• Illinois House Bill 2621
• Tacoma has a multi-family property tax exemption

Create Social Impact Funds- This strategy requires local government and housing authorities to collaborate with
private companies to create a dedicated social impact fund to finance
affordable housing preservation and maintain expiring LIHTC units. This
can be a more cost-effective way to finance as it requires less debt for the
developer(s). However, this strategy does require ongoing philanthropic
donations and commitment for long-term financial sustainability.

Examples:
• Illinois Affordable Housing Trust Fund
• Saint Louis Equity Fund
• National Equity Fund – Parkwood Commons in Peoria, IL
• Saint Paul, Minnesota Rehab FHLB Program

Preservation of LIHTC and Other Income-Qualified Housing in McLean County 3

Network with Affordable Housing Developers & Non-Profit Organizations- Affordable Housing Developers and
Non-Profit Organizations establish networks to preserve affordable housing. If LIHTC property owners in McLean County
choose to not renew their LIHTC status and prefer to sell the property, then municipal governments could network
with affordable housing developers to seek an acquisition of such properties. Acquisition can be less appealing to any
developer if the units have substantial deterioration. Non-profit organizations possess the social mission to maintain
affordable housing and hence promoting housing stability for the community.

Examples:
• Mercy Housing Lakefront – Headquartered in Chicago with properties throughout Illinois, including Danville, IL
• Common Bond Communities
• Preservation of Affordable Housing

Incentivize Longer LIHTC Affordability- This option requires advocating for state legislation to prioritize LIHTC
applications with longer affordability periods in IHDA’s Qualified Action Plan (QAP). This would decrease the number
of expiring LIHTC units over time and increase the affordability periods for LIHTC units across the state. This option
requires advocacy at the state level where the annual QAP is created and regulated through the Illinois Housing
Development Authority (IHDA).

Examples:
• Illinois Housing Development Authority’s QAP
• Evanston, Illinois offers density bonuses to developers to extend affordability periods
• State of Virginia
• State of Texas

Generate Operating Subsidies for Affordable Housing- Landlords with expiring LIHTC units can chose to transition
to IHDA’s Housing Choice Voucher Program (HCV), which provides subsidies on behalf of the tenant(s). This option is
useful for cities with high rates of chronic homelessness and/or special needs and utilizes the pre-existing program
that IHDA offers. However, smaller jurisdictions with “soft” non-competitive housing markets may have unpredictable or
limited resources available on an ongoing basis. Housing Choice Vouchers are also issued by HUD and fluctuate in the
funding amounts and can be competitive to attain.

Examples:
• Illinois Housing Development Authority’s HCV Program
• Dubuque, Iowa Illinois Housing Development Authority’s HCV Program
• Lawrence, Kansas
• Coeur d’Alene, Idaho

Promote Right of First Refusal- This strategy refers to a real estate legal clause that provides a designated party or
individual(s) the right to be the first to make an offer on a real estate purchase. IHDA offers extra points for developments
with nonprofit partners in which the nonprofit partner has the first of right refusal upon sale of the property. Right of
first refusal can stymie predatory stakeholders from purchasing the property and charging high rent costs, but it can
lead to a decrease in property values as that property becomes less marketable. Right of first refusal has led to frequent
source of litigation and limits the ability to negotiate with multiple buyers if that property is listed for sale.

Examples:
• Oak Park, Illinois acquired an apartment building with units at risk of market-rate conversion
• Urbana, Illinois
• State of Texas Right of First Refusal
• City of Somerville, Massachusetts passed a home rule petition in 2019

Preservation of LIHTC and Other Income-Qualified Housing in McLean County 4

Keys to Success & Recommendations

Collaboration- Public and private partnerships are critical to LIHTC preservation and rehabilitation. Governmental
entities or non-profit organizations may consider networking with private companies and/or other non-profit
organizations to advance efforts for affordable housing. Which non-profit organizations outside of McLean County
could provide access to affordable housing capital? Which private companies could provide philanthropic funding to
preserve LIHTC housing?

Resource Coordination – Local and County governments could consider utilizing state and federal subsidies for
expiring LIHTC units; LIHTC properties within the city of Bloomington and town of Normal could be prioritized to preserve
access for Smart Growth. Which IHDA grants should local governments promote to preserve LIHTC affordability?

Inclusionary Zoning & Zoning Reform- Local municipalities can reduce barriers to the housing shortage by modifying
existing zoning laws to accommodate for more flexible land use. Which local governments have the political momentum
and resources to rezone for expanding affordable housing in McLean County?

Conclusion

As McLean County grapples with a population and housing demand boom, it is crucial that local governments address
the ongoing affordable housing crisis with swift, innovative and resilient strategies. Since LIHTC is and has been the
main provider of affordable housing in the U.S., governmental entities must consider these options to renew and
revitalize expiring LIHTC units. Promoting affordable housing is a sustainable solution to enhancing housing stability for
marginalized residents, including the homeless. Community leaders may consider multiple options as provided in this
white paper, rather than relying on one choice alone.

Affordable housing is a complex subject that cannot be addressed in a single white paper. This white paper is the
fourth in a series produced by the Regional Housing Advisory Committee that dive deeper into the specific aspects of
affordable housing in McLean County. The first paper discussed what affordable housing is and the key components
that affect it; the second paper discussed Area Median Income (AMI) in McLean County; and the third discussed the
types and quantity of income-qualified housing in McLean County.

McLean County Regional Planning Commission is the lead for the Regional Housing Initiative and consists of two
interrelated working groups representing various housing stakeholders in McLean County: The Affordable and
Supportive Housing Committee and the Housing Staff Committee. The former includes community partners such as
PATH who provide housing social services, and the latter includes local government staff members from Bloomington,
Normal and McLean County.

1. National Equity Fund, LIHTC Overview; IHDA, https://www.ihda.org/developers/tax-credits/low-income-tax-credit/#:~:text=LIHTC%20accounts%20

for%20the%20majority,affordable%20housing%20tool%20in%20Illinois.
2. Illinois Housing Development Authority, 2022 Housing Blueprint. https://ilhousingblueprint.org/wp-content/uploads/2022/11/Housing-Blue-
print-2022_Final.pdf
3. Illinois Housing Development Authority, 2022 Housing Blueprint. https://ilhousingblueprint.org/wp-content/uploads/2022/11/Housing-Blue-
print-2022_Final.pdf; National Low Income Housing Coalition, “Illinois,” https://nlihc.org/oor/state/il; United Nations, “Affordable Housing,” February
10, 2020.
5. Illinois Housing Development Authority, 2022 Housing Blueprint. https://ilhousingblueprint.org/wp-content/uploads/2022/11/Housing-Blue-
print-2022_Final.pdf; National Low Income Housing Coalition, “Illinois,” https://nlihc.org/oor/state/il

McLean County Regional Planning Commission

115 E. Washington Street, #M103
Bloomington, Illinois 61701
(309) 828-4331 www.mcplan.org

Preservation of LIHTC and Other Income-Qualified Housing in McLean County 5