| Return to the Brecht Associates Site 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 majorsenior housing industry conferences, you have no doubt heard fears thatmarkets are becoming "overbuilt or saturated" with assisted living,particularly communities targeted to an upscale or upper income market. Itis therefore not surprising that more attention is being focused on creatingaffordable assisted living for seniors with limited incomes. While determining ways to cut operating costs are a critical component toachieving affordable housing, so is finding ways to lower the cost of debtthrough creative financing. Low Income Housing Tax Credits(LIHTC)administered by the Internal Revenue Service, are one alternativethat allows developers to create affordable assisted living by providing adollar-for-dollar reduction in their federal tax liability each year for aperiod of ten years in exchange for the production or rehabilitation oflow-income rental housing. This program therefore does not provide a directsubsidy but increases the amount of equity in the project thereby, reducingthe level and cost of debt. Massachusetts financed the first LIHTC assisted living project in 1992 andtoday there are a total of 22 assisted living communities; 16 communitiesare currently in operation and six are under development. TheMassachusetts Housing and Finance Agency (MHFA) and the MassachusettsDepartment of Housing and Community Development (DHCD) have successfullyfinanced the majority (98 percent) of the tax credit projects inMassachusetts. Among the existing tax credit assisted living communities in Massachusetts,over 80 percent participated in a detailed survey conducted by BrechtAssociates in May, 2000. The survey gleaned information on topics includingmonthly absorption, turnover, income and asset levels, occupancy, length ofwaiting lists, and affordability of services. Income and Asset Although maximum allowable incomes follow guidelines established by HUD forvery low-incomes (50% of area median) which currently are approximately$17,000 to $26,000 depending on which county in Massachusetts, respondentsexplained that the majority of residents have incomes well below this level.In fact, of those communities able to report on incomes of private payindividuals qualifying under the tax credit program, actual annual incomesrange from $10,000 to $14,000 with the majority in the $12,000 to $13,000range. Specific resident asset information was not available but respondents notedthat the majority of residents do have assets from which they rely on to payfor the services they need. Typically, residents are able to afford themonthly rent (which is regulated) but do not have sufficient income to payfor all of the services they need. Respondents explained that while LIHTC communities cannot require a residentto purchase these additional services, all residents are receiving servicessuch as meals, housekeeping, and assistance with activities of daily livingfound in traditional assisted living communities. Because incomes are notsufficient to pay for these services, on average 90 percent of residents arespending down their assets and the remaining residents are receivingfinancial support from their families to pay for services. Although there are no regulations governing the amount of assets a residentcan have to qualify under the tax credit program, the government does imputea conservative interest rate to the asset base which is applied to theannual income which could render a senior ineligible. Therefore, assets canbe a double-edged sword for residents eligible under the tax credit programbecause while they rely on them to pay for necessary services, they cannotexceed a level causing them to be ineligible. Among the communities surveyed, 57 percent had 20 percent of their bedsreserved for low-income, 29 percent reserved half of their beds forlow-income and the remaining communities had 90 to 100 percent bedsreserved. A significant portion of these beds are filled by seniors who are part ofthe Group Adult Foster Care Program (GAFC), a state subsidy program forseniors needing assisted living. The GAFC program follows the eligibilityrequirements for community Medicaid which sets an income limit ofapproximately $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 LIHTCbeds because they fall under the maximum allow income. The survey revealedthat a small proportion of low-income residents are considered private payLIHTC with incomes and/or assets above the GAFC requirements yet below themaximum allowed for LIHTC. Several respondents expressed concern about LIHTC residents who eventuallyspend down their assets and can no longer afford services. Some of theseseniors have incomes low enough to qualify for the GAFC program (since thereare no longer assets to disqualify them) but others have incomes just abovethe eligibility requirements for subsidies and are left struggling to meettheir needs. "This is a gap in the system that leaves these seniors withouthelp," explained one respondent. Marketing Issues The income and asset requirements described above create a marketingchallenge to find the narrow group of seniors with incomes consideredeligible under the LIHTC program, yet able to afford rents and services.Staff are faced with numerous obstacles including marketing to theappropriate audience, communicating the financial eligibility requirementseffectively, and navigating complicated forms and paperwork for regulatoryagencies. Several respondents expressed the need for a well-trained staffperson who can devote the time required to manage these issues related toLIHTC and GAFC. Despite these challenges, representatives are very optimistic about theLIHTC program and see it as a way to offer assisted living to those whocould not otherwise afford market rate assisted living. The followingindicators also demonstrate the need for the program and its success: 1. All communities surveyed report 100 occupancies for low-income units. Inaddition, the majority have waiting lists which range from three months totwo-and-a-half years. According to marketing representatives, the demandfor low income units is high. These units have long waiting lists andremain fully occupied. Brecht Associates, Inc. has conducted numerous market feasibility studiesfor LIHTC projects and can assist your organization in determining whetherthere is sufficient depth in your market for this type of project. Return to the Brecht Associates Site |