Texas House Bill 2071 (the “Bill”), which took effect on June 18, 2023 to modify Chapter 303 of the Texas Local Government Code (the “Code”) with respect to the ownership of a multifamily residential development (a “Development”) by a public facility corporation (a “PFC”), requires annual submission of a compliance audit (an “Audit Report”) to the Texas Department of Housing and Community Affairs (the “Department”) and the chief appraiser of the appraisal district in which the Development is located. The Bill requires the Department to adopt rules to implement its new authority under § 303.0426 of the Code by no later than January 1, 2024.
On November 10, 2023, the Department published its proposed rules for PFC compliance monitoring (the “Proposed Rules”) in the Texas Register. Full text of the Proposed Rules can be found here.
Public comment on the Proposed Rules is now open and can be submitted until 5:00 p.m. central time on December 11, 2023. This QuickStudy provides a brief summary of the Proposed Rules, with notations where we believe clarification or correction may be appropriate. We encourage you to review the Proposed Rules and provide public comment to the Department by the deadline.
Application of the Proposed Rules: It appears the Department intends to apply the compliance monitoring requirements to Developments that are not grandfathered under the law that was in effect prior to HB 2071. The language of the Proposed Rules would benefit from clarification on this point.
The Audit Report: The Department will promulgate forms for the completion of the Audit Report and its accompanying documentation. The Proposed Rules provide parameters for the Auditor’s review, including the sample size for household files to be reviewed. Contents of the Audit Report include:
The Proposed Rules omit certain requirements in the Bill that relate to a PFC’s acquisition of an occupied Development. Further, they would benefit from further guidance regarding affirmative marketing requirements and selection of rent and income standards, among various versions published by HUD.
The Auditor: Qualifications for the auditor include the following, which should be documented in the Audit Report:
The Proposed Rules would benefit from clarification as to the party responsible for engaging the auditor.
Given the severity of the penalty, the Proposed Rules could benefit from further clarification regarding the timing and contents of the various notifications and the procedures by which a loss of tax exemption could be implemented.
Written comments may be submitted by anyone with an interest, in hard copy or electronic formats to:
Texas Department of Housing and Community Affairs
Attn: Wendy Quackenbush
P.O. Box 13941
Austin, Texas 78711-3941
The deadline for submission is December 11, 2023 at 5:00 p.m. central time.
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