"Do we compete for 9% credits, go the 4%/bond route through HHFDC's Hula Mae program, or is there really a hybrid path in Hawaii -- and does the state's own 50%-match tax credit and Hawaii's DDA map change which one wins?"
Two elections, but the 4%/bonds path isn't uncompetitive -- it's just competitive somewhere else
The 2026 QAP states the 9%/4% split plainly. Section III.C, "Low-Income Housing Tax Credit Project Financed with Tax-Exempt Bonds," says an Applicant may apply for LIHTC with either a commitment to issue private activity bonds from a state or local government, or an application for Private Activity Tax-exempt bonds from HHFDC itself, and that such Applicants "must submit all documentation required in the application and will be subject to all feasibility reviews but are not subject to scoring under the Criteria Point System." Everything scored under Section III.D -- Applicant's Readiness, Reasonableness of Development Costs, Energy Efficiency and Green Building, the County Adjuster, and the rest -- applies only to the 9% competition. This research could not further identify or confirm who, in practice, issues bonds under the QAP's alternate "state or local government" path beyond HHFDC itself; the dominant, documented conduit issuer is HHFDC's own Hula Mae Multi-Family (HMMF) Revenue Bond Program, which issues tax-exempt revenue bonds against the State's Private Activity Bond volume cap, itself allocated by the State's Director of Finance with the Governor's approval.
What skipping the LIHTC QAP's own point system does not do is make a 4%/bond deal a rubber stamp. HHFDC's separate "2026 Funding Round Application Exhibits -- Instructions" package includes its own "Hula Mae Multi-Family Bond Program" Minimum Threshold Requirements and a full "2026 Evaluation Criteria and Scoring System" -- a genuinely separate, scored competition for the bond volume cap itself, covering affordability period length, income targeting depth, an HMMF-specific resource-efficiency ratio, permit readiness (worth up to 15 of that competition's points), rental assistance subsidies, government financing, project location, developer experience, cost reasonableness, unit sizes, green building, State conveyance rights, and special housing needs. A sponsor who structures a deal to skip the LIHTC QAP's scoring by going the bond route in Hawaii has not exited competition -- they have moved into a different HHFDC competition for a scarcer resource (the volume cap itself).
| Path | What is competitively scored | Governing document |
|---|---|---|
| 9% LIHTC | Full Criteria Point System (Section III.D) -- readiness, cost reasonableness, green building, County Adjuster, income targeting, and more | 2026 QAP, Section III.D |
| 4% LIHTC + tax-exempt bonds | Not scored under the LIHTC QAP's Criteria Point System (Section III.C) -- reviewed for Minimum Thresholds and feasibility only | 2026 QAP, Section III.C |
| Hula Mae Multi-Family (HMMF) bond volume cap | Its own separate, scored 2026 Evaluation Criteria (13 criteria; affordability period, income targeting, resource efficiency, readiness, cost reasonableness, green building, etc.) | HHFDC, 2026 Funding Round Application Exhibits -- Instructions, HMMF Bond Program |
A 4%/bond Application is reviewed against both the LIHTC QAP's Minimum Thresholds and, separately, the HMMF Bond Program's own Minimum Thresholds and scoring -- the bond volume cap, not the LIHTC allocation itself, is what HHFDC actually rations competitively on that path.
This research found no HHFDC QAP provision defining a formal, named "hybrid 9%/4%" structure comparable to what some mainland states (e.g., California, Colorado) build into their own QAPs -- where a single sponsor can split a project into separately phased applications drawing on both credit types under one coordinated framework. Hawaii's QAP frames the choice as a per-Application election (9% or 4%/bonds), and this research did not confirm HHFDC guidance on how, or whether, it treats a multi-phase site where adjacent phases separately elect different credit types. Anyone contemplating that structure in Hawaii should raise it directly with HHFDC rather than assume a mainland-style hybrid framework transfers over.
The bond math just changed twice in one year -- and HHFDC's own new cap sits between the two federal numbers
For decades, triggering the automatic 4% credit required at least 50% of a building's aggregate basis (land plus building) to be financed with tax-exempt private activity bonds under 26 U.S.C. Section 42(h)(4)(B). Section 70422(b)(1) of the One Big Beautiful Bill Act (Public Law 119-21, enacted July 4, 2025) rewrote that subsection to add a second, lower path: 25% of aggregate basis, plus a further condition that at least 5% of that basis be financed with bonds issued after December 31, 2025. Both the 25% and 50% paths remain available under the amended statute; the change applies to buildings placed in service in tax years beginning after December 31, 2025 -- effectively, Hawaii's 2026 and later funding rounds.
HHFDC's 2026 QAP itself never mentions this change -- a direct text search of the full QAP for "25 percent," "One Big Beautiful Bill," or "OBBBA" turns up nothing related to the bond-financing test (the QAP's own one "25%" reference is its unrelated authority to issue a forward commitment for up to 25% of the next year's housing credit ceiling, and its one "50 percent" reference is an unrelated physical-inspection exception for RHS Section 515 and bond-financed projects in the Compliance Monitoring Plan). What HHFDC did add, for 2026, sits in the separate HMMF Bond Program exhibits, not the QAP: a new "Bond Financing Limitation (New for 2026 Funding Round)" provision requiring that "no more than thirty percent (30%) of the aggregate basis of the building and land is financed, directly or indirectly, with the proceeds of tax-exempt obligations described in section 42 of the Internal Revenue Code," with tax-exempt proceeds counted toward that limit even when used to "fund, reimburse, or refinance indebtedness originally used for that purpose." The exhibits state plainly that "Applications exceeding the 30% threshold will not be considered for the HMMF Bond Program."
| Figure | What it governs | Source |
|---|---|---|
| 25% (new) or 50% (original) | Federal minimum share of aggregate basis that must be tax-exempt-bond-financed to trigger the automatic 4% credit | 26 U.S.C. Section 42(h)(4)(B), as amended by P.L. 119-21 Section 70422(b)(1) |
| 30% (ceiling, new for 2026) | HHFDC's own maximum share of aggregate basis the HMMF Bond Program will allow to be tax-exempt-bond-financed | HHFDC, 2026 Funding Round Application Exhibits, HMMF Bond Program, "Bond Financing Limitation" |
| 25% (unrelated) | HHFDC's own authority to issue a forward commitment for up to 25% of the next year's housing credit ceiling | 2026 QAP, Section IV, Rights of HHFDC |
A developer sizing a Hawaii bond deal in 2026 has to land between the federal floor (25% or 50%, depending which path is elected) and HHFDC's own new 30% ceiling -- and only the HMMF exhibits document says so; the LIHTC QAP text does not.
The practical read: HHFDC appears to be using its own tighter ceiling to keep individual deals from consuming disproportionate volume cap now that the federal floor has dropped, so the State's fixed annual Private Activity Bond cap can be spread across more developments rather than fewer, larger ones. That is a reasonable inference from the timing and the stated 2026-only novelty of the rule, not something the exhibits document states as its own rationale -- this research did not find an HHFDC policy memo explaining the 30% figure's derivation, and that figure should be confirmed as still current before relying on it in any funding round after 2026.
Hawaii's own state tax credit -- verified at 50%, just extended, and now sellable
The QAP's own introduction states it directly: "The State of Hawaii created a State LIHTC which is equal to fifty percent (50%) of the Federal LIHTC allocated to a project." That state credit is codified at Hawaii Revised Statutes Section 235-110.8, and the QAP's Compliance Monitoring Plan separately confirms management audits check compliance with "Section 42 IRC and Section 235-110.8 of the Hawaii Revised Statutes" together -- the two credits are administered and audited side by side.
That statute just changed. House Bill 1920 (H.D.1/S.D.2/C.D.1), passed by the 2026 Hawaii Legislature and reported signed by Governor Green as Act 205, Session Laws of Hawaii 2026 (multiple contemporaneous local news reports place the signing on or about July 8-9, 2026), does two things to Section 235-110.8. First, it extends the credit's sunset: the bill's own text amends the repeal-and-reenactment date in Act 129 (SLH 2016), as previously amended by Act 226 (SLH 2021), from "December 31, [2027,] 2032" -- i.e., pushing the sunset five years, from the end of 2027 to the end of 2032. Second, for credits issued after July 1, 2026, it rewrites how the credit can move: previously, a credit allocated to a partnership or LLC could only be "allocated by [the] partnership or limited liability company in any manner agreed to by the partners or members"; the amended text adds that such an entity "may either further allocate the credit or transfer, sell, or assign all or a portion of the credit to any taxpayer, whether or not the taxpayer owns a direct or indirect interest in the qualified low-income building," subject to a Department of Taxation notification requirement and a bar on the transferee reselling it further.
This research could not independently re-pull the official, post-Act-205 codified text of HRS Section 235-110.8 directly from the Legislature's own capitol.hawaii.gov site or from Justia -- both blocked automated access during this research. The description above is built from the enrolled bill's own amendment language (which is the actual operative text the Governor signed) plus independent news confirmation of the Act number and signing date, not from a freshly re-pulled codified statute page. Before finalizing any term sheet that depends on selling the state credit to an unrelated buyer, confirm the current codified text of Section 235-110.8 directly.
DDA/QCT status is not uniform across the islands -- and the QAP nets the boost out of the developer fee calculation
HUD's 2026 Difficult Development Area (DDA) and Qualified Census Tract (QCT) designations (Docket No. FR-6565-N-01, effective January 1, 2026) are not a single statewide answer for Hawaii. Checked directly against HUD's own hosted DDA dataset: for 2026, Hawaii County and Kauai County carry non-metropolitan DDA status; Maui County does not appear in the 2026 non-metro DDA list at all. Oahu's DDA status is narrower still -- it is designated only as a "Small Area" DDA, limited to 17 specific ZIP Code Tabulation Areas within the Urban Honolulu, HI MSA, not the entire island or the entire MSA.
| County/area | 2026 DDA status |
|---|---|
| Hawaii County | Non-metropolitan DDA (countywide) |
| Kauai County | Non-metropolitan DDA (countywide) |
| Maui County | Not designated as a non-metropolitan DDA for 2026 |
| Honolulu / Oahu (Urban Honolulu, HI MSA) | Small Area DDA limited to 17 named ZCTAs: 96706, 96707, 96717, 96734, 96744, 96759, 96762, 96786, 96791, 96815, 96818, 96821, 96825, 96853, 96857, 96860, 96863 -- not the full island or MSA |
DDA and QCT designations reset annually and are not administered by the QAP itself -- confirm a specific site's current-year status directly through HUD's own SADDA/QCT lookup tool rather than carrying forward a prior year's determination or this table past the 2026 cycle.
The federal 30% basis boost for QCT/DDA sites is automatic under 26 U.S.C. Section 42(d)(5)(B) and is not separately administered by HHFDC's QAP. Where the QAP does touch it is in the 4%/bonds developer fee formula, which nets the boost back out before calculating the fee add-on: the new-building 4%/bonds developer fee adds "five percent (5%) of net eligible basis, not including DDA/QCT boost, less total developer fee" -- meaning the extra eligible basis a QCT or DDA site generates does not itself inflate the allowable developer fee dollar amount.
QCT location also shows up as a scored item, but it is narrower than a bare location test: Criterion 18, "Qualified Census Tract" (0 or 1 point), asks not just whether the project sits in a QCT but whether "the project will redevelop existing housing which contributes to a concerted community revitalization plan as determined by HHFDC," requiring an explanation of how the project complies with such a plan and a letter of interest or binding agreement with the administering government agency. A QCT site that isn't tied to a revitalization plan does not automatically earn this specific point, even though it may separately and automatically qualify for the federal basis boost.
Where this goes wrong
- Assuming a 4%/bond deal in Hawaii is non-competitive because it skips the LIHTC QAP's Criteria Point System -- the tax-exempt bond volume cap needed to trigger it is separately, competitively scored under HHFDC's own Hula Mae Multi-Family Bond Program criteria.
- Missing HHFDC's new-for-2026 30%-of-aggregate-basis ceiling on bond financing -- it appears only in the HMMF Bond Program exhibits, not anywhere in the LIHTC QAP text, and exceeding it disqualifies the Application from the HMMF program outright.
- Assuming the QAP itself walks through the OBBBA change from a 50% to a 25% federal bond-financing test -- a direct search of the 2026 QAP's full text found no mention of the change; its only related figures are two unrelated 25%/50% references (a credit-ceiling forward-commitment authority and an old RHS/bond inspection exception).
- Assuming Hawaii has a formal, QAP-defined "hybrid 9%/4%" mechanism the way some mainland states do -- this research found none; the QAP frames the election as a per-Application binary choice.
- Treating Hawaii's state LIHTC as fixed at its pre-2026 rules -- Act 205 (SLH 2026) extended its sunset from 2027 to 2032 and, for credits issued after July 1, 2026, opened it to sale or transfer to any taxpayer, a material change from the prior partner/member-only allocation rule.
- Relying on this or any other secondary summary of HRS Section 235-110.8's current codified text without re-pulling it directly -- this research could not access capitol.hawaii.gov or Justia's Hawaii code pages during this pass and built the 2026 amendment description from the enacted bill's own language plus news confirmation of the Act number.
- Assuming DDA status is uniform across an island or the whole state -- Hawaii and Kauai counties carry non-metro DDA status for 2026, Maui does not, and Oahu's DDA status is limited to 17 specific ZIP codes rather than the full island or MSA.
- Assuming a QCT-located site automatically earns the QAP's QCT scoring point (Criterion 18) -- it additionally requires the project to redevelop existing housing under a concerted community revitalization plan, documented with a letter of interest or binding agreement.
- Confusing HHFDC's unrelated 25%-of-next-year's-credit-ceiling forward-commitment authority (Section IV, Rights of HHFDC) with the federal 25% bond-financing test -- they are two unrelated 25% figures in two unrelated contexts that happen to share a number.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies