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Housing Revenue Bond Program

Multi-family HousingMulti-family Housing Bonds are available to nonprofit and for profit developers to purchase, construct, or rehabilitate multi-family housing projects. Housing revenue bonds, if properly structured, are exempt from registration under the Securities Act of 1933 as amended and, therefore, avoid the costs and time applicable to registration. Federal tax law imposes the following occupancy requirements on all multi-family projects supported by tax-exempt revenue bond financing: (a) No fewer than 20% of the units must be occupied by households earning less than 50% of the area median income, or (b) no fewer than 40% of the units must be occupied by households earning less than 60% of the area median income. Unless a specific legal exemption applies, state law requires that prevailing wage rates must be paid to laborers and mechanics employed on the construction of the project. 501(C)(3) Bonds are a special category of tax-exempt bond financing that can be done by nonprofit organizations to support economic development and affordable housing projects.

Revenue bonds are issued in the name of the County but are not obligations of the County and are not backed or secured by its taxing power or any other public revenue sources. The developer of the project is solely responsible for repayment, subject to any insurance or guarantee by a third party. The advantage of using a tax-exempt housing revenue bond is its lower rate of interest. Historically, the spread between interest rates on housing revenue bond issues which are tax-exempt, and conventional financing has ranged from 1% to 3% for the same quality housing development. An interest savings of 1% on an issue of $10 million over a 30 year period would result in approximately a $3 million reduction in interest expense.

Cuyahoga County generally will favor issuing tax-exempt housing revenue bonds which are “fully insured” or provide a “full guarantee” of payment of the principal of and interest on the bonds by a suitable third party entity. This requirement is less a consideration for bond issues that will be placed in full with institutional investors. Acceptable forms of insurance or guarantee include FHA, FNMA, GNMA, surety bond, municipal bond insurance, and credit enhancement instruments provided by financial institutions.

What Can Be Financed?

Bond proceeds can be used for purchase, construction or rehabilitation of a multi-family housing project (including land and buildings), and to fund most related fees including construction financing, legal, audit, FHA mortgage processing, bond underwriting and issuance costs, replacement reserves and settlement costs. Federal tax law may impose restrictions on the payment of certain of these costs from the proceeds of a tax-exempt issue. Developers should consult their legal advisors for specific advice on which costs can be paid with tax-exempt bond proceeds.

When to apply for tax-exempt Bond Inducement and Issuance

All proposed bond issues presented to Cuyahoga County for consideration shall be received, reviewed and advised upon by the Department of Development. Generally, there are two steps to the bond issuance. The first step is adoption of a resolution of inducement by the Board of County Commissioners (BOCC). An inducement is an assurance that, if all conditions are met, the BOCC will authorize the issuance of the bonds. The State of Ohio generally requires an inducement resolution in order to commit an allocation of its limited “volume cap” for the bonds. The resolution also allows a borrower to reimburse certain qualified expenses from bond proceeds, if they are paid within sixty days of the inducement.

The second step is approval of the issuance of the bonds with the execution of the loan and associated agreements. All conditions stated in the inducement resolution or otherwise required by this policy must be met before the BOCC will authorize issuance. Federal tax law currently allows 18 months from the later of date of inducement or date the project is placed in service to issue the bonds. The State of Ohio currently imposes a 90-day deadline from commitment of its “volume cap” to issuance of the bonds; a new commitment can be requested after a 30-day wait.

As a matter of policy, Cuyahoga County requires prevailing wages on all projects funded with Bonds issued by the County; and a plan for affirmative marketing to minority persons for any projects or activities funded with housing revenue bonds, and will take into account comprehensive plans to develop and maintain affordable housing in Cuyahoga County, as well as fair housing statements analyzing the impact of proposed developments on housing patterns.


Sara Parks Jackson