 
Low Income Tax Credits Used in Massachusetts to Develop and Operate Affordable Assisted Living How it's Working by Nicole Muller Whether you watch the ups and downs of Wall Street or attend the major senior housing industry conferences, you have no doubt heard fears that markets are becoming "overbuilt or saturated" with assisted living, particularly communities targeted to an upscale or upper income market. It is therefore not surprising that more attention is being focused on creating affordable assisted living for seniors with limited incomes. While determining ways to cut operating costs are a critical component to achieving affordable housing, so is finding ways to lower the cost of debt through creative financing. Low Income Housing Tax Credits (LIHTC)administered by the Internal Revenue Service, are one alternative that allows developers to create affordable assisted living by providing a dollar-for-dollar reduction in their federal tax liability each year for a period of ten years in exchange for the production or rehabilitation of low-income rental housing. This program therefore does not provide a direct subsidy but increases the amount of equity in the project thereby, reducing the level and cost of debt. Massachusetts financed the first LIHTC assisted living project in 1992 and today there are a total of 22 assisted living communities; 16 communities are currently in operation and six are under development. The Massachusetts Housing and Finance Agency (MHFA) and the Massachusetts Department of Housing and Community Development (DHCD) have successfully financed the majority (98 percent) of the tax credit projects in Massachusetts. Among the existing tax credit assisted living communities in Massachusetts, over 80 percent participated in a detailed survey conducted by Brecht Associates in May, 2000. The survey gleaned information on topics including monthly absorption, turnover, income and asset levels, occupancy, length of waiting lists, and affordability of services. Income and Asset Although maximum allowable incomes follow guidelines established by HUD for very low-incomes (50% of area median) which currently are approximately $17,000 to $26,000 depending on which county in Massachusetts, respondents explained that the majority of residents have incomes well below this level. In fact, of those communities able to report on incomes of private pay individuals qualifying under the tax credit program, actual annual incomes range from $10,000 to $14,000 with the majority in the $12,000 to $13,000 range. Specific resident asset information was not available but respondents noted that the majority of residents do have assets from which they rely on to pay for the services they need. Typically, residents are able to afford the monthly rent (which is regulated) but do not have sufficient income to pay for all of the services they need. Respondents explained that while LIHTC communities cannot require a resident to purchase these additional services, all residents are receiving services such as meals, housekeeping, and assistance with activities of daily living found in traditional assisted living communities. Because incomes are not sufficient to pay for these services, on average 90 percent of residents are spending down their assets and the remaining residents are receiving financial support from their families to pay for services. Although there are no regulations governing the amount of assets a resident can have to qualify under the tax credit program, the government does impute a conservative interest rate to the asset base which is applied to the annual income which could render a senior ineligible. Therefore, assets can be a double-edged sword for residents eligible under the tax credit program because while they rely on them to pay for necessary services, they cannot exceed a level causing them to be ineligible. Among the communities surveyed, 57 percent had 20 percent of their beds reserved for low-income, 29 percent reserved half of their beds for low-income and the remaining communities had 90 to 100 percent beds reserved. A significant portion of these beds are filled by seniors who are part of the Group Adult Foster Care Program (GAFC), a state subsidy program for seniors needing assisted living. The GAFC program follows the eligibility requirements for community Medicaid which sets an income limit of approximately $8,000 and liquid assets may not exceed $2,000 for one person. Beds which are filled by seniors on the GAFC program also qualify as LIHTC beds because they fall under the maximum allow income. The survey revealed that a small proportion of low-income residents are considered private pay LIHTC with incomes and/or assets above the GAFC requirements yet below the maximum allowed for LIHTC. Several respondents expressed concern about LIHTC residents who eventually spend down their assets and can no longer afford services. Some of these seniors have incomes low enough to qualify for the GAFC program (since there are no longer assets to disqualify them) but others have incomes just above the eligibility requirements for subsidies and are left struggling to meet their needs. "This is a gap in the system that leaves these seniors without help," explained one respondent. Marketing Issues The income and asset requirements described above create a marketing challenge to find the narrow group of seniors with incomes considered eligible under the LIHTC program, yet able to afford rents and services. Staff are faced with numerous obstacles including marketing to the appropriate audience, communicating the financial eligibility requirements effectively, and navigating complicated forms and paperwork for regulatory agencies. Several respondents expressed the need for a well-trained staff person who can devote the time required to manage these issues related to LIHTC and GAFC. Despite these challenges, representatives are very optimistic about the LIHTC program and see it as a way to offer assisted living to those who could not otherwise afford market rate assisted living. The following indicators also demonstrate the need for the program and its success: 1. All communities surveyed report 100 occupancies for low-income units. In addition, the majority have waiting lists which range from three months to two-and-a-half years. According to marketing representatives, the demand for low income units is high. These units have long waiting lists and remain fully occupied. Brecht Associates, Inc. has conducted numerous market feasibility studies for LIHTC projects and can assist your organization in determining whether there is sufficient depth in your market for this type of project.
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