Cost, construction type, and the labor package — Kentucky

Total development cost limits: a four-way cost containment schedule

KHC's 2026 Cost Containment Limits, "Effective for Applications Submitted On Or After April 23, 2026," set per-unit maximum total development costs split by building type (Elevator vs. Non-Elevator), geography (Urban Areas vs. Balance of State), and bedroom count. "Urban Areas" are defined as Boone, Campbell, Fayette, Jefferson, and Kenton Counties; "[a]ny area outside of the urban counties is considered balance of state."

Flag: the 2027 Multifamily Guidelines include their own worked numeric example of the cost containment calculation — an "11-unit elderly new construction, non-elevator project located in Franklin County" (Balance of State) with "5 one-bedroom units and 6 two-bedroom units," using per-unit limits of $157,805 (1-BR) and $190,316 (2-BR). Those figures do not match the Non-Elevator/Balance of State limits in the 2026 Cost Containment Limits schedule above ($262,920 for 1-BR, $317,088 for 2-BR). The Guidelines' example appears to illustrate the calculation methodology only, using dollar figures from an earlier cost-containment cycle, not the limits currently in effect. Use the 2026 schedule's actual dollar figures for underwriting, not the Guidelines' own worked-example numbers.

Costs tied to a Community Service Facility (in a Housing Credit project located in a Qualified Census Tract) or to commercial space are excluded from the cost containment calculation entirely, but are separately capped: CSF eligible basis cannot exceed 25% of the project's total eligible basis (without any basis boost) and total project development cost cannot exceed $15 million when a CSF is proposed (2027 Multifamily Guidelines, Chapter 6).

Contractor fee caps: General Requirements, Overhead, and Profit on a sliding scale

KHC caps General Requirements, Builder's Overhead, and Builder's Profit as percentages of a defined base ("Total Hard Cost – Contingency – (General Requirements, Builder's Overhead and Builder's Profit)"), on a sliding scale tied to total development cost. "Owners are responsible for ensuring that construction contracts do not result in exceeding the maximum fee limits" (Chapter 6, Maximum Allowable Fees).

Developer fee: tiered per-unit schedule on Credit deals, 20% of TDC on Bond deals

For new construction, rehabilitation, and adaptive reuse of 9% Housing Credit and non-credit projects, the developer fee follows a tiered per-unit schedule: "First 15 Units: $28,000 per unit; Next 30 Units (16-45): $23,800 per unit; Next 30 Units (46-75): $16,800 per unit; All Units Over 75: $9,800 per unit," capped at the lesser of that per-unit total or $1,800,000. Consulting fees count as part of the developer fee, and the fee cannot be increased above the amount requested in the initial application.

Tax-Exempt Bond deals use a different formula entirely: "The developer fee on Tax-Exempt Bond projects may not exceed 20% of the total development cost per property, less: a. Developer fee; b. Consultant fee; c. Any fees resembling developer or consulting fees." That fee cannot increase after the full application is submitted, but must be reduced if project costs decrease.

Deferred developer fee has its own repayment window: "the deferred portion must be able to be repaid within the first 10 years of operation, except for Tax-Exempt Bond transactions which may extend the repayment term to the full 15 years allowed by the IRS."

Mandatory energy performance, not a scored green-building bonus

KHC's Minimum Design Standards (MDS) require, for every project regardless of financing source: energy-code documentation ("Documentation and/or calculations that the building envelope meets or exceeds the applicable energy code requirements must be provided from REScheck or other approved software or methodology"); energy testing following IECC and ASHRAE 62.1/62.2 (or the current International Mechanical Code as adopted by the Kentucky Department of Housing, Buildings and Construction); and blower-door or compartmentalization testing on a sample of units — "a minimum of ten percent (10%) of the units will be selected by KHC for testing up to a one-hundred (100) unit project and five percent (5%) of all units over the one-hundred (100) units." All new and replacement refrigerators, provided dishwashers, clothes washers, range hoods, and exhaust/ceiling fans must be Energy Star qualified, and heat pump/PTHP HVAC systems carry minimum SEER2/EER ratings.

Flag: this research reviewed the 2027-2029 QAP's scoring sections (III and IV) and found no separate, optional, points-scored green-building certification category (e.g., LEED, National Green Building Standard, or Enterprise Green Communities certification) anywhere in that text. Kentucky appears to fold baseline energy performance into a mandatory Minimum Design Standard that every project must meet, rather than offering it as a competitive scoring bonus. If a distinct green-building scoring line exists in a separate KHC scoring workbook document not reviewed for this research, that would contradict this finding — confirm against the current scoring workbook before assuming there is no competitive angle here at all.

No Kentucky state prevailing wage law — but Davis-Bacon still applies through HOME

Kentucky repealed its state prevailing wage law effective January 9, 2017, via House Bill 3, and that repeal was confirmed directly against the U.S. Department of Labor's own current "States without Prevailing Wage Laws" list (dol.gov/agencies/whd/state/prevailing-wages), which lists: "Kentucky – repealed in 2017." There is no Kentucky state prevailing-wage requirement to layer onto a LIHTC construction contract.

Federal Davis-Bacon Act wage rates apply independently of state law, but only when triggered by specific federal funding: "Davis-Bacon Act wage rate requirements apply to contracts for the development of 12 or more HOME-assisted units" (2027 Multifamily Guidelines, Chapter 7). KHC's own Guidelines carve out two notable exceptions to that HOME trigger: NHTF funding does not carry the requirement at all ("Davis-Bacon Wage Rate Requirements: Davis-Bacon wage rates do not apply" for NHTF, even though NHTF otherwise mirrors HOME regulations), and Risk-Sharing loans do not trigger it either, because "KHC only offers Risk-Sharing as permanent financing" rather than construction financing, even for projects of 12 or more units.

Section 3, Build America Buy America, and the construction contract itself

Section 3 reporting applies to "all projects that receive a combined total of $300,000 or more of HUD assistance (including HOME, NHTF, CDBG, etc.)" — a threshold that rose from $200,000 to $300,000 effective March 16, 2026, under HUD's Final Rule at 24 CFR Part 75. Covered projects must track labor hours against two benchmarks: "At least 25% of the total labor hours worked on the project are by Section 3 workers; and... At least 5% of the total labor hours worked on the project are by Targeted Section 3 workers," reporting annually by August 15 during construction and again at project completion.

Build America, Buy America (BABA) requires U.S.-produced iron, steel, construction materials, and manufactured products on "all projects of 5 or more units financed with HOME and/or NHTF funds" (other federal funds, like CDBG, can independently trigger it too). Owners must build the requirement into every procurement document — bid advertisements, contracts, subawards, and purchase orders — and may request a waiver either from KHC directly (for exigent-circumstance or de-minimis/small-grant cases) or from HUD (for product non-availability or unreasonable cost, defined as BABA compliance increasing overall project cost by 25% or more).

The construction contract itself must be either the AIA document or HUD's Construction Contract Form, and must include a Davis-Bacon wage rate clause and a Section 3 clause wherever those requirements apply. KHC requires an assurance of completion once its funds exceed $100,000 and are not disbursed only at project completion — most commonly a payment/performance bond (AIA A-312 or HUD Form 92452) equal to at least 100% of the construction contract amount, required outright "if KHC is providing a bridge or construction loan, or for Risk-Sharing loans in which insured advances are provided," or alternatively an irrevocable letter of credit equal to at least 30% of KHC funds.