"The Allocation Plan barely mentions a minimum set-aside election and says nothing about which utility allowance method NDHFA will actually accept — so where do the real rent, income, and reserve numbers live, and what coverage ratio do I actually have to underwrite to?"
The Minimum Set-Aside election lives in the Compliance Manual, not the Allocation Plan
The 2027 Allocation Plan's own General Provisions touch the Minimum Set-Aside only glancingly, through a single subsection on Average Income (Section 2.E) that covers multi-building mechanics, a resyndication exclusion, and a note that tax-exempt bond financed projects electing AI must also elect a minimum set-aside for the bond financing. The actual menu of federal elections and their definitions live instead in NDHFA's LIHTC Compliance Manual (revised April 9, 2026), Section 1.17, which the Allocation Plan incorporates by reference for ongoing compliance: "On Form 8609, the owner irrevocably elects one of the following Minimum Set-Aside elections on a project basis: 20/50 Election... 40/60 Election... Average Income Election." A reviewer who reads only the Allocation Plan could easily conclude North Dakota doesn't define its set-aside test at all; both documents have to be read together.
| Election | Threshold | Income/rent ceiling |
|---|---|---|
| 20/50 | At least 20% of units | No unit may be set aside above 50% AMI |
| 40/60 | At least 40% of units | No unit may be set aside above 60% AMI |
| Average Income | At least 40% of units in a "qualifying group" | Average imputed income limitation of the qualifying group ≤60% AMI; unit designations at 20/30/40/50/60/70/80% AMI only |
Election is irrevocable once made on IRS Form 8609, Part II, Line 8b, and governs the Compliance Period and Extended Use Period.
Average Income: adopted, with real NDHFA administrative policy layered on top of the federal test
Per Treasury Regulation §1.42-19, a project electing Average Income meets its Minimum Set-Aside if at least 40% of its units form a "qualifying group" whose average imputed income limitation does not exceed 60% AMI, with designations allowed only at 20%, 30%, 40%, 50%, 60%, 70%, or 80% AMI. NDHFA has layered its own administrative policies on top of that federal baseline (Compliance Manual, Section 1.17.E): AMI designations may float between units so long as the agreed-upon unit mix is maintained; a unit is considered "designated" once its AMI level is recorded on the Tenant Income Certification and reported through the Emphasys Certification Portal; when a qualified tenant transfers to another vacant unit in the project, the two units simply swap AMI designations; an income increase at recertification does not redesignate a unit as long as it remains rent-restricted at its original level; and NDHFA will allow retroactive correction of a designation error within 180 days of discovery if it wasn't caught and fixed within the taxable year it occurred.
One restriction is worth flagging on its own: "AI is not available on resyndication projects which will not have completed their original Extended Use Period prior to the Credit Period Start Date for a new LIHTC Award" (2027 Allocation Plan, Section 2.E.2) — a real constraint on using Average Income to restructure an existing, still-restricted North Dakota LIHTC deal.
Rent and income limit publication: standard HUD/MTSP flow-through, Hold Harmless, and HERA special limits
"NDHFA publishes income and rent limits, based on area median income for developments receiving a LIHTC allocation. NDHFA will provide updated limits as made available by HUD," using HUD's Multifamily Tax Subsidy Project (MTSP) tables published since 2009 — but "the Owner is ultimately responsible for using the correct income and rent limits" (Compliance Manual, Section 1.20). Standard federal protections apply on top of that publication: Hold Harmless prevents a placed-in-service project from having to adopt a lower limit if HUD's published limit for its county falls; and HERA special income limits, published for hold-harmless-impacted counties, are available only to projects placed in service on or before December 31, 2008 — a resyndicated project loses eligibility for HERA special limits and has its Hold Harmless baseline reset to the limits in effect in the first year of the new allocation.
Underwriting minimums: a comparatively permissive 1.10 coverage floor, and reserves that scale with occupancy type
The Allocation Plan states its coverage floor in plain terms: "The Agency reserves the right to decline any application if, during underwriting, the project is determined to have a Hard-Debt-Service Coverage Ratio, or Expense Coverage Ratio for a project which proposed no hard-debt, less than 1.10" (Section 5.G). That figure is meaningfully more permissive than the 1.15-1.20 floors common in many other states' programs — a real number to underwrite to precisely as NDHFA states it, not one to import from experience elsewhere. Beyond that single ratio, NDHFA's cost-and-expense review is qualitative rather than benchmarked to a published schedule: "The reasonableness of development costs and operating expenses, in relation to other similar developments, will be assessed when the Agency evaluates a project's financial feasibility" (Section 5.G) — no separate numeric operating-expense-per-unit standard was found in either the Allocation Plan or the Compliance Manual.
Reserve accounts must be held in a federally insured institution or the Bank of North Dakota, kept separate from the project's ordinary operating account, and — for the Replacement Reserve on any project funded under an Allocation Plan from 2018 forward — used only for capital improvements and long-lived-asset replacement, never distributed to owners or partners before the end of the Extended Use Period. Notably, the Compliance Manual's own worked example of an ineligible Replacement Reserve expense is a routine, climate-driven one: "routine maintenance and upkeep items such as repairs, unit turn around, cleaning, pest control, grounds maintenance and snow removal" must instead be paid from operating income or the Operating Reserve.
Income targeting is the single largest scoring lever in the entire rubric
Every rent and income-limit decision in a North Dakota application feeds directly into the largest scoring category in Section 7: "Serves Lowest Income Groups," worth up to 45 of the total available points — more than every other scoring category in the Plan. Because gross rent (tenant portion plus utility allowance) is what determines the applicable AMI tier for this category, the utility allowance method chosen in the prior section has a direct, points-bearing effect on how a project scores here, not just on its cash flow.
| % of units at 50% AMI | Points | % of units at 40% AMI | Points | % of units at 30% AMI or less | Points |
|---|---|---|---|---|---|
| 20%+ | 10 | 20%+ | 15 | 50%+ | 45 |
| 10%–<20% | 5 | 10%–<20% | 10 | 40%–<50% | 40 |
| 5%–<10% | 4 | 5%–<10% | 5 | 30%–<40% | 30 |
| 1%–<5% | 3 | 1%–<5% | 2 | 20%–<30% | 20 |
| 0%–<1% | 0 | 0%–<1% | 0 | 10%–<20% | 10 |
| — | — | — | — | 0%–<10% | 0 |
Gross rent for this category is defined to include the tenant portion plus utility allowance.
Where this goes wrong
- Reading only the Allocation Plan and concluding North Dakota doesn't define its Minimum Set-Aside test — the substantive federal election definitions and NDHFA's own administrative policy live in the Compliance Manual (Section 1.17), which the Plan incorporates by reference.
- Assuming NDHFA offers the federal "Agency Estimate" utility allowance option — it explicitly does not: "At this time, NDHFA is not providing this option."
- Using a PHA utility-allowance schedule for HOME-assisted units where HOME funds were committed on or after August 23, 2013 — HOME rules require a project-specific allowance in that case.
- Assuming a 1.15-1.20 debt-service coverage floor because that figure is common in other states' programs — North Dakota's own stated floor is 1.10 (Hard-Debt-Service Coverage Ratio, or Expense Coverage Ratio if no hard debt).
- Treating the Applicable Fraction and the Minimum Set-Aside as interchangeable — the Compliance Manual explicitly distinguishes them, and a project must satisfy both independently to remain in compliance.
- Assuming HERA special income limits are available to a newly allocated or resyndicated project — they apply only to projects placed in service on or before December 31, 2008, and resyndication resets the Hold Harmless baseline entirely.
- Treating "Serves Lowest Income Groups" as one scoring category among many of similar weight — at up to 45 points it is the single largest category in Section 7, ahead of every design, green-building, or leverage category combined in most scoring scenarios.
- Assuming replacement reserve deposits are flat dollar figures for the life of the deal — both the $350 (seniors) and $400 (general occupancy) per-unit floors escalate 3% annually from the level set at application.
- HUD
- LIHTC
- State QAPs
- IRS § 42
- Housing Finance Agencies