Building the capital stack and closing the gap — Arkansas

What actually happens, and why the money is federal even when the process is Arkansas's own

The Arkansas Development Finance Authority (ADFA) is the state's sole housing credit agency — it administers the 9% and 4%/bond Low-Income Housing Tax Credit programs, the state's own 20%-of-federal LIHTC credit, and the two federal soft-money programs (HOME and the National Housing Trust Fund) that actually close most gaps. There is no separate bond-allocating agency and no CDLAC-style competitive bond process: ADFA plays every role.

The circular-reference modeling California requires is real in Arkansas too, but it is smaller in scope. The 9% credit amount is not derived from a percentage of eligible basis the way it is federally — ADFA caps it directly, per unit, by bedroom count and construction type (2027 QAP § III(C); Application Guidelines § I(C)(14)). That flattens one of the biggest sources of iteration in a CTCAC-style model. What still iterates: developer fee (percentage of net development cost), the debt coverage ratio band once HOME or NHTF money is in the stack, and the reserve funding requirement, which changes depending on what a lender or the equity investor requires.

The real gate is the 9% round and the $250,000 state credit pool — the bond queue is first-come

Arkansas Code § 15-5-603 gives ADFA an exclusive allocation of 10% of the state's private-activity-bond ceiling for multifamily housing (inside a 70% category ADFA controls exclusively; the remaining 30% is non-exclusive and open to any issuer). Bonds inside that multifamily set-aside are not competitively scored. They are reserved in the order a completed Application for Reservation of Volume Cap is received, tracked by a sequential Priority Number (ADFA Rule Regarding the Reservation of Private Activity Bond Volume Cap §§ .006–.007). An applicant cannot even file that reservation application until ADFA's Board of Directors has approved the underlying Multifamily Housing Application (§ .011(a), § .013(c)) — so the real competitive event for a 4%/bond deal is clearing ADFA staff and Board review, not out-scoring other applicants for bond cap.

The 9% round is where scoring actually decides winners. A minimum self-score of 75 is required just to be eligible; scores of 74 or below receive no award, no exceptions (2027 QAP, Application Guidelines § I(C)(31)). ADFA caps the federal 9% credit at no more than $1,300,000 per development in a calendar year (2027 QAP § III(C)) — up from $1,250,000 in the 2026 QAP, one of several figures that moved between the two most recent plans.

That state-credit line is the sharpest contrast with a state like California. Ark. Code Ann. § 26-51-1702 sets the state LIHTC at 20% of a project's federal award, but caps the total allocated to every recipient statewide at $250,000 in any taxable year (2027 QAP § IV). In the 2026 round, a single development — Mountain Home Senior Estates, at $246,400 — consumed essentially the entire year's pool. For almost every other awarded deal that year, state credit was not part of the capital stack at all, whatever the statute nominally allows.

Bond sizing: the same federal test everywhere, under ADFA's own floor

ADFA does not size bonds to the bare federal minimum. Its own Application Guidelines § I(C)(36) — still titled "25% Test Guidelines" even though the operative figure it states is 30% — commits ADFA to allocate multifamily bonds to a 4% transaction in an amount equal to the greater of 30% of the sum of aggregate eligible basis and land, or supportable permanent debt as determined by ADFA underwriting. That already clears the new 25% federal floor as a matter of house policy. The wording is worth flagging to bond counsel rather than resolving on your own: the QAP's own denominator is "eligible basis" plus land, while the federal test in § 42(h)(4)(B) is measured against the aggregate basis of the building and the land — eligible basis and building basis are not the same number, and which one ADFA's underwriters actually run the 30% test against should be confirmed before it's load-bearing in a sources-and-uses.

The per-unit total development cost ceiling for a 4%/bond deal jumped from $245,000 in the 2026 QAP to $300,000 in the 2027 QAP (2027 QAP, Application Guidelines § I(C)(14)) — a roughly 22% increase in one cycle, and a real, dated marker of how fast Arkansas construction costs have moved.

Underwriting: a DCR floor that tightens once federal soft money is in the stack

ADFA's baseline debt coverage ratio ('DCR' in Arkansas's own terminology — the same ratio other states call DSCR) is the greater of 1.15 or whatever a committed lender or equity investor requires (2027 QAP, Application Guidelines § I(C)(15)). That floor holds for any deal. Layer in HOME or NHTF money and a ceiling appears that the QAP itself does not state.

Reserves follow the same 'greater of ADFA's floor or the investor's requirement' pattern. The operating deficit reserve must equal the greater of six months of projected operating expenses, debt service, and replacement reserve deposits, or whatever the equity investor or lender requires; the replacement reserve must equal the greater of $300 per unit per year or the investor's or lender's own figure (2027 QAP, Application Guidelines § I(C)(11)). For USDA Rural Development deals, ADFA credits whatever initial operating capital RD itself requires against its own reserve formula, with a worked example in the Guidelines showing how a $50,000 ADFA requirement and a $20,000 RD requirement nets to a $30,000 separate account — a real formula, not a rounding convention, and one that has to be run correctly or the sources-and-uses reserve line is simply wrong.

Construction cost caps are unbundled from each other, unlike California's single blended 14% general-requirements-overhead-and-profit ceiling: General Requirements cannot exceed 7% of construction hard costs; Contractor's Profit is capped at 10% and Contractor's Overhead at 4%, both measured against hard costs plus General Requirements (2027 QAP, Application Guidelines § I(C)(13)). Hitting tighter thresholds — 6% GR, 8% profit, 3% overhead, all three at once — earns scoring points on top of qualifying for the award at all.

Developer fee: one clean cap, no competing formula

Unlike the multi-rendering dispute CTCAC's cash-out formula creates in California, Arkansas states its developer fee cap in a single sentence. The developer's fee — inclusive of developer's overhead and profit, consultant's fee, and any interest on a deferred portion — cannot exceed 10% of Net Development Costs for a 9%-credit deal, or 12.5% of Net Development Costs for a deal receiving credit through tax-exempt bond financing (2027 QAP, Application Guidelines § I(C)(12)). "Net Development Costs" is defined as total uses of funds, less syndication-related costs, developer's fee, and development reserves.

There is no separate absolute dollar ceiling on the fee the way California caps 9% deals at $2,500,000 — Arkansas's cap is purely a percentage of net cost. What limits fee size in practice is everything else that caps total deal size: the flat per-unit 9% credit dollar table, the $300,000-per-unit total development cost ceiling on bond deals, and the scoring points a leaner per-unit cost earns in the 9% round. Deferred fee shown as a source of funds cannot exceed 50% of the maximum fee allowed, and Financial Feasibility review specifically checks whether any proposed deferral can be repaid within 15 years (2027 QAP, Application Guidelines §§ I(C)(10)(b), I(C)(12)(b)).

The Arkansas soft-money map: two federal loans ADFA re-lends

HOME and NHTF terms are republished for each LIHTC application cycle rather than fixed in the QAP itself — the terms above come from ADFA's memorandum dated October 16, 2025, covering the 2026 LIHTC application round. As of September 2026, with the 2027 QAP already published, ADFA has not yet posted the equivalent notice for the 2027 round; based on the observed pattern, expect it in October 2026, roughly four months before the first-Monday-of-February deadline. A unit cannot be used to satisfy both low-HOME and NHTF affordability requirements at once, and a development receiving project-based rental assistance on more than 75% of its units cannot claim the QAP's extremely-low-income scoring points, nor can those PBRA units be used to satisfy low-HOME affordability requirements — three separate rules that interact and are easy to get backwards when a unit mix is being finalized late in underwriting.

HOME-assisted developments with 12 or more HOME-assisted units trigger Davis-Bacon federal prevailing wage on the entire construction contract — a real cost line, not a compliance formality, and one that can be crossed by simply sizing a HOME request up rather than down. Any development receiving federal financial assistance is also subject to the Build America, Buy America Act domestic-content preference on manufactured products and construction materials, and to Section 3 economic-opportunity requirements for low-income hiring.

The calendar: one round a year, a hard bond clock, and a swap penalty that bites

Miss the February deadline and there is no second round that year — unlike states that run Round 1 and Round 2, Arkansas runs one 9% cycle annually. A 4%/bond application does not face that same fixed date, but it faces its own hard clock: it must be complete within two rounds of ADFA deficiency letters, and it goes dead — rejected and removed from processing — if it has not been approved by ADFA's Staff Housing Review Committee and recommended to the Board within 6 months of submission (2027 QAP, Application Guidelines § I(C)(33)).

Once bond cap is actually reserved, the clock tightens further: the Reservation Period is 60 calendar days, extendable by written request for up to another 60 days at ADFA's discretion (ADFA Rule Regarding the Reservation of Private Activity Bond Volume Cap § .008) — an outer boundary of roughly 120 days to actually issue the bonds once a Priority Number and Reservation are in hand, regardless of how long the underlying financing took to assemble.

The sharpest calendar penalty in the whole QAP is the credit swap rule. Requesting a swap in the final year of the placed-in-service deadline is allowed once the 10% test is complete and construction has started — but it costs the developer eligibility for any ADFA resources for the remainder of that year and the entire following year, or until the development is completed, whichever is longer (2027 QAP, Application Guidelines § I(C)(35)). That penalty attaches to the developer, not just the deal, which makes it a portfolio-level risk on any slipping construction schedule, not a one-project problem.

The inputs nobody can source for you

Equity pricing is paywalled in Arkansas exactly as it is everywhere else — CohnReznick's Housing Tax Credit Monitor and Novogradac's LIHTC equity pricing page are the canonical series, and neither is free. No Arkansas-specific public pricing series exists to substitute. Carry price as an input with an explicit sensitivity range, not a constant.

USDA Rural Development terms — amortization, rate, initial operating capital requirement — come out of a Form RD 3560-7 processed relationship with the local RD office, not a published rate sheet. The QAP builds RD's own numbers directly into ADFA's reserve formula (2027 QAP, Application Guidelines § I(C)(11)), which means the reserve line in a sources-and-uses for a rural Arkansas deal is only as reliable as whatever the RD file currently says — take it as an input, not something to model from the QAP alone.

There is no CTCAC-style published operating-expense floor to lean on in Arkansas, even an imperfect one. ADFA's Financial Feasibility review checks the reasonableness of a project's own submitted expense and income assumptions rather than measuring them against a published statewide minimum (2027 QAP, Application Guidelines § I(C)(10)(e)). That cuts both ways: there's no stale regulatory floor to accidentally underwrite to, but there's also no agency benchmark to check a number against — insurance in particular, in a state with real tornado and severe-convective-storm exposure, has to be sourced from an actual quote early, not assumed from a published minimum.

Investor and lender requirements can override ADFA's own floors outright. The QAP says plainly that applications must evidence compliance with the investor's requirements where they are stricter than ADFA's own (2027 QAP, Application Guidelines § I(C)); ADFA may also incorporate lender and investor terms and conditions directly into its underwriting of an application. In practice, the number that actually governs a given deal's DCR, reserve, or deferral schedule is often whatever is written in the commitment letter, not the QAP's stated floor — which means those commitment letters have to exist, and be current within the QAP's stated 6-month window, before the application can be evaluated at all.