Compliance monitoring through the Texas affordability period — Texas

The clocks, and the one floor Texas never raised

A Texas deal runs the same federal clocks as any state, plus one Texas-specific floor that tracks the federal minimum almost exactly — a materially different answer from California's in the same slot.

Texas does not have a California-style mandatory 55-year term. Its floor has been flat at 30 years since the statute was added, effective September 1, 2001 — there is no allocation-year ladder to track the way California's pre-1996, pre-2004 and post-2004 tiers require. A Texas covenant ledger is simpler than California's on this one dimension: there is exactly one base term, always, plus whatever Extended Affordability tier the specific Application record shows.

The complexity in Texas isn't in the base term — it's in the Qualified Contract timing rule layered on top of it, which is vintage-dependent by award year rather than by an allocation-year ladder.

The annual machine: the AOCR, the quarterly USR, and the 8823

Texas's annual reporting instrument is the Annual Owner's Compliance Report (AOCR), paired with a separate Annual Owner's Financial Certification (AOFC) — not California's four-report AOC package, and due on a single date rather than California's two-part March–June / May–July window.

Sampling is the one place the compliance-period rule text is genuinely silent.

The physical standard is NSPIRE, same as the federal program, with an accelerated inspection schedule for any development scoring 70 or below, or judged in poor condition (10 TAC § 10.618(b)(6); § 10.623 preamble). Advance notice is lighter than the federal default, too: Texas gives no advance notice of which unit, tenant file, or year will be reviewed — only "reasonable notice" that a review will occur at all (10 TAC § 10.618(f)).

Record retention is identical to the federal rule, restated in Texas's own text: the year-1 resident file must be kept 6 years beyond the due date of the return for the last year of the compliance period — roughly 21 years of custody for a single year's paperwork (10 TAC § 10.608(c)). TDHCA's own retention of its 8823 records is a separate, shorter 6 years from the Department's own filing date (10 TAC § 10.603(b)).

One deadline is genuinely Texas-specific, with no California analog found in this research. Within 6 months but at least 90 days before the end of the Affordability Period or LURA term, the owner must give tenants written notice of proposed new rents, any rehabilitation plans, and how to reach TDHCA's Vacancy Clearinghouse — unless the property has already been approved for new funding or credits (10 TAC § 10.607(j)).

The student rule (IRC § 42(i)(3)(D)) and the Next Available Unit Rule (IRC § 42(g)(2)(D)) are federal and portable, identical to every state. No Texas-specific student-rule overlay comparable to California's homeless-youth carve-out turned up in the sources reviewed — that is an absence in the research, not confirmed proof none exists. Owners electing the Average Income Test must disperse the 20/30/40/50/60/70/80% designations across unit types "to the greatest extent feasible" (10 TAC § 10.605(c)).

Recapture, and the one thing Texas doesn't touch

Recapture is entirely federal and identical to every state: TDHCA does not administer it, the IRS does. Section 42(j) — the trigger, the recapture amount, the accelerated-portion derivation, the safe harbors — is a national baseline, not a Texas rule.

The accelerated portion (§ 42(j)(3)) is the excess of the credit actually allowed for prior years over the credit that would have been allowable had the total been spread ratably over 15 years instead of 10 — the origin of the widely quoted "one-third" rule of thumb, which is a derivation from the statute, not a statutory figure itself. A calculator has to run both schedules and subtract, then layer interest year by year.

TDHCA's only touchpoint is filing Form 8823, which starts that 3-year assessment clock running from the date of IRS notification, not from the finding itself. It does not compute or collect the recapture tax. Recapture exposure ends at year 15, same as everywhere — but in Texas, unlike California, year 15 does not mark anything close to the midpoint of the restriction, since the Affordability Period itself runs at least another 15 years past that, to year 30.

Texas's money layer: an annual fee, and no rent cap at all

This is the sharpest modeling difference from California in this entire phase. California's $700-per-unit fee is a single capitalized charge paid before the 8609. Texas's fee is collected annually, indexed to the month the first building was placed in service, and collected retroactively from the first year of the credit period if the invoice wasn't issued right away. It is a permanent operating-budget line for the life of the hold, not a development-budget line item.

"Upon receipt of the cost certification for HTC Developments... the Department will invoice the Development Owner for compliance monitoring fees. For HTC only the amount due will equal $40 per low-income unit... the fee will be collected, retroactively if applicable, beginning with the first year of the credit period. The invoice must be paid prior to the issuance of IRS Form 8609... Subsequent anniversary dates on which the compliance monitoring fee payments are due shall be determined by the month the first building is placed in service. Compliance fees may be adjusted from time to time by the Department." — 2026 QAP § 11.901(16)

No Texas equivalent to California's AB 846 rent-increase cap turned up in this research. California caps annual increases at the lesser of 5% plus CPI or 10% of the prior 12 months' rent, per household, for the life of a 55-year term. A Texas HTC unit's maximum achievable rent is simply the lesser of the federal AMI-indexed gross rent limit and market — there is no per-household, path-dependent ceiling layered on top. A model that globally applies California's rent-cap logic to a Texas deal will understate achievable Texas rent for the entire hold.

Enforcement reads thinner too, or at least less visible in what could be confirmed this session: no codified per-violation dollar-fine or lien-authority schedule turned up in the Texas compliance rule text reviewed, comparable to California's $500-or-double-the-gain formula. What TDHCA's rule does describe is Form 8823 to the IRS, plus consequences through an applicant's compliance history and Previous Participation Review on future funding. The QAP's authority clause does point to a separate enforcement chapter that was not independently checked for a penalty mechanism in this research — treat the absence of a fine schedule as an open question, not a settled fact.

Year 30, not Year 15: the exit California doesn't have

In California, Year 15 is the pivotal date because recapture exposure ends there and the LP's posture typically turns adversarial, even though the real restriction runs another 40 years. In Texas, Year 15 is a comparatively minor event. Recapture exposure ends on the same federal mechanism, but the Affordability Period itself doesn't end until Year 30 at the earliest (or 35/40/45, if scored) — and Texas actually lets an owner exit early through a Qualified Contract, the mechanism California's statute bars outright.

The Qualified Contract is the single most consequential Texas-specific finding in this phase, and it runs the opposite direction from California's. Texas does not prohibit it. Texas uses the same statutory hook California uses — the closing clause of § 42(h)(6)(E)(i)(II), which lets "more stringent requirements... provided in the agreement or in State law" override the federal default — but Texas's override is a delay, not a ban.

The price formula is the same federal formula California uses — outstanding indebtedness plus CPI-adjusted investor equity (capped at the lesser of 5% per year or actual CPI), minus cash available for distribution — confirmed directly from TDHCA's own procedures-manual template for the CPA's report. Texas does not modify the federal pricing formula; it only gates when an owner may invoke it.

The modeling consequence runs opposite to California's. A Texas feasibility model that assumes the Qualified Contract exit is impossible — the correct assumption for a California deal — is simply wrong here. It's a live, fee-priced, procedurally real exit, just gated to Year 30 rather than Year 14 for nearly the entire current portfolio (everything awarded since January 1, 2002). Borrowing California's "grey it out" logic for a Texas deal is the mirror image of California's own most common out-of-state-underwriter mistake.

Transfers and resyndication: the machinery California built that Texas didn't

California turns almost any ownership change — a partnership-interest sale, even a refinancing that increases debt — into a "Transfer Event" that triggers a mandatory, dated Capital Needs Assessment, a funded Short-Term Work Reserve, and DSCR-capped funding obligations. Texas's ownership-transfer rule has none of this machinery.

"All multifamily Development Owners must provide written notice to the Department at least forty-five (45) calendar days prior to any sale, transfer, or exchange of the Development or any portion of or Controlling interest in the Development. Department approval is required for any new member to join in the ownership structure..." — TDHCA Post Award Activities Manual, June 2026, "Ownership Transfers" chapter

The approval path is a $1,000 fee, pre- and post-transfer organization charts down to natural-person owners, a Previous Participation review of any new principal (10 TAC § 1.301), and executed transfer agreements. No capital-needs assessment, no reserve-funding covenant, no DSCR test, no demolition or unit-count-replacement rule, and no vacant-unit-holding restriction turned up anywhere in the Ownership Transfer chapter reviewed for this research. A Physical Needs Assessment appears only in the Qualified Contract context — an ordinary sale or refinance does not require one.

Resyndication has no dedicated Texas framework at all. A property seeking a second competitive allocation simply files an ordinary Application and competes in the normal annual round, under the same threshold and scoring rules as any other rehabilitation deal. No BIN-continuity rule turned up either way — don't assume Texas mirrors California's BIN-preservation rule; it's genuinely unconfirmed, not confirmed-absent. No mandatory pre-cure of prior open Form 8823s. No mandatory unit-count increase on demolition. No "resyndication readiness" gate of any kind. This reads as a real absence of apparatus in the sources reviewed, not a gap in the research.

The Right of First Refusal is elective, not mandatory, and structured entirely differently from California's. It only attaches if the Applicant took a 1-point scoring election at application:

"The department shall provide appropriate incentives... to reward applicants who agree to... provide to a qualified entity, in a land use restriction agreement... a right of first refusal to purchase the development at the minimum price provided in... Section 42(i)(7)..." — Tex. Gov't Code § 2306.6725(b)(1)

Implementing rules live at 10 TAC § 10.407, with the same direct-fetch caveat as the Qualified Contract rule above — the codified text could not be independently confirmed in this research. The approval fee is $2,500 (2026 QAP § 11.901(11)). This is structurally very different from California's mandatory nonprofit-GP ROFR at a fixed price formula: Texas's version is optional for any Applicant type, taken purely for the scoring point, and it's a staged marketing period rather than a fixed-price option held by one named nonprofit.

Foreclosure runs on the same federal mechanism as California, with nothing Texas-specific layered on top: the extended use period terminates on foreclosure or deed-in-lieu, absent a Secretary finding of intentional termination, but for 3 years after, there's no eviction without good cause and no rent increase beyond what § 42 otherwise permits (IRC § 42(h)(6)(E)(i)–(ii)).

What this phase reaches backward into underwriting

Almost everything binding here was elected years earlier, at application, when it was worth only a handful of scoring points.

The two elections that matter most — the Extended Affordability tier and the ROFR flag — are easy to lose track of by Year 20 if a covenant ledger ingests only the LURA's headline term and not the underlying Application scoring detail. The LURA shows the number; it doesn't show why that number was chosen, or which Qualified Contract clock it implies.

Exit tax follows the same national approximation used everywhere: negative capital account times the marginal rate, divided by one minus the marginal rate. That is industry practice, not a Texas or a federal rule, and it depends entirely on the partnership's own tax history — not something a calculator can derive from statute alone.