Program election (9% vs. 4% vs. hybrid) — Michigan

One QAP, two federal credit tracks, and a dollar-cap exemption for bond deals

MSHDA's 2026-2027 Qualified Allocation Plan — approved by Governor Whitmer on July 9, 2025 "pursuant to Section 42(m) of the Internal Revenue Code of 1986, as amended, and Section 22(b)(4) of P.A. 346 of 1966, as amended" — runs the federal 9% competitive credit and the federal 4% credit paired with tax-exempt bonds through a single document, the way most states do. What is distinctive is Section II of the QAP itself: "In accordance with Section 42 of the Internal Revenue Code (IRC), tax-exempt bond financed projects are subject to the QAP other than the LIHTC allocation limits and requirements from which they are expressly excepted." That single sentence carves 4%/bond deals out of the QAP's own per-project and per-Principal dollar ceilings — ceilings that apply to 9% deals specifically.

The QAP's own allocation limits apply to the 9% competitive track: a maximum award per project of $1,650,000 for Open Urban or Urban-located PSH projects, or $1,500,000 for all others, and a maximum annual award per Principal of $3,300,000 (co-developers split this cap by their percentage share of the developer fee). An Emerging Developer project raises that Principal's cap by $300,000 per Emerging Developer project awarded in the credit year. None of this applies to a tax-exempt bond-financed 4% deal — which is precisely why scale, not just credit percentage, is a real driver of the 9% vs. 4% election in Michigan: a competitive 9% award is capped near $1.5-1.65 million no matter how large the project, while a bond-financed deal is not bound by that ceiling at all.

The 4%/9% Mixed Transaction: Michigan's real hybrid structure

Michigan's own term for the "hybrid" structure is the "4%/9% Mixed Transaction," and it is governed by a standalone document — LIHTC Allocation Policy #1, "4%/9% Mixed Transaction Guidance" (updated October 2023) — rather than the QAP's main body. The policy is explicit that it is guidance, not a binding rule: "the purpose of this memorandum is to help communicate some information on potential structures and is not intended to in any way impose requirements or guidelines or to bind MSHDA to a certain structure," and "MSHDA staff will have the sole discretion to determine whether a development can proceed as a 4%/9% Mixed Transaction Development."

The structural expectation is real, though: "Developments that are proposing a 4% LIHTC component and a 9% LIHTC component should be structured as two separate transactions with two separate and distinct ownership entities or two separate and distinct condominiums," specifically "to ensure that the 9% LIHTC component is separate from and not somehow tainted by the 4% LIHTC component." Where both components sit in the same building under a condominium regime, the policy anticipates "a proportional allocation of costs" between them, and flags that an applicant seeking MSHDA direct lending on the 4% portion "will be required to pursue MSHDA financing on the 9% portion in order to avoid multiple lenders financing the same building." An applicant proposing a Mixed Transaction must submit a narrative, a preliminary 4% LIHTC Direct Lending pro forma, a preliminary 9% Program Application, a preliminary self-score, an ownership chart for both components, and a preliminary timeline — all by the "4%/9% Mixed Transaction Level 1 Review Due Date" that precedes every competitive Funding Round Due Date in the QAP's own timeline (Section V.A).

The scoring worksheet reaches back into this structure directly: the Cost Reasonableness with Credit Efficiency item states that "projects that have received MSHDA approval to move forward as a 4%/9% Mixed Transaction will be eligible to include the total LIHTC units that are being created/rehabbed between the 9% portion and the 4% portion of the transaction," while limiting the credit amount entered to "only the amount of LIHTC that is being requested as part of the competitive funding round." In other words, a Mixed Transaction can spread its unit count across both components for the efficiency test even though only the 9% credit amount counts on the cost side of that same calculation.

Gap financing structurally favors 4%/bond deals — and actively screens preservation deals away from 9%

Before a preservation project may even apply for 9% credit, the QAP requires MSHDA to determine that the project is unlikely to be competitive under MSHDA's own Direct Lending Gap Financing Program: "an applicant will not be able to submit a preservation project for 9% LIHTC unless MSHDA has determined the project is unlikely to be competitive in the Gap Financing Program" (Exhibit II.II), based on "the financial viability of a project," "the overall capacity and experience of the development team," and primarily "a project's soft to hard debt ratio." That screen is waived only for existing USDA Rural Development 515-financed preservation projects of 49 units or fewer. The practical effect is that MSHDA does not let a preservation deal simply choose 9% — it first has to fail an eligibility test for the gap-financing alternative.

That gap-financing alternative is, by its own eligibility rule, a 4%/bond program, not a 9% one. MSHDA's HOME/MRF Gap Financing Program makes roughly $40 million a year available statewide, combining HUD HOME funds (at 1% simple interest) with MSHDA's own Mortgage Resource Fund (at 3% simple interest) as subordinate loans on roughly 50-year terms — but participation requires the applicant to also close tax-exempt bond permanent financing. A 9% competitive deal, which by definition is not bond-financed, cannot pair with this soft money at all. This research corroborated the program's structure and general terms through MSHDA's published HOME/MRF Gap Financing Program NOFA materials, but could not re-download the specific document governing the currently open funding round during this research pass (the linked filenames MSHDA has published for past rounds return errors once superseded); confirm the live round's dollar amount, interest rates, and term directly against MSHDA's current NOFA before underwriting to these figures.

A separate PSH Gap Financing Program serves permanent supportive housing specifically, blending MSHDA's HOME-ARP allocation, its own Housing and Community Development Fund (HCDF), and repurposed COVID Emergency Rental Assistance (CERA) dollars into subordinate loans, also generally at 1% simple interest on roughly 50-year terms, with HCDF/CERA funding tied to the share of the area's population below 40% AMI and HOME-ARP units restricted to 30% AMI. Because PSH is its own Primary Category (21% of the annual ceiling) rather than an add-on to Preservation, a PSH deal's access to this soft money is not gated by the same 9%-competitiveness screen described above — but the same currency caveat applies: confirm current terms against MSHDA's live PSH Gap Financing NOFA.

The federal bond test: no MSHDA-specific number, and no OBBBA guidance found

A direct text search of the current 2026-2027 QAP found no mention of "aggregate basis," no restated percentage such as "50 percent" or "25 percent" tied to bond financing, and no reference to the One Big Beautiful Bill Act or Public Law 119-21 anywhere in the document. Unlike Colorado, whose regulator has published its own stakeholder guidance and PAB Fund Overview implementing a phased administrative cap tighter than either the old or new federal test, or Georgia, whose QAP states a flat 30% ceiling in its own threshold criteria, this research found no MSHDA-published bulletin, policy statement, or QAP provision addressing the federal aggregate-basis test at all — old (50%) or new (OBBBA's 25% alternative, available where at least 5% of aggregate basis is financed with bonds issued after December 31, 2025, per 26 U.S.C. §42(h)(4)(B) as amended by Pub. L. 119-21, §70422(b)(1)). Absent such guidance, the federal test appears to govern a Michigan bond deal directly, without an MSHDA-specific overlay — but confirm this directly with MSHDA and bond counsel before underwriting a 2026-vintage deal to either percentage, since the absence of a public MSHDA position is not the same as a confirmed absence of MSHDA practice.

The Michigan Housing Opportunity Tax Credit: real, new, and not yet reflected in the QAP

Michigan does have a real state companion credit — the Housing Opportunity Tax Credit (HOTC) — but it is not the program an earlier internal note called "MIHP"; no such program exists. HOTC was created by Senate Bill 966 of 2026, tie-barred with House Bills 5806 and 5807, which added Section 22e to the State Housing Development Authority Act of 1966 (now MCL 125.1422e). Governor Whitmer signed the package on July 21, 2026, with immediate effect. Because the current 2026-2027 QAP was approved by the Governor more than a year earlier, on July 9, 2025, HOTC appears nowhere in the QAP's text — a direct search confirms it. The statute directs MSHDA to accept HOTC applications "in conjunction with applications received under section 22b" (MSHDA's existing federal-credit-ceiling authority), but this research found no MSHDA-published policy bulletin, NOFA, or QAP amendment implementing HOTC as of this research date; the program's first award cycle does not begin until January 1, 2027, so a full second QAP-style rulebook may not yet exist.

HOTC is a nonrefundable credit against an "applicable tax" — Michigan's personal income tax, corporate income tax, or the insurance premiums tax — not a certificate that gets sold on an open secondary market. MSHDA issues an "approval notice" reserving the credit, then, after the owner submits a final cost certification, an "eligibility statement" that fixes the amount claimable each year of the credit period. If the owner is a flow-through entity, the statute allows the credit to be allocated among its members "in any manner agreed to by its members, regardless of whether that member is allocated or allowed any portion of any federal low-income housing tax credit with respect to the same qualified project" and regardless of whether the allocation has substantial economic effect under IRC §704(b) — mechanically similar to how the federal credit passes through to a syndicated investor, though it is a separate state-law allocation, not the federal credit itself.

The credit period is only 6 calendar years from the year a building is placed in service, against the federal credit's 10-year period, and the statute explicitly turns off the federal first-year stub-period rule ("the special rule for the first year of the credit period under section 42(f)(2) of the internal revenue code does not apply"). The annual amount MSHDA may approve is capped at the lesser of (a) the amount necessary for the project's financial feasibility, or (b) the "adjusted annual federal credit amount," defined as "1/6 of the aggregate amount of the federal credit allocated to a qualified project on federal income tax form 8609 over its federal credit period." Because that formula divides the same 10-year aggregate federal credit by 6 rather than 10, the statutory ceiling on the annual HOTC payment is mathematically larger, dollar for dollar, than a proportional "60% of the annual federal credit" shortcut would suggest — a real modeling detail, not a rounding nuance, since it affects how much annual state-credit equity a deal can actually raise per year even though it is paid out over fewer years.

Applications for 4% qualified projects are reviewed "on a first-come, first-served basis" within twice-yearly application windows (January 1-March 31 and July 1-September 30) — not scored against the QAP's Scoring Criteria. Only if a single day's applications exceed the remaining set-aside does MSHDA have to build an evaluation methodology, and even then the statute limits that methodology "to factors that maximize efficient unit production": requested credit per unit, number of units, and estimated development timeline. The statute also directs MSHDA to "give preference to qualified projects that use building components during construction or rehabilitation that are manufactured in this state" — echoing, in a new state-tax-credit context, the QAP's own long-standing "Michigan Products" threshold requirement (Exhibit I.XXII).