Affordable Housing:
The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program, a part of the American Rescue Plan, delivers $350 billion to state, local, and Tribal governments across the country to support their response to and recovery from the COVID-19 pandemic.
Recipient governments have a once-in-a-generation opportunity to invest these SLFRF dollars to boost the supply of affordable housing. Under the program’s final rule, “Development, repair, and operation of affordable housing and services or programs to increase long-term housing security” is an enumerated eligible use to respond to the negative economic impacts of the pandemic on households and communities.
To assist recipients in implementing these funds for affordable housing, the Department of the Treasury, the Department of Housing and Urban Development, and the U.S. Department of Agriculture have prepared this guide, which provides a summary of updated guidance related to SLFRF recipients’ ability to use SLFRF funds to invest in affordable housing. The guidance, which can be found in Final Rule FAQs 2.14 and 4.9, was updated in March 2024 and clarifies and expands on the framework in the SLFRF final rule. This “how-to” guide provides examples of how recipients can combine and “layer” SLFRF with other sources of funding to maximize resources and meet housing needs.
• Expanded Presumptive Eligibility: SLFRF permits funds to be used, among other uses, to combat the public health and negative economic impacts (PH NEI) of the pandemic. Treasury’s guidance clarifies two presumptively eligible ways to use SLFRF to fund affordable housing investments under the final rule.
• Option 1: SLFRF funds used for affordable housing projects under the PH-NEI eligible use category are presumptively eligible if the project meets certain core requirements of an expanded list of federal housing programs. See the box below for further details.
• Option 2: SLFRF funds used for the development, repair, or operation of any affordable rental housing unit that has a limited maximum income of 120% area median income (AMI), as imposed through a covenant, land use restriction agreement, or other enforceable legal requirement for a period of at least 20 years. A jurisdiction may establish a longer period of affordability at its discretion.
Under this option, recipients may use SLFRF funds as part of the financing for a mixed-income housing project if the total financing made up of SLFRF funds does not exceed the total development costs attributable to affordable housing units limited to households at or below 120% AMI for the affordability period. For example, if 25% of a project’s units are reserved for families at or below 120% AMI for the affordability period, and 20% of the total development costs of the project are attributable to such reserved units, then SLFRF funds may be used to pay for up to 20% of the total development costs.
• Loan Flexibilities: SLFRF can be used to fund the full principal amount of certain loans that finance long-term affordable housing investments. Among other requirements, the loans must have maturity and affordability covenants of 20 years or longer, including but not limited to loans that fund low-income housing tax credit (LIHTC) projects.
• A broader range of affordable housing investments may also be eligible uses of SLFRF funds under the final rule if they are related and are reasonably proportional to addressing the negative economic impacts of the pandemic and otherwise meet the final rule’s requirements. Depending on the needs of the local rental market, it may be reasonably proportional to address the negative economic impacts of the pandemic by funding units even above 120% AMI that do not fall into the presumptively eligible categories listed above.
• Recipients may consider offering down payment assistance. Examples of this assistance include:
• contributions to a homeowner’s equity at origination; or
• establishing a post-closing mortgage reserve account on behalf of the borrower that may be utilized to make a missed or partial mortgage payment at any point during the life of the loan (e.g., if the borrower faces financial stress).