"KHC's guidelines say they can redirect me out of the 9% round and into the Tax-Exempt Bond track even if that's not what I applied for — so what's actually different between the two, is there a Kentucky state credit that changes the math, and did the new federal 25% bond test change anything here?"
Two federal credit tracks, two very different rationing mechanisms
The 2027-2029 QAP splits the annual 9% Housing Credit ceiling into an Existing Supply Set-Aside ("approximately 10%" of available 9% credits, for rehabilitation of existing rent-restricted housing) and a New Supply Set-Aside covering the remainder, itself split between an Urban pool ("up to 33%" of New Supply credits, limited to Jefferson County, Fayette County, and the three Northern Kentucky counties of Boone, Campbell, and Kenton) and a Balance of State pool for every other county (QAP, Section II.A-B). KHC caps each county at one Existing Supply and one New Supply award per allocation year (QAP, Section II.C), and both existing- and new-supply applications are ranked by named selection criteria — need of rehabilitation, project-based rent assistance share, and non-acquisition preference for existing supply; PolicyMap-based scoring, permanent below-market financing, revitalization-plan alignment, and family/senior/supportive housing type for new supply (QAP, Sections III-IV).
The 4% credit/Tax-Exempt Bond track runs on an entirely different clock. Per the 2027 Multifamily Guidelines: "For Tax-Exempt bond projects, KHC will open the Universal Funding Application periodically as bond cap is available" (Chapter 3, Application Process). There is no QAP scoring workbook for bond deals analogous to the 9% round's set-aside/selection-criteria structure in the documents reviewed here — the bond track instead runs through KHC's own threshold, underwriting, and capacity-review requirements (the same Chapters 2, 3, and 6 that govern every KHC-financed deal), plus a separate Tax-Exempt Bond Portfolio Application process for multi-property bond transactions (Guidelines, Chapter 3: "Portfolio projects requesting Tax-Exempt Bonds will have a preliminary portfolio application to submit basic documents required to establish the top-tier 'parent' level project... KHC will not consider a deal with unrated bonds in a public offering").
| Track | Rationing mechanism | Set-aside/pool structure | Per-unit annual credit cap |
|---|---|---|---|
| 9% Housing Credits | Competitive, scored annual QAP round via UFA | Existing Supply (~10%); New Supply Urban (up to 33% of remainder, 5 counties); New Supply Balance of State (remainder, all other counties) | $25,000 per unit |
| 4% Housing Credits / Tax-Exempt Bonds | Non-competitive; UFA opens on a rolling basis as bond volume cap is available | No QAP set-asides identified in this research; governed by Chapters 2, 3, and 6 threshold/underwriting requirements and a separate Portfolio Application process for multi-property deals | No per-unit limit identified in KHC's materials |
2027-2029 QAP, Section II.A-B; 2027 Multifamily Guidelines, Chapter 3 (Application Process; Tax-Exempt Bond Portfolio Application) and Chapter 6 (Housing Credit Per-Unit Limits).
KHC can redirect an applicant from 9% into the bond track on its own initiative
The Guidelines' introductory Program Administration section states plainly: "KHC may require additional explanation, documentation, or information pertaining to any portion of the application and/or underwriting model. Additionally, KHC may redirect applicants away from the 9% LIHTC round and into the Tax-Exempt Bond financing + 4% Housing Credits route" (2027 Multifamily Guidelines, Introduction and General Information). This is a real, KHC-discretionary override, not just a description of an applicant's own free choice between tracks — a developer that files for the competitive 9% round should not assume KHC's scoring and set-aside mechanics are the only path their application can follow.
KHC is the sole bond issuer for the whole Commonwealth
Unlike states where multiple local housing finance authorities or urban development authorities compete for or independently control pieces of the state's bond volume cap, Kentucky centralizes bond issuance in KHC itself: "KHC is the designated bond issuing authority for all housing projects within the Commonwealth of Kentucky" (2027 Multifamily Guidelines, Chapter 9: Program Descriptions). Applicants for tax-exempt bonds must separately engage bond counsel "who has experience with and a comprehensive understanding of multifamily tax-exempt bond transactions" (Chapter 2, Applicant Eligibility and Development Team Capacity).
| Fee | Amount |
|---|---|
| Credit Allocation Fee | 10% of the requested 4% allocation, due at equity closing (additional fees due if the allocation amount increases before Form(s) 8609 issuance) |
| Issuer Fee (initial) | $3.50 per $1,000 of bond principal for bonds rated "A" or better (private placement or public offering); $6.00 per $1,000 for unrated private placements; half due within two weeks of the inducement resolution, remainder due at bond closing |
| Annual Issuer Fee | $1.25 per $1,000 face value of the original bond issuance, or an eighth of a point; first year due at closing based on the full bond amount, then annually while bonds remain outstanding |
| Issuer's Counsel | $0.75 per $1,000 of bond principal, minimum $15,000 / maximum $25,000, one-time at closing |
| Administrative Fee | $5,000 one-time, due at closing (remains due even if the deal fails to close) |
| Tax-Exempt Bond Reauthorization Fee | $3,500 per property, for deals that miss their closing deadline; one-time, must close within 30 days of reauthorization |
2027 Multifamily Guidelines, Chapter 1: Project Fees, "Tax-Exempt Bond Fees" table.
The federal aggregate-basis ("50%") bond test: KHC's own materials still say 51%, with no mention of OBBBA's 25% alternative
To generate 4% credits, a bond-financed deal must independently satisfy the federal aggregate-basis test under IRC Section 42(h)(4)(B). The longstanding rule required at least 50% of a project's aggregate basis to be tax-exempt-bond financed. The One Big Beautiful Bill Act (Pub. L. 119-21, Section 70422(b), enacted July 4, 2025) added a more favorable 25% alternative for buildings placed in service after Dec. 31, 2025, provided at least 5% of aggregate basis is financed by bonds issued after that date — a permanent statutory change, confirmed independently against post-enactment reporting on the change.
KHC's own Chapter 9 program-description table, in the current 2027 Multifamily Guidelines, states: "Bond projects utilizing at least 51% of bond proceeds to fund eligible project costs are eligible for 4% Housing Credits to generate equity for the project." That 51% figure reads as the traditional 50% test with a one-point administrative cushion — not the new 25% alternative. A full-text search of the 2027-2029 QAP, the 2027 Multifamily Guidelines, and the 2027 Multifamily Q&A (KHC's three current program documents, all reviewed for this research) turned up no mention of OBBBA, Public Law 119-21, "One Big Beautiful Bill," a 25% test, or an "aggregate basis"/"financed-by" test by name.
Flag: this does not mean a Kentucky deal cannot use the federal 25% alternative — federal law controls regardless of what KHC's own guidelines restate — but it does mean no KHC document reviewed here confirms whether KHC's underwriting model, bond-sizing worksheets, or gap-financing practices have been updated to reflect the lower threshold, or whether KHC still expects deals to clear the older 51% figure as an administrative matter of its own. Confirm current practice directly with KHC's Multifamily Programs Department and bond counsel before sizing a bond issue to the 25% floor in Kentucky.
No Kentucky state tax credit found — the election is a purely federal 9%-vs-4% choice
Some states pair their federal 9%/4% election with a separate, dollar-matching state housing tax credit that changes the relative economics of each track. This research searched the 2027-2029 QAP, the 2027 Multifamily Guidelines, and the 2027 Multifamily Q&A for any reference to a Kentucky state low-income housing tax credit, a "state credit," or similar language, and found none. Kentucky's program election, on the evidence in KHC's own current materials, is a purely federal 9%-vs-4% choice — KHC layers its own gap-financing programs (Affordable Housing Trust Fund, HOME, National Housing Trust Fund, Rental Housing Trust Fund, Risk-Sharing, State Mortgage Assistance Loan) on top of either federal credit track rather than a separate state tax credit running alongside it.
Flag: this is an absence-of-evidence finding from KHC's own three program documents, not an affirmative statutory search of the full Kentucky Revised Statutes or Department of Revenue guidance for a housing-specific state credit that might exist independent of KHC's LIHTC administration. Confirm directly with KHC or a Kentucky tax advisor before ruling out a state credit entirely for a specific deal.
Credit caps, basis boost, and set-asides that differ by track
The Average Income Test (AIT) minimum set-aside is available on both tracks, but a Tax-Exempt Bond deal must independently clear a traditional 20/50 or 40/60 minimum set-aside for bond compliance purposes even while electing AIT for 4% credit compliance (Guidelines, Chapter 6: Average Income Test). Full AIT mechanics — designation tiers, the irrevocability rule, and this bond/credit dual-test overlay — are covered in Phase 5.
Where this goes wrong
- Assuming the 9% round's QAP scoring criteria (PolicyMap data, revitalization plans, etc.) apply to a 4%/Bond application — KHC's bond track runs through the Guidelines' threshold and underwriting chapters, not the QAP's scored selection criteria.
- Treating the 9% vs. 4% election as entirely the applicant's own choice — KHC's Guidelines explicitly reserve the right to redirect an applicant from the 9% round into the Tax-Exempt Bond/4% route.
- Assuming Kentucky has a state low-income housing tax credit that stacks with the federal 9%/4% election — no evidence of one was found in KHC's current QAP, Guidelines, or Q&A; confirm directly before building it into a capital stack.
- Citing the federal bond test as flatly "50%" or flatly "25%" without checking current KHC practice — KHC's own Chapter 9 table still states 51%, and none of KHC's current documents mention OBBBA's 25% alternative at all.
- Assuming a bond deal only needs to clear one minimum set-aside test — a Tax-Exempt Bond deal electing Average Income for 4% credit compliance must still separately satisfy a 20/50 or 40/60 test for bond compliance.
- Assuming the $1,800,000 annual credit cap per "user" applies to Tax-Exempt Bond deals — the Guidelines state it explicitly does not.
- Assuming the 30% basis boost works the same way on both tracks — 9% deals get it at KHC's discretion; 4%/Bond deals must be in a QCT or DDA and never get it on acquisition basis.
- Assuming multiple entities can issue bonds in Kentucky the way they can in states with local housing finance authorities or urban development authorities — KHC is the sole designated bond issuer for the entire Commonwealth.
- Assuming KHC will consider an unrated bond issued in a public offering — the Guidelines state KHC will not consider such deals.
- Relying on the QAP or Guidelines for exact 2027 application/threshold deadline dates — KHC's own documents say these are announced via its eGram service, not fixed in the QAP/Guidelines text itself.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies