Fillable Printable Two Weeks Notice Trailer

Two Weeks Notice Trailer

HFA: Alaska Housing Finance Corporation

Entry Name: Two Weeks Notice

Time is money, and Alaska Housing Finance Corporation (AHFC) saved a lot of both in

projects funded through the Low Income Housing Tax Credit (LIHTC) program from 2011-12. Over

the past year and a half, AHFC broke the back of project cost escalations and process inefficiencies

in our State through aggressive cost containment incentives and allocation process enhancements.

“You guys are the best in the business”

LIHTC Developer with experience in 42 states

In these austere times, policymakers and the media are scrutinizing housing programs for

inefficiencies and waste. These days, AHFC’s delivering more housing with fewer resources at

exceptional efficiency: New construction costs in 2012 fell $59k / unit from their 2010 highs, LIHTC

awards were announced 14 days after the application due-date, and projects set early start records.

Innovations: Time & Money

Time – The gap between the application due-date and the issuance of the Intent to Award has

been reduced from 116 days (2008) to 14 days (2012). Over the same period, the scope and rigor of

project underwriting parameters dramatically increased. While decreased processing times are not

usually accompanied by a growing scope of review, we accomplished both by:

 Converting rental development applications from paper-based systems to online e-platforms

 Replacing subjective scoring with 100% objective criteria (If X, Then Y points)

 Adding a preliminary application stage to verify sponsor experience and market viability

 Fully utilizing all available financial and operating data from AHFC and USDA RD multi-

family mortgage depts. (through information sharing MOUs) and AHFC’s compliance dept.

 Proactively starting time-intensive underwriting preparation before the application

submissions (i.e. assembling comp property data) using preliminary application information

Money – AHFC utilized a series of interrelated scoring incentives to break a vicious cycle of

cost escalations. These factors scored the relationship between debt and development costs, the

relationship of project costs to our adopted urban and rural project cost standards, and operational

performance targets. Offsetting points were included for projects disadvantaged by these criteria that

served recognized policy objectives (i.e. HUD 202 projects). While cost standards were applied

during scoring, hard cost and square footage limits were deliberately avoided. We set achievable

goals for developers to realize and left the particulars of the global scoring solution(s) to them.

HFA: Alaska Housing Finance Corporation

Entry Name: Two Weeks Notice

Responding to a Management Challenge or Opportunity

Fewer subsidies and higher development costs reduce the capacity for HFAs to serve our

communities through rental development programs. Like many states, Alaska experienced a double-

whammy from 2006-2010 as subsidies became scarcer while development costs rose. By 2012,

AHFC’s collective rental subsidies for LIHTC deals were 15% less than their 2008 levels.

Time - An integral cost factor in Alaskan projects is time. Time savings are high-yield, low-

hanging fruit. Many communities are off the road system (requiring barge delivery), and prime

building seasons are only five months long. The longer project sponsors idly wait for funding

decisions, the greater their risk is of missing an efficient start date for construction that avoids winter

building. The consequences of missing optimal start dates are value-engineering (quality↓), stopping

the project to scope additional funding, and over-leveraging on debt to absorb the cost escalations.

Money - In 2006, AHFC funded 95.26% of the total units proposed in the LIHTC application

round when average newly constructed units cost $247k. When per unit costs reached their peak in

2010, AHFC funded 50.71% the total units proposed in the LIHTC application round and average

newly constructed units cost $356k. If the rate of per unit cost escalation from 2006 through 2010

went unchecked, forecasted new construction costs would have reached $420k / unit by 2012. These

untenable cost escalations directly threatened AHFC’s capacity to serve Alaskans housing needs.

Achieve Measurable Improvements in Agency Operations

Our development community initially greeted our one month application processing goal with

skepticism. An informal survey of LIHTC developers operating in multiple states (including one

with experience in 42 states) revealed the time they typically expect HFA’s to take processing and

scoring applications is 3-5 months. Our developers had never heard of any HFA issuing an award

notice two weeks after an application due date. Well, we did it, and nobody appealed our process.

“Never have the decisions come out so quickly…early decisions

by AHFC had a significant positive benefit on our project”

Developer with 10+ year LIHTC history in Alaska

In 2012, the new construction units cost $5.5M less than an equivalent new construction

count would have at 2010 prices. The 2012 new construction costs per unit (including acquisition,

demolition and reserves) are $59k / unit below (83.34%) the new construction costs / unit from the

peak year, 2010. If the 2006-2010 escalation rate had continued unchecked, the projected 2012 costs

/ unit would have exceeded our realized 2012 costs / unit by over $122k. Put simply, we could not

have funded our 2012 unit count at the 2010 prices.

HFA: Alaska Housing Finance Corporation

Entry Name: Two Weeks Notice

Provide Benefits that Outweigh Costs

The accomplishments noted in this entry were leveraged at zero cost. AHFC’s electronic

application system was already under contract when its cross-function potential was identified for the

rental development programs. Data used to determine and support the objective rating criteria were

pulled from existing sources in the allocation process and public data reported by the State.

Demonstrate Effective Use of Resources

Implementing the online application system, objective review and newly adopted

underwriting framework involved partnership with AHFC’s procurement, mortgage and compliance

monitoring departments. Externally, AHFC’s partners included the USDA RD office (information

sharing during project underwriting), the State of Alaska Department of Labor and Workforce

Development (data for scoring market conditions), and Third party market analysts under contract

with AHFC (underwriting). Our cost savings were realized by leveraging the 2:1 ratio of applicant

subsidies requested over subsidies available through our scored cost containment incentives.

Replicable:

Replicating our processing time improvements requires: an electronic application system, an

objective rating criteria, performing a lot of underwriting preparation before the applications are

received (using known applicant data), and queuing efficient approval paths. Replicating the scale of

our project cost reductions requires a candid evaluation of existing development models, and

following through with a decisive framework that incentivizes changes to those models.

Achieve Strategic Objectives:

Over the past year, proposals have been offered to eliminate once-sacred programs like the

LIHTC. AHFC’s accomplishments from 2011-12 demonstrate responsible stewardship for these

scarce public funds and phenomenal operational efficiency in managing them. These types of stories

help insulate the LIHTC program from criticism and showcase its merits for by program advocates.

AHFC can proudly report achieving the following strategic goals through our innovations:

 Our cost savings avoided relaxing project quality and energy efficiency standards

 Our developer customers now save idle-time costs and minimize risks of winter construction

 We spread our housing subsidies further and at costs with considerably less “sticker shock”

 We evaluate, underwrite and fund complex LIHTC deals faster than private sector banks

 Our story illustrates government working proactively and “walking” the efficiency “talk”

NewConstructionCostsPerUnit:HistoricandProjected

DaysBetweentheApplicationDueDateandAwardAnnouncement

AHFC‐TwoWeeksNotice‐VisualAid