Rents, income limits, and the operating pro forma — Michigan

Minimum set-aside: spelled out in Michigan's own application, with no scoring reward attached

Section E.I of MSHDA's 2026-2027 LIHTC Program Application ("Project Elections") restates all three federal minimum set-aside options directly, in the applicant's own words: "20% at 50%: At least 20% of the total residential rental units in the project will be income & rent restricted to tenants whose income is no greater than 50% of area median income... If selecting this set-aside, ALL tax credit units must be income & rent restricted at no more than 50% of area median income." "40% at 60%: At least 40% of the residential rental units in the project will be income and rent restricted to serve tenants whose income is no greater than 60% of area median income." "Income Average: At least 40% of the residential rental units must be designated as LIHTC units. In 10% increments, these units will have an average income limit at or below 60% of the area median income."

What Michigan does not do is reward the Income Average election with points of its own the way Colorado and Georgia each do in different ways. A direct search of the 2026-2027 LIHTC Scoring Criteria found no mention of "Income Average" or "averaging" anywhere in the scoring worksheet. Instead, Michigan's scoring rewards actual unit-level targeting depth and project-based rental assistance — through the Low-Income Targeting item described below — regardless of which of the three set-aside boxes the applicant checks on the application. Choosing Income Average changes what a developer can restrict on paper; it does not, on its own, change the applicant's score.

Income and rent limits: MSHDA calculates its own table, and owners may use only that table

Michigan does not simply point applicants to HUD's published Multifamily Tax Subsidy Projects (MTSP) figures the way some states do. MSHDA's LIHTC Compliance Manual, Chapter 4, is explicit about the calculation: "Upon receipt of the annual income figures from HUD, MSHDA calculates and makes available to owners new annual income limits and corresponding rent limits for LIHTC projects. MSHDA uses HUD's Very Low-Income Level of 50% of the area median income adjusted for family size. To determine the income limits for the 60% income level, MSHDA uses the Very Low-Income Level and multiplies those figures by 1.2... Owners/management of LIHTC projects must use only the MSHDA-published figures, which are posted on the MSHDA website." A project with units assisted by more than one government program (e.g., Section 8 alongside LIHTC) must use whichever published figures are most restrictive.

Low-Income Targeting: 25 points, and a real ceiling on what counts without PBRA

The 2026-2027 LIHTC Scoring Criteria's Development Characteristics section awards up to 25 points for Low-Income Targeting — the single largest scoring item outside the Urban/Rural Opportunity Criteria's Proximity to Amenities category — for "depth and breadth of targeting" among low-income units. The scoring worksheet states three real, stacked structural caps, quoted directly: "No more than 10% of a project's total units may be targeted to units that are less than or equal to 20% AMI without PBRA... No more than 25% of a project's total units may be targeted to units that are less than or equal to 30% AMI without PBRA... No more than 50% of a project's total units may be targeted and counted toward total points without PBRA." No points are awarded for MSHDA-administered Project-Based Vouchers or MSHDA vouchers generally, and units relying on an owner-established sinking fund for rental assistance (a self-funded rental subsidy reserve) are likewise ineligible for the project-based-subsidy portion of the score.

The practical pro forma consequence is direct: an applicant chasing the full 25 points cannot get there on rent-restriction depth alone. More than half the development's units, and specifically more than a quarter of them at the 30%-AMI tier or below, can only count toward points if they carry real project-based rental assistance — and that assistance has to be an actual, evidenced, renewable subsidy commitment, not merely a deeper AMI election on the application. The Scoring Criteria is explicit on the documentation standard: "To receive points for units with project-based subsidy, applicants must submit evidence of project-based rent subsidy and commit to renewing the subsidy through the end of the extended use period." A pro forma that models maximum targeting points but assumes the deep-AMI units generate LIHTC-restricted (not PBRA-subsidized) revenue is very likely modeling a scoring outcome the underlying rent structure cannot actually support.

Rent increases and the Gross Rent Floor election

MSHDA's Exhibit IV underwriting standards cap tenant-paid rent increases for occupied units at "no more than 5% per year for the first three years" — a cap that does not apply to units protected by project-based rental assistance or enhanced vouchers. The Compliance Manual's Chapter 4 fills in the mechanics: the 5% cap applies to allocations from 2002 forward, runs for the first three years after the placed-in-service date on Form 8609, applies to the household's actual prior tenant-paid rent (not the maximum allowable rent), and is measured at lease renewal regardless of whether new, higher income and rent limits have been published in the interim.

Separately, the Compliance Manual describes the Gross Rent Floor election under IRC §42(g)(2)(A) and Rev. Proc. 94-57: because area median income can fall as well as rise, "the gross rent never has to be decreased to an amount less than the gross rent floor as applied to a unit," and the owner elects, on a form available in MSHDA's Combined Application, whether that floor is fixed at the gross rent level in effect the year the LIHTC allocation was received or the year the building was placed in service. The Manual notes explicitly that HOME funding carries its own, differently-calculated gross rent floor — a layered HOME/LIHTC deal cannot assume the two floors are the same figure.

Underwriting standards: MSHDA's own numbers live outside the QAP, in a decade-old lending document

The QAP's own Exhibit IV states only that "MSHDA has established minimum standards for operating expenses, vacancy rates, increases in operating costs and expenses, project income, debt service coverage ratio, operating reserves, and replacement reserves" — without stating the actual numbers in the QAP text itself. MSHDA does allow an escape valve: "For developments seeking only competitively allocated 9% credits without financing from MSHDA, applicants may request waivers from these standards based on the submission of written documentation with their application indicating that the alternative underwriting standards have been reviewed and approved in advance by both the debt and equity providers for the project." Feasibility is reviewed at three stages — before the initial award, at 10% Certification, and at Placed in Service — with MSHDA monitoring but not holding up Carryover documentation or Form 8609 issuance over ongoing income/expense review in the interim.

The actual numeric standards MSHDA applies to its own financed deals (and, absent an approved waiver, to competitive deals generally) sit in a separate document, MSHDA's Multifamily Direct Lending Parameters, distributed as an addendum to the Combined Application. That document's own cover page and every page footer read "Updated March 23, 2016" — a full decade before this research. This research could not confirm from the document itself whether its substantive terms have been updated since, only republished under current file-naming conventions; the figures below should be treated as MSHDA's most recently documented position, not a confirmed current one, and should be checked directly with MSHDA before being used to underwrite a live 2026-2027 deal.

Reserves and utility allowances

On utility allowances, Michigan applicants work from the standard federal menu of eight methods recognized under Treasury Regulation §1.42-10 and IRS Notice 89-6 — RHS, HUD-regulated building, PHA estimate, local utility company estimate, Agency Estimate (actual consumption or similar-building), the HUD Utility Schedule Model, the Energy Consumption Model, and a Method #8 specific to MSHDA Direct Loan-financed projects. MSHDA layers one hard rule on top of that federal menu, in LIHTC Allocation Policy #13 ("Utility Allowance Underwriting Procedures"): "Since there is not a practical or definitive method for knowing what the actual utility consumption of a newly constructed project will be, all new construction developments are prohibited from using Method #5 'Agency Estimates' for project underwriting purposes." A new construction applicant must underwrite from an RHS/HUD chart, a PHA rate sheet, a utility company estimate, or the HUD Utility Model instead; only after the first year of the credit period, with sufficient operating data and MSHDA's approval, may a project move to the Agency Estimate/actual-consumption method.

Utility allowances are applied building by building (and can differ within a single project), must be reviewed at least once a calendar year under Section 1.42-10, and any new allowance must be reflected in rents charged no later than 90 days after its effective date. Where all utilities are paid by the development directly, no utility allowance applies at all and the maximum chargeable rent is simply the MSHDA-published gross rent figure.