Capital stack and soft money — Michigan

HOME/MRF Gap Financing: real money, but only for deals that already carry tax-exempt bonds

MSHDA's Gap Financing Program (branded HOME/MRF in earlier NOFAs; the current Round 19 NOFA, revised March 10, 2025, just calls it the Gap Financing Program) is not a companion to the competitive 9 percent round. The NOFA states the condition directly: "Participation in the Gap Financing Program requires the applicant to also obtain tax-exempt bond funded permanent financing from MSHDA." That, combined with the NOFA's own required financing structure — a tax-exempt bond senior mortgage through MSHDA's Direct Lending program plus 4 percent Housing Tax Credit funding — means this money pairs specifically with 4 percent bond-financed deals, not competitive 9 percent applications.

That gate reaches back into the QAP itself. Section V.C.1 requires any Preservation-category project seeking 9 percent credit to first submit a Notice of Intent to Apply package so MSHDA can evaluate whether it is likely to be competitive under this same Gap Financing Program — based on pro forma feasibility, development-team capacity, and especially the project's soft-to-hard debt ratio. Only if MSHDA determines the project is unlikely to win Gap Financing funding does it become eligible to compete for 9 percent credit instead; existing USDA Rural Development-financed preservation projects of 49 units or fewer are the only projects exempted from this screen. The determination is good for one year or two funding rounds, whichever comes first, unless the project changes in ways MSHDA would consider material (land/building cost, hard cost, income or expense projections, equity pricing, soft sources, and the like).

PSH Gap Financing: a one-time $94.3 million ARPA-era pool, not a standing program

The Permanent Supportive Housing (PSH) Gap Financing Program NOFA, released February 15, 2023 on MSHDA's Homeless/ARP webpage, describes the source blend directly: "The PSH Gap Financing Program combines portions of MSHDA's HOME-ARP, Housing and Community Development Funds (HCDF) and repurposed COVID Emergency Rental Assistance (CERA) funds." MSHDA had been allocated $63,793,681 of HOME-ARP, of which $43,293,681 was earmarked for HOME-ARP affordable housing development; $11 million of HCDF was designated for PSH creation; and up to $40 million of CERA funds rounded the pool out to roughly $94.3 million, regionally allocated by the share of each region's population below 40 percent AMI. A separate $4 million HOME-ARP set-aside funds a six-year (2025–2030) supportive-services grant, estimated at $1,500–$2,000 per PSH unit per year — explicitly described as not covering a project's full services budget.

What this research could not confirm is whether MSHDA has run, or plans to run, a second competitive round of this specific blended program. The 2023 NOFA's own award timeline closed with commitment awards announced September 28, 2023 and a requirement that all financing close by July 31, 2024; CERA and HOME-ARP are themselves one-time federal pandemic-relief allocations rather than a recurring annual appropriation. A search of MSHDA's current LIHTC and rental-development materials turned up no announced follow-on PSH Gap Financing NOFA. A team building a 2026 or 2027 PSH-category pro forma around this $94.3 million pool as if it renews annually would be modeling a source that, on the evidence available here, may already be spent.

The Housing Opportunity Tax Credit is now real law — but it isn't in this QAP, and it doesn't pay out until 2027

The earlier internal correction was right that "MIHP" was never a real Michigan program, and right to flag Michigan's actual state credit for direct verification. That credit exists, but its legislative path is unusually tangled and worth laying out precisely, because two different bill packages pursued the same amendment and only one reached the finish line. House Bills 5805–5807 (the House's package) would have authorized MSHDA to run the program, let taxpayers claim the credit, and given insurers a parallel offset — but House Bill 5805, the bill that actually would have authorized MSHDA to administer the program, stalled in the Senate Committee of the Whole after July 1, 2026 and was never enacted. Its Senate counterpart, Senate Bill 966, carried the identical MSHDA-authorization amendment instead, passed both chambers, and was signed by Governor Whitmer on July 21, 2026 as 2026 PA 23 — alongside House Bill 5806 (2026 PA 30, amending the Income Tax Act to let taxpayers claim the credit) and House Bill 5807 (2026 PA 31, amending the Insurance Code). All three took immediate effect the same day.

The enacted statute — new Section 22e of the State Housing Development Authority Act, added to MCL 125.1422 — calls the program the "housing opportunity tax credit," not the "State Low-Income Housing Tax Credit Program" name an earlier Senate Fiscal Agency analysis used, and not the $250 million aggregate-reservation figure that same interim analysis cited. The enacted text is unambiguous on the dollar figure: "the authority shall not issue approval notices for a total of more than the base annual amount of $42,000,000.00 for housing opportunity tax credits under this section" for the 2027 award cycle, adjusted by the Consumer Price Index in each award cycle after that — the $42 million figure widely reported in the press, not $250 million. Getting this wrong by an order of magnitude is an easy mistake given how many drafts of this bill circulated between April and July 2026.

On the specific question of whether this functions like Georgia's or Illinois's saleable, broker-traded donation tax credits: it does not. The statute allows an owner that is a flow-through entity to "allocate all or a portion of the housing opportunity tax credit attributable to a qualified project to some or all of its members in any manner agreed to by its members" — which is how federal LIHTC equity already moves to an investor limited partner — and a member who receives an allocation may "assign all or any part of its interest in the flow-through entity," carrying the credit with that ownership interest. That is allocation among the syndication structure a LIHTC deal already has, not a certificated credit sold on an open market to an unrelated taxpayer with no stake in the project. There is also no mechanism in the statute for MSHDA, an investor, or a broker to sell the credit itself as a stand-alone instrument.

None of this reaches the document an applicant is actually filling out today. The 2026–2027 QAP text was approved by the Governor on July 9, 2025, and the 2026–2027 Scoring Criteria (Version 01.2026) was finalized before the credit existed as law; neither document contains the phrase "housing opportunity tax credit" anywhere. The QAP's own October 2025 and April 2026 funding rounds, and the scoring workbook applicants are self-scoring against right now, predate the credit's enactment by close to a year in one case and several months in the other. A deal applying in the October 2026 or April 2027 round should not assume MSHDA has published integration guidance, a revised fee schedule, or a scoring adjustment for this credit by the time that application is due — this research found none as of the materials checked.

The PILOT under MCL 125.1415a: a statutory default, not a locally invented percentage

Section 15a of the State Housing Development Authority Act of 1966 (MCL 125.1415a, last amended by 2022 PA 239) is the statute behind Michigan's PILOT mechanism. It exempts two different kinds of housing project from ad valorem property tax, and the two are easy to conflate. Subsection (1)(a) covers a housing project owned by a nonprofit housing corporation, consumer housing cooperative, limited dividend housing corporation, or mobile home park corporation/association, financed with a "federally-aided or authority-aided" mortgage, advance, or grant — this is the exemption a typical MSHDA- or federally-financed LIHTC deal fits. Subsection (1)(b), added in 2022, is a separate "workforce housing" exemption for projects serving households up to 120 percent of AMI under a municipal ordinance, capped at 15 years — a materially higher income band than any LIHTC project serves, and not the mechanism a standard LIHTC PILOT relies on.

That table is worth internalizing before assuming a locally negotiated number: 10 percent of shelter rents is not a specially negotiated Ferndale rate — it is already the statutory default baked into MCL 125.1415a itself, on both sides of the new-construction/rehab test. Ferndale's own PILOT materials (ferndalemi.gov/Resources/PILOT and the city's page for the Shepherd House development at 503 E. Nine Mile Road, a 53-unit Full Circle Communities LIHTC property) independently confirm the city applies 10 percent of shelter rents — which reads as the city applying the state's own default rather than deviating from it, though this research could not confirm whether every Michigan municipality with a PILOT ordinance does the same, since §3(b) lets each one set its own number. A deal should confirm its specific municipality's own PILOT ordinance rather than assuming 10 percent applies everywhere.

Two more limits matter for underwriting a mixed-income deal. First, §3(c) requires that for the portion of a (1)(a)-exempt project occupied by anyone other than low-income individuals or families, the owner must pay the full tax that would otherwise be owed on that portion — a market-rate share of a mixed-income LIHTC property gets no PILOT benefit at all. Second, the exemption's duration under §(4)(a) runs "for as long as the federally-aided or authority-aided mortgage or advance or grant... is outstanding, but not more than 50 years," with the municipality free to set a different period by ordinance — tied to the financing, not directly to the 15-year LIHTC compliance period, though in practice a 50-year ceiling comfortably covers it.

That duration is also what feeds the QAP's own scoring line. The 2026–2027 Scoring Criteria's Section C, item 12 ("Tax Abatement," worth 3 of Section C's 62 points) requires that "the tax abatement must be in place and effective for longer than the 15-year compliance period" — longer than, not merely equal to — and accepts either an area-wide ordinance plus a project-specific qualifying resolution, an area-wide ordinance plus a local letter of eligibility, a project-specific ordinance where no area-wide ordinance exists, or, for tribal trust land, a cooperation agreement limiting property taxes. The scoring item also allows MSHDA to award these points for an alternative structure such as tax increment financing that meets the same intent, on advance contact with MSHDA staff.