ESBD_368528_1721335978599_EXHIBIT H EXAMPLE_Board Transcript_13June2024.pdf

Jun 13, 2024 TDHCA Board Meeting Transcript by IOD

TDHCA Governing Board Meeting Transcript from June 13, 2024

10:00 a.m. Central Standard Time

TxDOT Greer Building, Williamson Board Room

125 E. 11th Street, Austin, TX

Leo Vasquez (00:00:06):

Morning, I'm calling to order the meeting of the Governing Board of the Texas Department of Housing and Community Affairs. It is

10:05 in the morning on June 13th, 2024, and it's good to see another full house. Thanks for all who joined us yesterday for the Rules Committee meeting. Earlier we had the Audit and

Finance Committee meeting and I found it interesting that those who arrived early to get the best seats, theoretically, all sat in the back of the room when you arrived, and all the front was open. Just found that very odd. Let's start out with roll call

Ms. Farias.

Anna Farias (00:00:51):

Here.

Leo Vasquez (00:00:52):

Mr. Marchant.

Kenny Marchant (00:00:53):

I'm here.

Leo Vasquez (00:00:55):

Okay. Alright. Okay. Mr. Thomas

Ajay Thomas (00:00:58):

Leo Vasquez (00:00:58):

Mr. Harper.

Holland Harper (00:00:59):

Leo Vasquez (00:01:00):

And Ms. Conroy

Cindy Conroy (00:01:01):

Leo Vasquez (00:01:01):

All right. We are all present and accounted for. Good job as usual. So we have a quorum. We'll start out with the pledges led by Mr. Wilkinson.

All Board Members (00:01:18):

I pledge allegiance to the flag of the United States of America, and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all.

Honor the Texas flag; I pledge allegiance to thee, Texas, one state under God, one and indivisible.

Leo Vasquez (00:01:47):

Okay, just other kinds of housekeeping items, of course, silence your devices. This should be kind of a longer meeting than usual, but hopefully we'll keep it moving along. We will, however, have a short executive session in the middle, two thirds of the meeting. And from there we are now at the Consent

Agenda.

Are there any items on the Consent Agenda that a board member or a member of the public wishes to move to action items? Hearing none. I'll entertain the motion on the consent agenda.

Anna Farias (00:02:33):

Mr. Chairman, I move the board approve items one through 14 as described and presented in the respective board action request and reports.

Leo Vasquez (00:02:44):

Thank you. Motion made by Ms. Farias. Is there a second?

Holland Harper (00:02:47):

Second.

Leo Vasquez (00:02:50):

Motion made by Ms. Farias. Seconded by Mr. Harper. All those in favor say aye.

All Board Members (00:02:54):

Aye.

Leo Vasquez (00:02:55):

Any opposed? Hearing none. Motion carries.

Mr. Wilkinson, are your papers in order?

Bobby Wilkinson (00:03:07):

Yes. Chairman.

Leo Vasquez (00:03:08):

Item 15, the executive director's report.

Bobby Wilkinson (00:03:14):

I'd like to highlight if you'd like to look at it. Item 12. It's a report we put on consent every month, pandemic-related programs. As you know, we include a summary there with the pandemic related programs we're administering and I'm going to give you a high level summary of where we are with that. We had

22 separate allocations we received or had reprogrammed to us.

Of those 22 allocations, nine were brand new programs while the remaining 13 were additional allocations, often with new rules, restrictions and requirements of existing programs like ESG, LIHEAP, weatherization, and CSBG. Of those 22 allocations, 10 are completely done and closed. Out of the dozen remaining six or more than 95% expended the larger programs Homeowners

Assistance Fund, Texas Rent Relief, and the additional energy assistance LIHEAP dollars we got are still considered open, bordering long ramp down periods because of audits, reconciliations, and handling refunds among other things. Most of the remaining programs are by design longer running such as

CDBG, HOME ARP, and BILWAP. Off the top of my head, HOME ARP has a September 2030 expenditure deadline, so it's going to be a couple of years. Yet these 22 allocations represent $4.6 billion of which more than $4.1 billion has been expended. It's 90%.

Most impressively, we've helped about 6.1 million individuals and provided an additional 687,000 meals. We still have a ways to go but are pleased with how much we've been able to help

Texans and utilize funds effectively

(00:05:03):

In our single family and homeless programs division. Rosy Falcon has shared with me that with the conclusion of the ESG CARES

Program, at the end of this month, we will have expended 99.82% of the head allocation of $103.6 million. That program has helped 98,723 people in vulnerable life situations throughout

Texas. Kudos to past and present members of the ESG Cares team:

Natalie Burtzos, Cecilia Nurse, Zach Gibson, and Alexa Johnson.

Natalie led the team and did a great job for us. Also want to mention that Abby Versyp, Rosy, and Andre Adams attended the

Texas Network of Youth Services conference in Houston in last week. They learned about the needs and challenges of youth experiencing homelessness as well as those exiting foster care.

We presented at their statewide collaborative meeting and made some connections with providers and other agencies in the state serving this population

(00:06:02):

In our community affairs division and disaster assistance, you may know that much of the state is currently covered by a federally declared disaster for severe weather events that have occurred this spring in Texas. We're doing our small part to help as much as possible. We've approved $25,000 awards of CSBG discretionary funding to the Southeast Texas Regional Planning

Commission and South Plains Community Action Association.

Michael De Young's team is coordinating this effort to assist low income families impacted by the recent storms and flooding.

Both organizations also are working closely with local and federal officials to help impacted families recover and get back on their feet and in policy and public affairs.

Final note, Chris Smith is leaving us, sadly we have to say to farewell to Chris who has worked in our legislative affairs shop for the last three years. Chris, are you here? There you are, stand up. Wave. Yeah, so Chris and I were in budget policy at the Governor's Office and then after getting permission I stole him a year or so after I got here, but he's moving on to bigger and better things. It'd be tough shoes to fill. Chris, thanks for all your help. And that is the end of my prepared remarks.

Leo Vasquez (00:07:21):

Great, thank you. Any board members have questions for Mr.

Wilkinson?

Anna Farias (00:07:27):

Mr. Chairman, just very quickly I want to thank the executive director and I know that based on the way Texas does things and how quickly they get their money out, that there are quite a few states that actually call Texas to find out how did you manage to do this. Oh, and by the way, how can we do audits to put away bad people because I know you guys are doing it. So with that, I want to congratulate, especially with all the money that has to go out to the people that need it. Thank you.

Leo Vasquez (00:07:57):

Great, thank you. Moving on to item 16 of the agenda: Report on the Meeting of the Internal Audit and Finance Committee and board member Thomas will be making that presentation.

Ajay Thomas (00:08:07):

Thank you Mr. Chairman, fellow board members. Good morning everyone, welcome. The Audit and Finance Committee met this morning at 9:30 AM. In that meeting, Mark Scott, Director of

Internal Audit, presented three report items to the committee:

the internal audit report on the multifamily asset management division ownership transfer function; the internal audit report on the multifamily asset management division amendments and constructions status reports functions; and the report on the status of internal and external audit activities.

Mr. Joe Guevara, Director of Financial Administration, presented two action items to the committee, the fiscal year 2025 operating budget and the fiscal year 2025 house finance division budget. The committee voted to recommend approval of both budget items to the full board here today and Mr. Guevara will be presenting them to the board on the next action items.

Mr. Chairman that concludes my report on the meeting of the

Audit and Finance Committee. I'm happy to answer any questions there might be.

Leo Vasquez (00:09:14):

Any questions for Mr. Thomas and we're about to hear in the next two items from Mr. Guevara? So thank you for that report. We're going to move on to items 17 and 18 on the agenda. I'm told we are taking 18 before 17, is that correct?

Joe Guevara (00:09:35):

Yes sir.

Leo Vasquez (00:09:37):

Okay, so item 18 is: Presentation, discussion, and possible action on the SFY 2025 Operating Budget. Mr. Guevara.

Joe Guevara (00:09:40):

Good morning chairman and members. Joe Guevara, director of

Financial Administration. Item 18 is related to the approval of the department's operating budget for fiscal year 2025.

Earlier this morning we discussed the operating budget during the audit and finance committee meeting. This budget adheres to the spending limits set by the General preparations Act including a 5% salary increase for state employees and sets the executive director's salary. We project sufficient revenue from various sources to cover our ongoing operational costs. In summary, the department's operating budget for fiscal year 2025 is $50.9 million with a 50.8% decrease of $52.6 million.

The proposed budget is comprised of three components: first permanent activities with a budget amount of $33.8 million and a

7.3% increase of $2.3 million, which supports our core operations. Its rise is primarily driven by the 5% across the board salary increase and other staffing adjustments. Next, the temporary programs with a budget amount of $14 million and a

78.4% decrease of $50.8 million. The significant reduction reflects a successful completion of some COVID-related initiatives. We anticipated more gradual decline in this category as the remaining programs conclude and last the capital projects budget with a funded amount of $3.2 million and a 41% decrease of $4.1 million.

The reduction is in line with the biannual progression of the implementation of a major software project to enhance our multifamily activities. This budget prioritizes fiscal responsibility while ensuring adequate resources for administrative operations.

(00:11:28):

We also proposed a total of 399 FTEs of which 270 are permanent positions, 65 are temporary and 64 are part of the Manufactured

Housing Division. Our FTEs count decreased by 23 composed of a reduction of 25 temporary positions and the addition of two permanent positions to comply with HB 2071.

At this time I would like to just take a moment to express my sincere appreciation for Department leaders for their collaboration and the budget team of Paul Ford, Reno Daniels, and Krissy Vavra for their outstanding work as we got this document together. This concludes my presentation and I welcome any questions or feedback on the proposed budget.

Leo Vasquez (00:12:13):

Okay. Do any board members have questions for Mr. Guevara? I have to say it's just ... I'm very impressed with the department being able to cut their budget 50%. It's just impressive, although there's reasons behind that out of our control.

So we need to take this item first for an actual motion. Okay, so on item 18 of the agenda as just now presented, I'll entertain a motion.

Ajay Thomas (00:12:47):

Mr. Chairman, I move the board approve the state fiscal year

2025 operating budget and submit it to the Office of the

Governor and the Legislative Budget Board, all as described in the board action request resolutions and associated documents on this item.

Cindy Conroy (00:13:01):

I'll second.

Leo Vasquez (00:13:02):

Motion made by Mr. Thomas, seconded by Ms. Conroy. All those in

All Board Members (00:13:07):

Leo Vasquez (00:13:07):

Now moving back to item 17: Presentation, discussion, and possible action on the SFY 2025 Housing Finance Division Budget.

Mr. Guevara.

Joe Guevara (00:13:19):

Thank you. Now I would like to turn your attention to item number, number 17, the housing finance division budget. This item pertains to the housing finance division budget, which is a subset of our internal operating budget submitted in compliance with Texas Government Code 2306 and the General Appropriations

Act. This budget total is $22.1 million which represents expenses funded specifically from fees generated by single family bond multifamily bond tax credit and compliance activities. At this time, I am available for any questions you have on this item and prepare to certify this budget as well.

Leo Vasquez (00:13:55):

Alright, thank you there. Any board members have questions on this item? If not, again, thank you for your presentation in the earlier committee meeting and then the briefings for the board members individually. So I'll entertain a motion on item 17 of the agenda.

Ajay Thomas (00:14:15):

Mr. Chairman, I move the board, approve the state fiscal year

2025 housing finance division budget and submit it to the Office of the Governor and the Legislative Budget Board, all as described in the board action request resolutions and associated documents on this item.

Anna Farias (00:14:28):

Second

Leo Vasquez (00:14:28):

Second motion made by Mr. Thomas, seconded by Ms. Farias. All those in favor say aye.

All Board Members (00:14:34):

Leo Vasquez (00:14:34):

Any opposed? Hearing none. Motion carries. Thanks Joe.

Okay, item 19 of the agenda: Presentation, discussion, and possible action regarding the Issuance of Multifamily Housing

Revenue Bonds (Gulfway Manor Apartments) Series 2024 Resolution

No. 24-020, and a Determination Notice of Housing Tax Credits.

Ms. Morales.

Teresa Morales (00:14:57):

Good morning. Teresa Morales, Director of Multifamily Bonds.

Item 19 involves a bond issuance for the acquisition and rehabilitation of 151 units in Corpus Christi that will continue to serve the general population. Half of the units will be restricted at 50% of the area median income and the other half will be restricted at 60% of the area meeting income. The financing structure of this transaction mirrors that of two transactions that were actually brought before the board last month in that it involves an FHA 221D-4 loan from HUD. The bonds will be initially publicly offered and issued as short-term tax exempt fixed rate bonds that will be fully cash collateralized throughout the construction period with the proceeds of the FHA loan. The bonds will remain outstanding throughout the rehab period, which is estimated to be between 12 and 14 months and upon completion they will be redeemed with funds on deposit in the collateral account.

The department is required to hold a public hearing for each of its bond issuances. For this particular hearing, there were no attendees and there has been no public comment received either in support or opposition.

Staff recommends approval of bond resolution number 24-020 and a principal amount not to exceed 29 million and a determination notice of 4% housing tax credits in the amount of $2,215,055.

Leo Vasquez (00:16:28):

Thank you. Do any other board members have questions for Ms.

Morales before I ask mine?

I'm a bit confused on this even though the structure and format, it's not really that that I'm questioning, but so this is in

Corpus Christi, correct? Nueces County?

Teresa Morales (00:16:50):

Correct.

Leo Vasquez (00:16:51):

Yet the housing finance corporation that's underwriting is the bond issuer is Cameron County.

Teresa Morales (00:16:58):

The bond issuer is TDHCA.

Leo Vasquez (00:17:01):

What's the Cameron County portion of this?

Teresa Morales (00:17:09):

Where would that information be?

Leo Vasquez (00:17:13):

This was the prior, in 2007 when they ...

Teresa Morales (00:17:17):

Correct. So this is a re-syndication. Right, so they were the issuer originally in 2007.

Leo Vasquez (00:17:24):

Okay, so we're effectively financing out

Teresa Morales (00:17:27):

We're re-syndicating. Correct.

Leo Vasquez (00:17:30):

Okay. In 2007, because this is a rehab, the same property also did a rehab and do we know how much the bonds were at that point or how much the rehab was at that point?

Teresa Morales (00:17:48):

I do not know.

Leo Vasquez (00:17:54):

Yeah, it was big enough where there was a bond issuance, so we've got to assume that and it was a 1971 property before that, so we've got to assume as $20 million plus on the rehab

Teresa Morales (00:18:08):

Back then?

Leo Vasquez (00:18:09):

Back then, I mean, yeah. Okay. So for properties that were just done rehabbed in 2007, what's the math on that? 17 years ago?

We're going to do another project with a total development cost of $53,900,000, $50 plus million dollars. By my math, that's

$357,000 a unit.

Teresa Morales (00:18:44):

Leo Vasquez (00:18:46):

On a rehab of a property that was just rehabbed 17 years ago.

Teresa Morales (00:18:52):

Hard to know in 2007, so we do have rehab costs per unit as a minimum threshold in the QAP. I don't recall exactly what that figure was back in 2007, so hard to know what the scope of the rehab was back then. For the present property, they are planning to do $84,000 a unit in rehab, which well exceeds what our minimum is for 2024, which is $30,000.

Leo Vasquez (00:19:22):

Maybe my math is wrong.

Bobby Wilkinson (00:19:23):

So on top of that, $84,000 a unit, it's what ... acquisition finance costs?

Teresa Morales (00:19:27):

So no. So when you're looking at the total development cost of

$355k a unit, there's a number of things that go into that overall figure. One would be the acquisition. One would be soft cost and financing. Another is reserves. Another is contingencies. So there's a lot of line items that factor into the overall 355. When we look at the rehab standards in the QAP and what we expect to see as far as the cost per unit with direct building cost, that minimum for a property of this age is

$30,000 and what this applicant is proposing well exceeds that of $84,000. So that's direct, what's going into benefiting tenants. When you look at the acquisition alone, it's about

$155,000 per unit, which is around where we were for a similar property in Corpus in 2020 by the same applicant, which was around $125, $130,000 per unit as an overall acquisition price.

So that factors into the 355. Then.

Leo Vasquez (00:20:41):

So we're at 200 so far.

Teresa Morales (00:20:42):

So one of the other ones that I talked about was financing costs. When you look at deals done in 2020 to do a construction loan or a bridge loan, interest rates were three and a quarter.

Now they're upwards of seven and a half. So that's driving up that 355 because the financing costs are higher. There's reserves that factor into that, which for rehab could be larger.

So it's not the 355 again takes into account a lot of other things than just the rehab, the scope of work that's being done, Leo Vasquez (00:21:20):

Just adding up these numbers and again, it's not a ground up construction. I just feel like there's something that I can't understand from the materials on why this is such a big per unit cost.

Teresa Morales (00:21:39):

Again, it's not just materials.

Leo Vasquez (00:21:41):

I understand that and even given those numbers that you just added up, you went from roughly $200,000 to 350 on financing costs. I mean that just seems, Teresa Morales (00:21:51):

Not solely financing but contingency developer fee reserves.

There's other things that factor into that too.

Leo Vasquez (00:21:58):

It's a lot and I just think that we need to be, as a department, paying more attention and questioning some of these costs that keep getting presented to us as we keep, whether it's bonds or tax credits or what have you. These numbers just seem to be going way too high, way too fast. Mr. Marchant, Kenny Marchant (00:22:22):

So when the underwriting takes place, is there an appraisal done by a third party?

Teresa Morales (00:22:31):

Yes.

Kenny Marchant (00:22:32):

That says when these units are finished, they will be worth

$355,000 per unit.

Teresa Morales (00:22:43):

The appraisal speaks to the as-is value of the property. It doesn't speak to this $355,000, it's just the property itself.

Kenny Marchant (00:22:53):

Okay. So at no point past then is there any reality, is the finished cost has any reality relationship to reality as far as the fair market value of a unit in Corpus Christi, Texas, in that shape? So if you went and picked a similar unit two blocks away that was in that finished state, what would be the price? I mean, will the tax appraisal value on the property be that much for the tax rolls? So I mean none of that actually relates to what we do. We just take an appraisal of an existing unit that's sitting there un-renovated and then make a recommendation and

HUD has already agreed to make the loan on this final loan.

Teresa Morales (00:23:56):

Kenny Marchant (00:23:57):

So how did, I mean, so HUD underwrote, so as long as HUD will underwrite that 355, it's not, Teresa Morales (00:24:06):

HUD will underwrite it. The appraisal that we receive, again, it's required for acquisition rehabs. There's certain requirements in the QAP that this appraisal has to meet, but there's no flexibility within the rule for staff to interpret or suggest that that value is inaccurate. But yes, all of these transactions are, or this particular one is going through the

HUD underwriting process where they would vet and they would be looking at the costs a lot deeper. Not to say that our own underwriting doesn't do that, but we have to operate within what the QAP.

Kenny Marchant (00:24:46):

Well, I mean you shouldn't have to if you're not going to make the final loan, but HUD has made the final HUD basically said yes, it's going to be worth $355,000 a unit when you get through and we're willing to make the loan on it so it becomes irrelevant to us as an agency.

Teresa Morales (00:25:05):

And the other thing to keep in mind is this property is restricted by a HAP contract that covers all of the units and so there's a proposed rent increase with that HAP contract which

HUD is approving and setting those rents at where they believe they can be, recognizing that the tenant is still only going to pay 30%.

Kenny Marchant (00:25:29):

Yeah, thank you. I have the same questions the Chairman does, but I haven't. It's just because I reconcile it in my mind.

Leo Vasquez (00:25:41):

Okay. I have one more line of questioning on this. So the seller and the buyer in this case, is there a common ownership, a partially common ownership between who's a seller in this and then what entities or the principals that are buyers?

Teresa Morales (00:26:05):

It is a related party transaction. So the current or an affiliate of the applicant acquired the property, I want to say

2022. And so yes, there is common principles.

Leo Vasquez (00:26:20):

So in effect when we're talking about the acquisition cost of

125 or whatever a unit, we could be just helping finance a cash out for the seller, just selling to himself and refinancing and taking a big hunk of cash out probably.

I just have issues with this whole structure given the numbers that don't seem to make sense to me for a rehab of a property I just rehabbed 17 years ago, Teresa Morales (00:27:00):

It's probably something that could warrant more discussion as we start to see particularly on the 4% side, not just rehabs, but either old Section 8 properties that are a 1970s vintage or re-syndications. I think that that's more prevalent on the 4% side than it is on the 9% side. So as these properties are coming out of year 15 or even year 20, if there's a conversation about those costs, about appraised values about, I mean that's really a policy conversation about what the department would expect to see and limits that we would like to see on cost per unit or something things other than just the rehab that's going into the property. But as it stands right now, again, we've got a QAP that dictates what those appraisals need to include and that's what we have to operate by.

Kenny Marchant (00:28:03):

But you're talking about the appraisal, their acquisition appraisal when, Teresa Morales (00:28:08):

The appraisal that they sent.

Kenny Marchant (00:28:09):

The president, owner, acquired it from himself basically he went and got it appraised and he said, okay, so we're going to plug in the appraisal price and they're going to have to change their structure, ownership structure.

But I guess my deeper question is are these units dilapidated to the point they haven't been rented or are they going to have to empty every tenant out and then I mean is this adding to the housing stock? Or just, is it already existing stock?

Teresa Morales (00:28:44):

It's already existing. It's already affordable, but it is doing, it's renovating the interiors as well as some exterior of the units to improve the condition of those and then we're also extending the affordability with this award.

Kenny Marchant (00:29:06):

Okay. I just don't know how that can be affordable at $355,000 a unit. I don't know how you have affordability.

Leo Vasquez (00:29:16):

This isn't Austin. This is Corpus Christi.

Kenny Marchant (00:29:19):

Okay. Thank Mr. Chairman

Leo Vasquez (00:29:21):

Ms. Farias?

Anna Farias (00:29:23):

Ms. Morales, did HUD have at least one question about this was rehabbed in 2017 and now we're going back for this huge amount.

Did they have any questions at all?

Teresa Morales (00:29:36):

So those are conversations that take place between HUD and the

HUD lender of which the department isn't always a party to, but keep in mind that while the applicant is commissioning an appraiser to complete, and a lot of other third party reports too, the HUD lenders also commissioning their own and so there's again a vetting through if it's acquisition or other concerns and so that's part of that process.

Leo Vasquez (00:30:14):

I just have, we're giving it up to $29 million in bond proceeds, tax credit proceeds. I just can't help but think that this developer is figuring out a way to just get a whole bunch of cash by its transferring it from one pocket to the other. It just it's we have to as a department, be questioning when we see some of these that this uses bond cap, right?

Teresa Morales (00:30:48):

Leo Vasquez (00:30:50):

And it is not for anything new and it appears to me based on the materials presented to be not benefiting housing. It seems to be benefiting this particular development team, ownership team, I mean more power to 'em, good for them to figure out how to make it happen, but, Teresa Morales (00:31:11):

Which would be a wholesale sweep of the program itself. Because this isn't uncommon.

Leo Vasquez (00:31:19):

We need to be figuring out how to ask these questions and figure out for public purposes, Holland Harper (00:31:29):

It appears to me that we need to look at the rents and your cap rate to cover the amount capital that's going into this, which I don't have. I've just been going, I can't see any of that to see that it will actually make the no payment and cover. You're talking about 355K a door that's more than hotel cost. I'm not talking about high end, but just normal hotel costs. But in the package I don't see that.

So how do I help you? How do I help you make this more easy to see and be reasonable? Do we want to put new product on the street? Yes. Do we want it to be reasonable and fair for all parties? Yes, but it just doesn't smell like it's the right thing to do here. So how do we help you? What would be the better way to make this work?

Bobby Wilkinson (00:32:17):

I mean, we could set different priorities to begin with, then we wouldn't have brought you this. So if you want to for at least for our amount of multifamily bond cap, if we want to just prioritize new construction or have a total cost per door limit, I don't know if we'll have enough takers when bond cap is a little more plentiful, but we can do that.

Leo Vasquez (00:32:39):

And let me, not everyone can see Teresa’s face right now ... to be fair, we recognize that the department, you and your team are given parameters that if the square peg fits in that square hole and they check all the boxes and everything, you're to this point, it's like you have to do it. It meets all the criteria.

They have their lawyers and consultants and everything figure out this works. They'll automatically approve it like they always have. So I know this is putting you kind of on the spot and well, I told him I'd be asking these questions, so I guess I don't believe you have a ... I don't expect an explanation from you standing here right now at this moment. And again, this isn't, I think our questions aren't, please don't take it as a personal attack on you and you, your team. You're working within the parameters that have been set out before you

(00:33:58):

Just note that this is going to start being a change. Probably you'll be getting more questions like this and it's not you, it's talking to all of you out there in the audience here. We're going to start trying to put forth more questions and do reasonableness, reasonability questions on how are we spending this much money? We're not spending it, but we're using what are limited resources and is this the best way to do it? In this particular instance, it appears to me we're just putting cash into a developer's pocket rather than advancing the mission of increasing more housing.

Anna Farias (00:34:50):

Mr. Chairman I have another question. Ms. Morales, I initially asked you, did HUD have at least one question of this proposal.

So then my second one is, at what point in time does HUD bring you into the conversation if at any time?

Teresa Morales (00:35:12):

I do not have an answer for if HUD has questioned this particular thing. What I can tell you is that we have weekly conference calls with the HUD lender, with the working group, with equity, with debt, with working through whatever issues come up. But again, we as the Chairman noted, we've got our box and it fits within our box so I can't say this isn't right.

Okay, so we as, because we are a conduit issuer, yes, we're issuing these bonds, but they're not an obligation of TDHCA.

It's an obligation of the lender, and in this particular transaction it's cash collateralized. We're going to be out of the picture in two to three years.

(00:36:09):

We rely heavily on those third parties on debt on equity to really hone in on what those numbers are. Operating expenses, revenue, that's more there because they're on the hook. And so again, we have these parameters that we work within and if something doesn't smell right, we're still kind of limited as far as yes we can question it, but ultimately what is it that I bring before this board? It can't be, “it doesn't smell right, this isn't right,” but it fits our box and if there's objections or if this is venturing on these costs per unit for a rehab deal, it's just out of control. It's too much. This is not the policy that the department wants, then that's direction that we need and conversations with the industry on what's driving this up and this is what we expect to see, not what we have been.

Anna Farias (00:37:12):

Okay, thank you.

Bobby Wilkinson (00:37:14):

Teresa, is this that different than other rehabs we've been doing?

Teresa Morales (00:37:19):

I would say this is probably on the high side, but there's also rehabs that are $250,000 a door. There's some that are $400,000 a door here in Travis County. There's new construction that's

$400,000 a door. So is that too much new construction $400K? I mean it's a bigger question.

Kenny Marchant (00:37:47):

Chairman, Leo Vasquez (00:37:50):

One more then let's wrap up this conversation here.

Kenny Marchant (00:37:52):

Do we get to a point where we run out of cap? Have we ever run out of cap? Have we ever, Bobby Wilkinson (00:38:00):

Bond cap? Yes.

Kenny Marchant (00:38:01):

Yeah. And are we in danger that ... I think the overall fear on my part is that if we run out of cap and we can't do other deals because we did this deal, shouldn’t we have some ranking in our system that says we're getting more units by doing these other two deals instead of this deal.

Bobby Wilkinson (00:38:25):

Teresa added scoring for our multifamily bond cap a couple years ago, we could incorporate something that takes cost into consideration.

Kenny Marchant (00:38:32):

Well if we have an unlimited bond cap, I understand, but at some point HUD is making a 40-year, non-recourse mortgage on this and so there's nobody on the hook at that point. They make and it's the American people that are going to be eating that thing if it defaults on it because they're basically HUD federal government.

Bobby Wilkinson (00:38:56):

One thing to note with our multifamily loan cap is a sliver of overall, so we would still be on the tax credit side for all the

HFC/PFC deals that we're choosing, Kenny Marchant (00:39:07):

Okay. So it doesn't endanger any of those.

Bobby Wilkinson (00:39:12):

We would still be the tax credits on deals like this even if we weren't the issuer, but we could prioritize our bond cap.

Kenny Marchant (00:39:20):

Bobby Wilkinson (00:39:22):

Is the developer here to talk about this or is it just, Teresa Morales (00:39:24):

They could not. They're from out of the state and they could not make it.

Leo Vasquez (00:39:28):

They're not even state people. They're not even Texans.

Anna Farias (00:39:32):

Mr. Chairman, where are they from?

Teresa Morales (00:39:36):

Seattle. They do have other properties in Corpus Christi. This is not their first project in Texas. This is not their first project in the area.

Leo Vasquez (00:39:47):

Okay. Well despite all the concerns that have been voiced here, I mean I think bottom line, they've met the criteria that is in place at this time and staff is recommending to proceed with this. So staff's recommendation is to approve this resolution and corresponding et cetera. So does anyone care to make a motion on item 19 of the agenda?

Holland Harper (00:40:36):

I move the Board approve Resolution number 24020 regarding issuance of taxes and multifamily housing revenue bond series

2024 and issue determination notice for the 4% housing credits to Gulf Way Manor Apartments all as described, authorized, expressed condition in the board action request resolutions and associated documents as a, Cindy Conroy (00:40:55):

I'll second

Leo Vasquez (00:40:57):

Motion made by Mr. Harper, seconded by Ms. Conroy. All those in favor say aye. Aye. Did I hear one from Ms. Farias?

Anna Farias (00:41:10):

No.

Leo Vasquez (00:41:11):

Okay. We had, okay by show of hands, say aye. Okay, I got three ayes and then no's?

Anna Farias (00:41:27):

No, Bobby Wilkinson (00:41:29):

You’re the decider, Chairman, Leo Vasquez (00:41:30):

So is it a majority of those casting votes?

Beau Eccles (00:41:38):

Leo Vasquez (00:41:41):

So just to make my point, if I abstain, it passes three to two.

Beau Eccles (00:41:47):

Leo Vasquez (00:41:50):

Because I believe it should pass, but I don't want to be part of that so I can abstain. It'll pass. Three, two. Yes, we good with that? Okay. I officially abstain. Let the record reflect Mr.

Marchant and Ms. Farias voted against approving the resolution, and the remaining board members did and resolution passes. Thank you Ms. Morales.

Now let's get real tough with Banuelos. Okay, item 20 of the agenda: Presentation, discussion, and possible action regarding an increase to the Housing Tax Credit amount for Norwood

Estates. Mr. Banuelos.

Rosalio Banuelos (00:42:38):

Morning, Rosalio Banuelos, Director of Asset Management. Norwood

Estates received a 4% housing tax credit award in 2019 for new construction of 228 units in Austin.

On October 14, 2019, a determination notice was issued with an annual tax credit amount of $1,467,918. Construction of the development was completed in 2023 and the cost certification documentation is currently under review by the department. The cost certification request for an annual tax credit amount of

$2,431,282, which represents an increase of $963,364 or 65.63% from the amount reflected in the determination notice.

The representative for the development owner explained that the development experienced construction delays and incurred increased cost during construction.

Staff's review of the cost certification indicates that total development cost increased approximately 12 and a half million or 28% from $43.8 million to $56.3 million. The owner explained that direct construction costs were underestimated at the time of application as the applicant did not have construction bids at that time. Additionally, there were several change orders totaling to $2.7 million. The cost increases were due to increased lumber costs during this timeframe. The city also added unanticipated offset construction work and there was also a delay in obtaining transformers and meters and a delay in getting the detention pond details approved by the city. Grading plans also had to be reissued for the project and this resulted in the need for additional concrete for retaining walls and additional dirt haul off.

(00:44:22):

General conditions and overhead cost increased due to construction delays and the construction delays resulted in an increase to construction interest. Developer fee also increased approximately $1 million as a result of the higher cost. In addition, the credit calculation at application was based on an applicable percentage of 3.45% while the credit amount at cost certification was calculated using a 4% rate due to supplemental bonds that were funded in May of 2023. Staff's analysis of this transaction at cost certification concluded that the development supports the requested annual tax credit allocation of

$2,431,282 and board approval is required because the requested increase exceeds 120% of the amount reflected on the determination notice.

Staff recommends approval of the increase in the tax rate award.

The development owner will be required to submit the tax exempt credit increase request fee and all required pending documentation for the cost certification review prior to the issuance of 8609s. That concludes my comments and I'm available for questions.

Leo Vasquez (00:45:31):

Thank you. This was just to me another irritating “how could it possibly increase that much” but it's cost certification and it's, Rosalio Banuelos (00:45:46):

All these are the final cost. This is what the owner’s CPA identified. We at the staff level did not find any reason to adjust the credits so supported.

Leo Vasquez (00:45:56):

And they miss by $50,000 a unit, underestimating on their cost.

Rosalio Banuelos (00:46:02):

Yeah, and I will say it's a 2019 development.

Leo Vasquez (00:46:05):

And then the last question, why did it take so long to get to us here in mid-2024?

Rosalio Banuelos (00:46:13):

Yeah, so cost cert is usually, so the development completed construction in 2023, so that's part of all of this, the reason for the increase. So longer timeline and, Leo Vasquez (00:46:24):

We had Covid and, Rosalio Banuelos (00:46:25):

Covid, right. So all of that led to having the higher cost than taking longer.

Leo Vasquez (00:46:33):

Do any board members have questions on this item besides just being irritated? No? Okay. In that case I will entertain a motion on item 20 of the agenda. Mr. Thomas, were you about to make a motion?

Ajay Thomas (00:46:58):

Sure. I move the board, approve the housing tax credit increase for Norwood Estates all as described, authorized in the board action request resolution and associated documents on this item

Anna Farias (00:47:10):

Chairman, grudgingly. I second the motion.

Leo Vasquez (00:47:13):

Motion made by Mr. Thomas, seconded by Ms. Farias. All those in

All Board Members (00:47:17):

Leo Vasquez (00:47:18):

Moving on to Item 21 of the agenda: Presentation, discussion, and possible action regarding a waiver and extension of the 10%

Test submission deadline in 10 TAC §10.401(a) and 10 TAC

§11.2(a) for 3300 Caroline Street. Mr. Banuelos.

Rosalio Banuelos (00:47:43):

This development received a 9% housing tax rate award in 2020 and reallocation of credits under Force Majeure in 2021 and 2022 for the construction of 149 multifamily supportive housing units in Houston. All units are designed as single room occupancy or

SRO units that will provide housing for previously homeless persons. Construction of the development is still ongoing and the owner has now requested a waiver an extension of the 10% test documentation delivery date identified in the asset management rules and QAP.

(00:48:16):

The request letter states that due to human oversight the required 10% test package that was due on July 1, 2023, was not submitted to the department until May 28, 2024. The report of independent auditors issued in May of 2024 states that the basis incurred by the owner as of June 30, 2023, was $15.4 million which represents 34.53 of the total recently expected basis for the development which meets the requirement in the federal code.

Additionally, the 10% test package indicates that the site acquisition cost of $6.96 million, which is 15.5 of the recently expected basis was incurred on October 3, 2022. It should also be noted that the third party inspection report dated as of

April 30, 2024, indicates the development was 74% complete as of

March 25, 2024. So term to completion is anticipated to be achieved by August 31, 2024. The representative for the owner explained that the owner and its affiliates are experienced developers in affordable housing in Texas and that this is the first time an oversight of this kind has occurred.

(00:49:28):

They further stated that the owner has implemented safeguards for all of their projects to avoid a repetition of this incident. Without this waiver and extension, the development would be jeopardized and if the requested waiver is granted, the owner can continue to develop the project as represented in the application. Staff recommends approval of the waiver of the 10% test submission deadline in the asset management rules and the

QAP and the request to extend the 10% test documentation delivery deadline from July 1, 2023, to May 28, 2024. However, due to failure to meet the original 10% test deadline, staff recommends assessing a two-point penalty deduction for each submitted application by the owner or their affiliates in the

2025 competitive application route. As allowed in the QAP, that concludes my presentation and not available for questions.

Leo Vasquez (00:50:17):

Okay, clarify or repeat, when was this required documentation due?

Rosalio Banuelos (00:50:24):

July 1, 2023.

Leo Vasquez (00:50:25):

July 1, 2023, and it was submitted May 28, 2024.

Rosalio Banuelos (00:50:30):

24.

Leo Vasquez (00:50:35):

Do we have some sort particular system that says, “Hey, here's reports that are overdue?”

Rosalio Banuelos (00:50:42):

There is not such system in place and that has been something that has been discussed internally earlier in this meeting. It was brought up that the department is looking at updating software that will help with this kind of process. For the moment or time being we're also going through prior years of awards and identifying properties that haven't submitted reports. This property is a good example. It started out as a

2020 development became a 2021, then a 2022 because it didn't get force majeure in 2023. It is late now, so it's something that we're looking at internally.

Leo Vasquez (00:51:18):

Okay. And you started bringing up my next question or point since this is a 2020-2021-2022 project, it would seem like their advisors and their team was up on asking for extensions and extra credits and everything like that, but they weren't on top of their reporting. I mean is that correct?

Rosalio Banuelos (00:51:49):

It seems like after 2022 when the last extension was approved, and I believe there's a representative from the owner that is here that is available answer questions, but it sounds like there were changes within the organization that led to this oversight.

Leo Vasquez (00:52:07):

And the recommended penalty is two points per project for next year's cycle?

Rosalio Banuelos (00:52:16):

That's correct.

Leo Vasquez (00:52:20):

Is that written in?

Rosalio Banuelos (00:52:22):

It's in the QAP. So this is an option. I mean the QAP also speaks to them not being allowed to participate I believe and the subsequent year. But this two point is the maximum point penalty that is allowed under the QAP.

Leo Vasquez (00:52:44):

So it's either two points or make them skip a year, I believe assuming they're even planning on submitting may or.

Rosalio Banuelos (00:52:54):

May not impact them.

Leo Vasquez (00:52:57):

Mr. Marchant?

Kenny Marchant (00:52:58):

And the explanation was human error?

Rosalio Banuelos (00:53:01):

Kenny Marchant (00:53:03):

And that is this a developer that we deal with on a regular basis? Consultant we deal with on a regular basis?

Rosalio Banuelos (00:53:12):

I can't think of how many developments they have with us, but they don't do many.

Kenny Marchant (00:53:19):

Okay. And we have a choice of two points are just disallowing them in the next round.

Rosalio Banuelos (00:53:24):

Correct? We recommend the two points or yes.

Kenny Marchant (00:53:32):

Does two points effectively knock them out of round?

Rosalio Banuelos (00:53:37):

That is my understanding considering how competitive the round is.

Kenny Marchant (00:53:39):

For all practice purposes losing two points knocks them out.

Leo Vasquez (00:53:43):

And this is region six. I mean this is Houston Urban, right?

Rosalio Banuelos (00:53:47):

Leo Vasquez (00:53:49):

It's a highly competitive area is what I'm saying. That's my point. Do any other board members have questions or which to

Does anyone wish to speak on this topic before we take a motion on staff's recommendation? Yeah, unless you're trying to argue against the staff's recommendation, it's I'll entertain a motion.

Holland Harper (00:54:26):

I move the Board approve the requested waiver of the 10% Test submission deadline in 10 TAC §10.401(a) and 10 TAC §11.2(a) from July 1, 2023, to May 28, 2024, for 3300 Caroline Street, and impose the maximum two-point penalty deduction to

Applications submitted by the Owner or their Affiliates in the

2025 competitive 9% Tax Credit Application Round, all as described and authorized in the Board Action Request, resolutions, and associated documents on this item.

Kenny Marchant (00:55:03):

I second.

Leo Vasquez (00:55:04):

Thank your motion made by Mr. Harper, seconded by Mr. Marchant.

All those in favor say aye.

All Board Members (00:55:09):

Leo Vasquez (00:55:10):

Any opposed? Hearing none. Motion carries. Thank you.

Moving on to more lighthearted topics on 22 of the agenda:

Presentation, discussion, and possible action on approval of the

2025 Low Income Home Energy Assistance Program State Plan for submission to the U.S. Department of Health and Human Services and approval of the associated 2025 awards. Mr. Reid?

Gavin Reid (00:55:37):

Good morning Mr. Chairman, Board members. Gavin Reed, Planning

Manager, Community Affairs Division. This board action item concerns the LIHEAP program which stands for Low Income Home

Energy Assistance Program. It's a program to help low income households meet their energy needs by assisting with heating and cooling bills and it also helps low-income households control energy costs through weatherization of their homes each year.

TDHCA receives approximately $170 million of LIHEAP funds to provide utility assistance and perform weatherization activities throughout Texas. Back in April a couple months ago, you approved the draft 2025 LIHEAP State plan and for the public hearing process to proceed. This plan is the final plan that we will present to the United States Department of Health and Human

Services. The plan is due by September 1, 2024. This plan will result in contracts with 35 utility assistance agencies and 21 weatherization agencies. These contracts will begin January 1, 2025, and end December 31, 2025.

Public comment on the plan was received from one organization and that comment is summarized and responded to by staff and attachment A. In attachment B you'll find the list of sub-recipients recommended for award. All but one of the sub-recipients have been recommended for award with no conditions.

However, South Texas Development Council has been recommended for award with a condition listed in the board action item. If the condition is resolved by November 30, 2024, then South Texas

Development Council will be issued a LIHEAP contract.

If you approve this board action, we'll send this plan to the

United States Department of Health and Human Services for their review and await their approval. Then issue contracts to the sub-recipients with a start date of January 1, 2025. That concludes my presentation on this board action and I can answer any questions you might have.

Leo Vasquez (00:57:53):

Okay, Gavin, so how do we work the statewide allocation on this?

Is there a formula per population or just based on prior performance of the, Gavin Reid (00:58:06):

No, we have, you're right. It's a formula that is written in our

Texas administrative code and the majority of the formula is based on poverty population within the county.

Leo Vasquez (00:58:20):

And then the agencies that are actually putting out the money, they've had some sort of, what's our vetting process?

Gavin Reid (00:58:31):

Yes. So they go through the previous participation review and approval process, which is run through compliance. They check on past performance and past monitoring and single audits.

Leo Vasquez (00:58:47):

Okay. And then last question, is this the one, the program where, or maybe that's the weatherization where you've had to have shown you've got people on staff to have already done it or weatherization? That's weatherization. Okay. I'm sorry. Related program. Next one. Next one. Alright. Okay. Do any other board members have questions on item 22 of the agenda? The LIHEAP? If not, I'll entertain a motion on 22.

Kenny Marchant (00:59:23):

Mr. Chairman, I move the board, approve the submission of the

2025 LIHEAP State Plan to the US Department of Health and Human

Service…