Feb. 7, 2024 by Mary Scott Nabers
Some people know about Public Facility Corporations (PFCs), but only a few, it seems. Public officials, however, are very familiar with PFCs because affordable housing and essential housing facilities are at the top of their priority list. PFCs are commonly involved in delivering housing options throughout the country.
A PFC is a non-profit organization that serves as a mechanism by which local government entities incentivize the development of affordable, mixed-income, multi-family housing projects. Development firms that work with a PFC are often granted large property tax exemptions and other incentives in exchange for creating affordable housing.
While PFCs are not strictly limited to funding housing projects, they are responsible for affordable housing initiatives in numerous states. Companies interested in working through a PFC will find that the models and mandates vary from state to state. It is advisable to check state laws before pursuing a PFC partnership in any state.
Because affordable housing is a high priority, most states have various delivery methods, funding options and incentives designed to attract developers and contractors. It is advisable to check with local authorities to learn about the types of incentives offered and the preferred method of project delivery.
Photo by Marcus Lenk on Unsplash
The state of California has formed Infrastructure Financing Districts (IFDs), which are used specifically to finance infrastructure projects, including affordable housing. IFDs commonly use PFCs as the financing mechanism. California laws allow PFCs to use tax-increment financing as a funding mechanism instead of tax-exempt financing. Texas recently amended the state’s PFC law to mandate that PFCs only operate in their region. That means a Texas PFC located in North Texas could not work with a developer on a project in West Texas. The legislature in Texas also recently amended the PFC law to mandate more rigorous rent requirements for multifamily housing developments.
In the state of New York, Local Development Corporations (LDCs) are not-for-profit entities established at the local government level to undertake affordable housing development. This model allows funding by issuing tax-exempt bonds, public-private partnerships or leveraging a combination of public and private resources.
Establishing affordable housing has a unique set of challenges. While most PFC models are exceptionally attractive to developers because of property tax abatements, there can be an affordability gap between the cost of developing the units and the amount that can be charged. Most states have pricing quotas that must be met for a facility to be classified as affordable. The quotas are related to a certain percentage of the units that must be leased for below-market rates.
Because of the critical need for affordable housing, public officials continue to search for creative ways to attract developers. Along with tax reductions, other incentives include various types of funding support. Public officials can issue tax-exempt bonds that provide lower interest rates or provide Low-Income Housing Tax Credit (LIHTC). This is a tax incentive program administered by state housing finance agencies. The federal government allocates about $9 billion annually to promote private investment in affordable housing, and local governments can award LIHTC credits to developers, who can then attract investors.
Another way affordable housing can be incentivized is through property donations, which minimize the cost and availability of land for development. In these cases, a local municipality or a private owner may donate property for an affordable housing project. Developers are usually encouraged to operate the facilities once they are ready for occupancy. Local officials also urge developers to build on property with easy access to essential services, schools, healthcare and public transportation.
The financial landscape of affordable housing projects can be challenging as developers are occasionally required to negotiate with government officials and private entities before the funding support is awarded. The planning phase for affordable housing can also be time-consuming. It involves obtaining necessary approvals from local authorities, navigating zoning laws, complying with environmental regulations and occasionally participating in public hearings. Despite this, there are many examples of successful projects, and the extremely high demand for affordable and essential housing development will not wane anytime soon.
Cities need essential workers to reside in downtown areas. School districts need affordable housing on or near campuses to recruit teachers. Colleges and universities are interested in affordable housing for faculty, and hospital systems need affordable housing near hospitals for doctors and nurses.
Many older facilities are being renovated to provide affordable housing. Officials in Chicago worked with a developer to revitalize an old hotel into an eco-friendly residential complex that offers 89 modern studio apartments for single adult residents. The project cost $22 million, and resident amenities include a restored historic lobby, a computer lab, laundry area, bicycle storage and cafe. Funding came from a combination of tax credits and financial assistance provided by the city. The project benefited from a 9% LIHTC, Historic Preservation Tax Credits, Renewable Energy Tax Credits, Tax Increment Financing (TIF), an Energy Efficiency Grant and Project Rental Assistance.
A $30 million affordable housing project in Santa Ana, California, was designed to provide affordable living units for veterans. The 75-unit permanent housing community was developed through a collaborative effort involving the city, a private sector developer, various private sector funding partners – including a bank – and the Orange County Community Foundation. The property, designed to support veterans, provides a healthcare facility, employment services, legal assistance and a 4,500-square-foot community center.
A PFC in San Antonio, Texas, supported a $79 million affordable housing project. It was financed through a combination of public and private sources, including the U.S. Department of Housing and Urban Development, the Texas Department of Housing and Community Affairs, the City of San Antonio, the San Antonio Housing Facility Corporation and two private sector funding sources. The completed project delivered 334 apartments and townhomes for families and 80 one- and two-bedroom homes specifically designed for senior citizens. It is located near a 2-acre area with activities for all ages, an all-digital library and other educational resources. The units also benefit from nearby green spaces and community gardens.
Similar unique development projects that provide affordable housing have been launched throughout America and many more are being planned. Most are completed through public and private sector partnerships to meet local needs. Funding is available, incentives are attractive and these types of efforts deliver living facilities for citizens in need as well as people who want to live close to where they work.