Can Texas deny housing tax-credit points for funding from a related party?

Plain-English summary

Senator Leticia Van de Putte asked the Attorney General whether the 2013 Qualified Allocation Plan (QAP) adopted by the Texas Department of Housing and Community Affairs (TDHCA) complied with Government Code section 2306.6710(b)(1)(E). That statute is one of the standards the QAP must use to score applications for federal low-income housing tax credits, which are divided among the states and awarded by a designated state agency. In Texas, TDHCA awards them through a point system built around the standards in section 2306.6710(b), one of which gives priority to applicants with "the commitment of development funding by local political subdivisions."

The specific dispute was about TDHCA Rule 11.9(d)(3). That rule awards up to thirteen points for a funding commitment from a city or county, or from a city or county instrumentality such as a housing authority, but it denies points when the applicant is a "Related Party" to the instrumentality providing the money. The senator argued the related-party restriction changed the statutory scheme and went beyond TDHCA's authority. The factual concern was that a housing authority might create its own partnership, act as the general partner, and then loan development funds to that affiliated entity, effectively lending to itself to capture points.

The Attorney General concluded a court would likely uphold the rule. An agency may adopt rules consistent with its statutory authority, its rules are presumed valid, and courts defer to an agency's reasonable construction of a statute it administers as long as the construction does not contradict the plain language. Here the statute did not define "local political subdivision" and required only that the QAP include "criteria regarding" the standard, leaving TDHCA discretion to assign meaning. TDHCA justified the related-party limit as a bar on self-lending that fits the program's goal of stimulating private development of affordable housing. Because that reading was reasonable and not expressly prohibited by the statute, the AG concluded a court would likely defer to it and uphold Rule 11.9(d)(3).

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

Senator Van de Putte and the Senate Committee (as the opinion described it): The opinion answered that the related-party restriction in Rule 11.9(d)(3) did not exceed TDHCA's authority and that a court would likely uphold it. It framed the question as one of agency deference, not a clear statutory violation.

TDHCA and the QAP (as the opinion described it): The opinion treated TDHCA's interpretation as a reasonable exercise of the discretion the Legislature left it by not defining the statutory terms. It accepted TDHCA's anti-self-lending rationale and its tie to the program's purpose of encouraging private affordable-housing development.

Housing authorities and tax-credit applicants (as the opinion described it): The opinion described the rule as denying points where the applicant is a related party to the funding instrumentality, a scenario it illustrated with a housing authority lending development funds to a partnership it controls. It did not decide any particular application; it addressed the validity of the rule.

Common questions

What is a Qualified Allocation Plan?
The opinion described the QAP as TDHCA's set of evaluation criteria, promulgated by rule and based on the standards in Government Code section 2306.6710(b), used to score and rank applications for federal low-income housing tax credits.

Why can't a housing authority's affiliate get points for the authority's funding?
The opinion explained that Rule 11.9(d)(3) denies points when the applicant is a "Related Party" to the instrumentality providing the funds. TDHCA justified this as preventing self-lending, where an authority directs funding to a partnership it controls.

Did the AG find the rule illegal?
No. The opinion concluded that a court would likely defer to TDHCA's reasonable construction of the statute and uphold the rule, because the statute did not define the relevant terms and the related-party limit was not expressly prohibited.

Does an AG opinion settle whether the rule is valid?
No. The opinion predicted how a court would likely rule. AG opinions are persuasive, not binding, and a court would make the final determination.

Background and statutory framework

The opinion situated the question in the federal low-income housing tax credit program (26 U.S.C.A. § 42), administered in Texas by TDHCA under chapter 2306 of the Government Code. It cited section 2306.053(b)(10) (TDHCA's administering authority), section 2306.6710(b) and section 2306.67022 (the QAP and its standards), and sections 2306.6704(c) and .6710(b)(1) (threshold criteria and the point system), along with GA-0497 (subsection 2306.6710(b) is mandatory and requires a prioritizing point system). The criterion at issue was section 2306.6710(b)(1)(E), implemented by 10 Texas Administrative Code section 11.9(d)(3).

For the deference analysis, the opinion relied on Pruett v. Harris Cnty. Bail Bond Bd. (rules must be authorized by and in harmony with the statute), Vista Healthcare, Inc. v. Tex. Mut. Ins. Co. (rules presumed valid; challenger bears the burden), and State v. Pub. Util. Comm'n of Tex. (deference to reasonable agency construction). It cited Sw. Bell Tel. Co. v. Pub. Util. Comm'n of Tex. (agency discretion to define undefined terms) and Sec. Nat'l Ins. Co. v. Farmer (the meaning of "regarding") to support TDHCA's latitude in giving the standard a defined scope.

Citations

Cases:

• Pruett v. Harris Cnty. Bail Bond Bd., 249 S.W.3d 447, 452 (Tex. 2008)
• Vista Healthcare, Inc. v. Tex. Mut. Ins. Co., 324 S.W.3d 264, 273 (Tex. App.-Austin 2010, pet. denied)
• State v. Pub. Util. Comm'n of Tex., 344 S.W.3d 349, 356 (Tex. 2011)
• Sw. Bell Tel. Co. v. Pub. Util. Comm'n of Tex., 745 S.W.2d 918, 924 (Tex. App.-Austin 1988, writ denied)
• Sec. Nat'l Ins. Co. v. Farmer, 89 S.W.3d 197, 201 (Tex. App.-Fort Worth 2002, pet. denied)

Statutes:

• Tex. Gov't Code Ann. §§ 2306.6710-.6738 (West 2008 & Supp. 2012); § 2306.053(b)(10); § 2306.6710(b); § 2306.67022; §§ 2306.6704(c), .6710(b)(1); § 2306.6710(b)(1)(E); § 2306.041
• 10 Tex. Admin. Code §§ 11.1-11.10 (2013); § 11.9(d)(3)
• 26 U.S.C.A. § 42 (West 2011); § 42(h), (m)

Other authority:

• Tex. Att'y Gen. Op. No. GA-0497 (2006) at 3

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1009
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2013/ga1009.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

July 1, 2013

The Honorable Leticia Van de Putte Opinion No. GA-1009
Chair, Committee on Veteran Affairs
and Military Installations Re: Whether the 2013 Qualified Allocation Plan
Texas State Senate adopted by the Texas Department of Housing and
Post Office Box 12068 Community Affairs complies with Government
Austin, Texas 78711-2068 Code section 2306.6710(b) (RQ-1106-GA)

Dear Senator Van de Putte:

The Texas Department of Housing and Community Affairs ("TDHCA") has adopted a Qualified Allocation Plan ("QAP") governing the allocation of low-income housing tax credits. See TEX. GOV'T CODE ANN. §§ 2306.6710-.6738 (West 2008 & Supp. 2012) ("Low Income Housing Tax Credit Program"); 10 TEX. ADMIN. CODE §§ 11.1-11.10 (2013) (TDHCA, 2013 Housing Tax Credit Program Qualified Allocation Plan). You ask whether the 2013 QAP complies with subsection 2306.6710(b)(1)(E) of the Government Code.[1]

The federal government offers tax credits to private developers of low-income housing. See generally 26 U.S.C.A. § 42 (West 2011) (included in the Internal Revenue Code). The tax credits are divided among the states and then awarded by a designated state housing credit agency. Id. § 42(h), (m). The TDHCA administers Texas's low-income housing tax-credit program pursuant to chapter 2306 of the Government Code. TEX. GOV'T CODE ANN. § 2306.053(b)(10) (West 2008). The TDHCA allocates the tax credits via its QAP, which is a set of evaluation criteria promulgated by rule and based on the standards enumerated in subsection 2306.6710(b). Id. § 2306.6710(b); see also id. § 2306.67022 (West Supp. 2012). Applications for the tax credit, after satisfying specified threshold criteria, are scored and ranked by criteria in the QAP through the awarding of points for each of the statutory standards. Id. §§ 2306.6704(c), .6710(b)(1) (West 2008); see Tex. Att'y Gen. Op. No. GA-0497 (2006) at 3 (determining that subsection 2306.6710(b) is mandatory and requires the TDHCA to rank applications using a point system that prioritizes the enumerated standards).

You inquire specifically about the 2013 QAP's adherence to the criterion enumerated in subsection 2306.6710(b)(1)(E): "the commitment of development funding by local political subdivisions."[2] TEX. GOV'T CODE ANN. § 2306.6710(b)(1)(E) (West 2008); see Request Letter at 2. The associated criterion in the QAP is found in TDHCA Rule 11.9(d)(3) (the "Rule"), which provides that an applicant may receive up to thirteen points for a "commitment of Development funding from the city or county in which the Development is proposed to be located." 10 TEX. ADMIN. CODE § 11.9(d)(3) (2013). The Rule also allows applicants with funding commitments from certain instrumentalities of a city or county, which could include a housing authority, to qualify for points. Id. However, under the Rule, an applicant cannot receive points if the applicant is a "Related Party" to the instrumentality providing the development funding. Id.

Your request letter indicates that "[h]ousing authorities [participate] in tax-credit projects by contracting with a development partner." Request Letter at 2. The TDHCA describes a more detailed scenario in which a housing authority creates its own private entity: a partnership in which the housing authority is also the general partner. TDHCA Brief at 4. "The [housing authority] makes a development funding loan to this related party of its own creation, controlled by the [housing authority]." Id. You assert that the Rule's restriction on Related Parties changes the statutory scheme for the criterion in subsection 2306.6710(b)(1)(E) and argue that the TDHCA exceeds its authority in promulgating this aspect of the Rule. See Request Letter at 3-5.

An administrative agency can adopt "such rules as are authorized by and consistent with its statutory authority." Pruett v. Harris Cnty. Bail Bond Bd., 249 S.W.3d 447, 452 (Tex. 2008). Agency rules are presumed valid, and the burden of demonstrating their invalidity is on the challenger. Vista Healthcare, Inc. v. Tex. Mut. Ins. Co., 324 S.W.3d 264, 273 (Tex. App.-Austin 2010, pet. denied). A rule is a valid exercise of statutory authority if its provisions are "'in harmony'" with the statute's general objectives. See Pruett, 249 S.W.3d at 452 (citation omitted). Further, a court will accord deference to the construction of a statute by the agency charged with the statute's administration so long as the construction is reasonable and does not contradict the statute's plain language. State v. Pub. Util. Comm'n of Tex., 344 S.W.3d 349, 356 (Tex. 2011); see TEX. GOV'T CODE ANN. §§ 2306.053(b)(10) (West 2008) (authorizing TDHCA to administer low-income housing tax credit program), 2306.041 (authorizing TDHCA to impose penalty for violations of chapter 2306).

We consider the statute. Subsection 2306.6710(b)(1)(E) provides a legislative priority for applicants with a commitment of development funding from local political subdivisions. See TEX. GOV'T CODE ANN. § 2306.6710(b)(1)(E) (West 2008). Neither the subsection nor the chapter as a whole defines "local political subdivision" as it is used in the statutory standard or provides any guidance by which to give meaning to the standard so that it is useful as an objective measure. Absent definition, the Legislature left it to the TDHCA to assign meaning to each of the subsection 2306.6710(b)(1)(E) standards. Id. § 2306.67022 (West Supp. 2012) (authorizing the TDHCA to adopt an annual QAP); see Sw. Bell Tel. Co. v. Pub. Util. Comm'n of Tex., 745 S.W.2d 918, 924 (Tex. App.-Austin 1988, writ denied) (recognizing agency's discretion to assign meaning to an undefined term). Further, the system created in subsection 2306.6710(b)(1) requires only that the QAP incorporate "criteria regarding" the standards enumerated in the subsection. TEX. GOV'T CODE ANN. § 2306.6710(b)(1) (West 2008); see Sec. Nat'l Ins. Co. v. Farmer, 89 S.W.3d 197, 201 (Tex. App.-Fort Worth 2002, pet. denied) (defining "regarding" to mean "with respect to" or "concerning"). By its terms, subsection 2306.6710(b)(1)(E) requires only that the criteria in the QAP "regard" or concern the commitment of development funding by local political subdivisions. Nothing in chapter 2306 or in subsection 2306.6710(b) indicates a legislative intent to limit the TDHCA to the narrow language of each standard and preclude its ability to give each standard a meaningful, defined scope in the QAP.

The TDHCA justifies the related-party limitation in the Rule as a prohibition against self-lending. TDHCA Brief at 5-6. The TDHCA states that the Rule "avoids the appearance of self-lending that would be injected by awarding . . . points in a situation where [an authority forms] a limited partnership in which it participates and directs its presumably limited funding to that same limited partnership . . . ." Id. at 4. The TDHCA also states that "[i]n the context of an application it seemed self-evident that the commitment contemplated was a loan or grant from the local government to the applicant. A loan or grant to a related party (to itself) was not envisioned as meeting the plain intent of a commitment." Id. at 5. Finally, the TDHCA states that the Rule effectuates the purpose of the tax credit program to stimulate private development of low-income housing. Id. at 6.

The Rule here gives meaning to one of the statutory standards, a task within TDHCA's discretion. Such meaning enables the TDHCA to evaluate applicants for the tax credit program consistently against an objective measure. The Rule is consistent with the goal of the low-income housing tax-credit program to encourage private development of affordable housing. And the related-party limitation in the Rule is a reasonable interpretation of the statutory intent that is not expressly prohibited by the statute. For these reasons, a court would likely conclude that the Rule is not unreasonable and is not contrary to the statute's plain language. Thus, a court would likely defer to the TDHCA's construction of subsection 2306.6710(b)(1)(E) in the QAP, and uphold the Rule. See Pub. Util. Comm'n of Tex., 344 S.W.3d at 356.

SUMMARY

A court would likely defer to the Texas Department of Housing and Community Affairs' construction of chapter 2306 of the Government Code and uphold Rule 11.9(d)(3) of the 2013 Qualified Allocation Plan.

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Leticia Van de Putte, Chair, Comm. on Vet. Affairs & Mil. Instals., to Honorable Greg Abbott, Tex. Att'y Gen. at 1 (Jan. 29, 2013), http://www.texasattorneygeneral.gov/opin ("Request Letter").

[2] See Brief from Ms. Barbara Deane, Gen. Counsel, Tex. Dep't of Hous. & Cmty. Affairs at 3 (Mar. 6, 2013) ("TDHCA Brief") ("There is no dispute that a public housing authority . . . has been determined by the Board to qualify as a local political subdivision under the 2013 QAP, for the purposes of awarding points for the provision of funding under 10 TEX. ADMIN. CODE § 11.9(d)(3).").