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Nebraska Supreme Court Addresses Rent-Restricted Property Valuation and Congress Adjusts Laws Affecting Low Income Housing Tax Credits

on Thursday, 28 March 2024 in Dirt Alert: David C. Levy, Editor

The Low Income Housing Tax Credit (“LIHTC”) industry in Nebraska may be changing.  First, on March 15, 2024, the Nebraska Supreme Court decided A&P II, LLC v. Lancaster County Board of Equalization, addressing LIHTC property valuation methodologies.  Second, Congress adjusted the Private Activity Bond (“PAB”) financing threshold for four percent LIHTC and state LIHTC allocations through 2025. 

I. A&P II, LLC v. Lancaster County Board of Equalization.

The Nebraska Supreme Court recently analyzed the property assessment methodologies a county assessor may use in valuating rent-restricted projects.  See A&P II, LLC v. Lancaster Count Bd. of Equal., 316 Neb. 216 (2024).  The Court also concluded that a Tax Equalization Review Commission (“TERC”) decision to allow a county to use a valuation method other than the income-approach is not a final, appealable order until the county assessor actually uses said methodology. 

Nebraska Revised Statutes Section 77-1333(3) requires each county assessor to utilize an income-approach in valuating rent-restricted housing projects each assessment year.[1]  If the county assessor determines the income approach does not reveal the actual value of the project, the county board of equalization may petition TERC for permission to use “another professionally accepted mass appraisal technique.”  Nebraska Revised Statutes section 77-1333(10). 

The county board must show TERC that the income-approach “would result in a substantially different determination of actual value of the rent-restricted housing project . . . [and] “result[s] in a value that is not equitable and in accordance with the law.  Id.  If TERC agrees, it may give a county permission to use a different valuation approach. 

In A&P II, LLC, the owners of 21 rent-restricted housing units (collectively “Developers”) appealed TERC’s decision to allow the Lancaster County Board of Equalization (“Board”) to use a valuation method other than the income-approach. 

The Board petitioned TERC on the basis that properties under the income‑approach had valuations of $0 and similar properties sold for amounts far above zero.  The Board had offered a separate approach for all rent-controlled housing projects in the county.  This “Section 42 submarket,” as the court described it, uses similarly situated parcels to “achieve ‘assessments that are uniform across the class of restricted properties’ by utilizing ‘an equalized typical income and expense level.” 

The Developers objected on the basis that higher property valuations impossibly burden developers.  Because most all rent-restricted project developers also seek LIHTC,[2]  their already small margins could not withstand a higher property tax burden. 

LIHTC requires developers to enter into Land Use Restriction Agreements (“LURA”), restraining the rent the developer can charge, the population of persons that can be occupants, and several additional restrictions.  The expense of compliance is borne by developers.  LURAs typically last 30 to 45 years, and, the project cannot transition to different, more profitable purposes until after the LURA expires.  26 U.S.C. § 42(h)(6)(E)(ii).   

LIHTCs and corresponding ownership are typically sold to syndication investors in order to raise capital to fund the projects.  Developers only retain a fraction of a percentage in the project while bearing a bulk of the cost of compliance.  The Developers here thus argued that increased property taxes would take the little remaining capital, after covering the expenses of compliance across the LURA effective period, developers have left. 

TERC granted the Board permission to seek alternative valuation methodologies.  Key to the Court’s decision is that TERC “did not state what the different methodology was[] nor did it determine the valuation of the properties.”

The Court held that TERC’s decision did not affect a substantial right of the petitioners.  Because TERC only approved the Board to seek alternative valuation methodologies without directing which methodology it was to use, there is a chance this matter is mooted once the property is valued.  For example, if the end-result valuation does match the actual value of the property, there would be no dispute.  The Court thus dismissed the appeal.

II. Tax Relief for American Families and Workers Act of 2024

On January 18, 2024, Congress introduced the Tax Relief for American Families and Workers Act of 2024 (“Act”).[3]  The Act imposes two principal changes in federal law that impacts LIHTC.

      (A)      PAB Financing Threshold for 4% LIHTC Reduced from 50 Percent to 30 Percent 

Under federal law, developers may receive LIHTC either (1) through a state or local LIHTC allocating agency (i.e., in Nebraska, the Nebraska Investment Financing Authority) or, (2) directly from the federal government.  The federal government awards LIHTC funding for projects in which 50 percent of the aggregate basis of the land and buildings receive PAB financing, subject to certain other requirements. 

The Act lowers this threshold amount to 30 percent.  For projects that already have PABs, at least five percent needs to receive PAB financing and have an issue date before 2025. 

This is important for Nebraska as it is one of nineteen states that are more dependent on PAB financing LIHTC than state-allocated LIHTC.[4] 

      (B)      Increase LIHTC Allocations

The Act also increases the amount of LIHTC states may issue to developers.  Under the 2018 appropriations act, Congress increased the limitation of nine percent LIHTC a state may issue by 12.5 percent for years 2018-2021.  

The Act re-implements this ceiling increase for calendar years 2024 and 2025.  Under the Act, states may also carryover the unused portions of the 2018-2021 ceiling increase to this new period. 

III.       Nebraska Legislature’s Recent Effort to Address Rent-Restricted Property Valuation. 

The Nebraska Legislature is also working on rent‑restricted housing.  Senator Eliot Bostar of Lincoln recently attempted to amend Nebraska’s valuation method for rent-restricted properties via LB 1217 on January 16, 2024. 

The bill proposes to amend the income-approach to be a three-year average valuation, rather than an annual calculation.  County assessors would still use the income-approach, as Nebraska’s Revised Statutes Section 77-1333(8) prescribes, for the year in question, and then they would average the calculated figure with the rent‑restricted property’s valuation for the preceding two years.  The bill would also value sales-restricted properties[5] as the lesser of the property’s unrestricted appraised value and the maximum sales price allowed. 

The Legislature referred LB 1217 to the Revenue Committee on January 17, 2024.  The Committee held a hearing on February 15, 2024.  There has been no action on the bill since the committee hearing.  

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Attorneys at Baird Holm LLP have experience in real estate, community development law, LIHTC, and other tax credit incentives and alternative financing arrangements.  If you have any questions about LIHTC or would like to discuss the potential eligibility of your entity, please do not hesitate to contact the firm.

[1] An income approach divides the property’s net operating income by the applicable capitalization rate.  The applicable net operating income is the “actual income and actual expense data filed by owners of the rent‑restricted housing project.”  Id.  The capitalization rate is a rate of expected return on certain real estate investments.  Nebraska Revised Statutes Section 77-1333(8) requires county assessor to use the capitalization rate the Rent-Restricted Housing Projects Valuation Committee to the Property Tax Administrator provides annually. 

[2] 26 U.S.C. Section 42. 

[3] Tax Relief for American Families and Workers Act of 2024, H.R. 724, 118th Cong. (2024). 

[4] Wallace, D., & Lawrence, P., “Tax Legislation Announced by Tax-writing Chairs Wyden and Smith Would Temporarily Reduce 50% Financed-By Test to 30% for 2024-2025, Restore 12.5% LIHTC Boost for 2023-2025, Novogradac News and Analysis, (January 24, 2024), available at 

[5] The bill defines “sales-restricted properties” as “a residential property that is subject to a deed restriction or land lease agreement that restricts the ability of the owner to sell the property in an arm’s length transaction.  LB 1217, Sec. 5, Lines 5-10 (2024). 

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