Restricted rents and the operating pro forma — Texas

What happens, and in what order

The structural risk is the same one California's guide describes: nothing in this sequence has a natural human checkpoint. A utility allowance error propagates silently into net rent, NOI, the DCR test and the credit request.

Which table applies, and what Texas leaves unstated

HUD released the 2026 MTSP limits on May 1, 2026 — the same date the CTCAC memo independently confirms for California; Texas industry reporting states the same date, though it was not independently fetched from HUD's own release notice for this brief. TDHCA layers its own program-specific rollover on top for HOME, Neighborhood Stabilization and National Housing Trust Fund limits: those take effect June 1, 2026 for new leases and renewals.

HERA hold harmless and the annual-change cap (5% or twice the national non-metro AMGI change, whichever is greater, with an absolute 10% ceiling since FY2024) are the same federal mechanism documented for California — they are not Texas-specific and are not re-derived here. What could not be located is a Texas-specific restatement of the 45-day-grace / mandatory-by-June-15 rule CTCAC states in its own annual memo; the underlying rule is a national IRS/HUD administrative practice and should be assumed to apply, but no TDHCA memo was found stating it explicitly the way CTCAC's does.

Texas also has no second, state-law income-limit schedule layered on top of the HUD-derived tables — no equivalent of California's HCD statute. TDHCA runs one unified table set, drawn from HUD's released data, across the Housing Tax Credit, Tax-Exempt Bond, HOME, Neighborhood Stabilization, Housing Trust Fund and Section 811 PRA programs alike, through its own Project Income and Rent Tool.

The minimum-set-aside election itself — 20/50, 40/60, or the federal Average Income Test — is the same federal choice available in every state. Texas layers one QAP-specific wrinkle on top of the Average Income Test option: additional scoring restrictions apply to it specifically within the Houston, San Antonio and Austin metropolitan statistical areas. The exact mechanics of that MSA-specific scoring overlay weren't traced further for this brief — check the current QAP's scoring chapter directly before assuming Average Income Test scoring works identically statewide.

The gross rent floor itself (Rev. Proc. 94-57 — defaulting to the credit allocation date unless the owner irrevocably elects placed-in-service instead) is unchanged federal law. What is missing is a Texas-specific default-election statement: a full-text search of both the 2026 QAP and the proposed 2027 QAP for "gross rent floor," "94-57," and "hold harmless" returns zero hits in either document. California's CTCAC names its own default in an annual memo; TDHCA has published no equivalent position. The QAP does supply the matching defined terms for the relevant dates — "Carryover Allocation" for 9% deals and "Determination Notice" for Tax-Exempt Bond deals — but does not state which one controls by default. Fall back to the bare federal rule and the deal's own documented election; do not assume a TDHCA convention that has not actually been published.

"60% AMI" is not 60 percent of AMI

Same HUD MTSP mechanics as every other state: every LIHTC tier derives from the Very Low-Income Limit — the 50% column — which itself carries a high-housing-cost adjustment, a non-metro floor, national maximums and an annual-change cap. tier_limit = FLOOR(VLIL × tier / 50); the 60% AMI tier is 120% of the VLIL, the 80% tier is 160%. Never compute a tier by multiplying a median income figure — read the published tier.

TDHCA does not let a developer compute this either. Its own Project Income and Rent Tool covers the Housing Tax Credit, Tax-Exempt Bond, HOME, Neighborhood Stabilization, Housing Trust Fund and Section 811 PRA programs from one interface, built from HUD's released data. The QAP's own definition of "Gross Program Rent" points to "the tables promulgated by the Department's division responsible for compliance," not a formula an applicant runs itself.

Utility allowances — Texas's seven-method, PHA-waterfall system

The federal backbone is identical to every state: 26 CFR Section 1.42-10 governs nationally, with the same RHS-then-HUD-then-everything-else hierarchy, the same 90-day implementation rule, and the same annual-review mandate. Texas implements it through 10 TAC Section 10.614 — a Compliance Monitoring rule, not part of the QAP chapter that houses the underwriting standards below — naming seven methodologies rather than California's four-plus-PHA-default framing.

The PHA-identification waterfall is where Texas gets genuinely more complicated than California. Because Texas has an unusual number of overlapping housing-authority types, the rule requires working down a chain: is there a municipal PHA with a Section 8 Housing Choice Voucher program? If not, a county PHA? If not, a regional PHA (a creation under Texas Local Government Code Chapter 392)? If none of those exist, is the site inside a Council of Governments service area (Chapter 303) or TDHCA's own Housing Choice Voucher service area? If none apply, the PHA method cannot be used at all, and a prior-approval method is required instead.

TDHCA is itself a PHA of last resort, directly administering Section 8 Housing Choice Vouchers across a 34-county rural service area, and it publishes its own utility allowance schedule there, updated annually. The current schedule is effective January 1, 2026, may be implemented as early as rents due May 13, 2026, and must be implemented no later than rents due August 11, 2026 — the standard 90-day federal implementation window applied to a January 1 effective date. This is a genuine, positive difference from California, whose guide found no state-administered voucher program and therefore no state-published schedule at all. It only covers those 34 counties, though; the rest of Texas's housing-authority landscape — secondary sources put the statewide PHA count above 400 — has the same absent-central-registry problem CTCAC's territory has, just at larger scale.

The four prior-approval methods (Written Local Estimate, HUD Utility Schedule Model, Energy Consumption Model, Actual Use) require submission to TDHCA with a Utility Allowance Questionnaire and full backup, reviewed within 21 days but no earlier than 90 days before the application is due — worked examples in TDHCA's own training materials show a January 25–February 15 window for a March 1 competitive-round deadline, and a May 11–July 20 window for an August 10 bond-deal deadline. Annual review is separately required after placed-in-service: due October 1 each year for most methods, August 1 for the Actual Use method.

A distinctly Texas wrinkle: when TDHCA itself is the awarding HOME participating jurisdiction on a Multifamily Direct Loan, TDHCA calculates the utility allowance directly using the HUD Utility Schedule Model, with a 5-day error-review window limited to physical-characteristic and resident-responsibility errors, and an optional parallel "Green Discount" run the applicant must evidence at placed-in-service to use. If a different participating jurisdiction made the HOME award, that jurisdiction's calculated allowance controls instead.

A rule change is mid-stream. TDHCA's Governing Board approved releasing a proposed revision to Section 10.614 for public comment on July 9, 2026, with Texas Register publication expected July 24, 2026, described as intended to remove unnecessary language, weblinks and examples. Two public comments were received and no changes were made as a result, but final Board adoption was not confirmed as of this writing. Treat the current subsection lettering — (b)(1)–(4), (c)(3)(A)/(c)(3)(E), (f)(2)–(4) — as provisional until adoption is confirmed, and note that a single complete, current, verbatim text of Section 10.614 could not be assembled this cycle from one continuous source; the Texas Administrative Code's official host migrated to a JavaScript-rendered portal that a plain fetch cannot render, and the substance above rests on triangulated corroboration across TDHCA's own training deck, a secondary legal excerpt, and TDHCA's live compliance page rather than one single primary read.

Which revenue counts

Federal Section 42(g)(2)(B)(iv) excludes any Section 8 or comparable project-based rental assistance payment from the gross-rent test nationally, unchanged from every other state. A project-based unit can collect contract rent far above the LIHTC limit, because only the tenant portion is tested.

TDHCA draws the same conservative line CTCAC does for its own underwriting, in its own independent rule text: "Tenant-based vouchers or tenant-based rental assistance are not included as Income." This mirrors California's exclusion of tenant-based subsidy income from underwritten cash flow, but it is Texas's own rule, not an inherited federal requirement — both states' agencies made the same underwriting-conservatism choice independently on top of the same federal baseline. Underwriting tenant-based vouchers as revenue is the same expensive modeling error in either state.

The pro forma lives inside the QAP itself, and re-adopts every year

Where California splits authority across a standalone CTCAC regulations chapter and a separate HCD income-limit statute, Texas's underwriting standard — DCR, vacancy, expense trending, reserves, feasibility tests — lives at 10 TAC Sections 11.301–11.306, inside Chapter 11, which is the Qualified Allocation Plan itself. There is no separate "regulations" document to track alongside the QAP in Texas — the QAP is the regulation, re-adopted in full (Board vote, 30-day public comment, Governor's signature) every single year. A stale cached QAP is a stale underwriting rulebook, not just a stale scoring rubric.

The 2026 QAP was approved by the TDHCA Governing Board on November 6, 2025 and by Governor Greg Abbott, with one modification, on December 1, 2025. A proposed 2027 QAP is already posted, with Board materials for a September 3, 2026 meeting. The core underwriting numbers below — the DCR range, vacancy rate, trending factors, replacement reserve minimums, and the operating-expense-ratio feasibility test — were diffed between the 2026 QAP and the proposed 2027 redline and found textually unchanged; the 2027 draft is mostly copy-editing. Treat these numbers as stable across two consecutive cycles, but re-check after the 2027 QAP is Governor-approved, because the whole document gets re-adopted, not amended in place.

Software and analysts should not assume a Texas deal carries a guaranteed minimum operating-reserve cushion the way a California deal structurally must.

DCR is a band you can fail from both sides

Section 11.302(d)(4): "The acceptable first year stabilized pro forma DCR must be between a minimum of 1.15 and a maximum of 1.35" — a maximum of 1.50 for Housing Tax Credit developments specifically at cost certification. This has no California analog: CTCAC caps cash flow after debt service, not the DCR itself, and does so differently (25% of debt service or 8% of gross income, whichever is higher). Texas directly bounds the ratio, on both ends.

A separate combined-DCR formula applies when a Direct Loan sits subordinate to FHA financing: (FHA senior debt service + ((Year-1 NOI − FHA senior debt service) × 75%)) ÷ (FHA senior debt service + amortized Direct Loan debt service) must clear 1.0.

The long-term pro forma runs thirty years, trended at a mandatory 2% annual growth factor for income and 3% for operating expenses (except management fees, which are calculated as a percentage of each year's effective gross income). Unlike CTCAC's 2.5%/3.5% default with an accepted 2%/3% alternative where the lender and equity partner agree, Texas has no higher default to fall back to — 2%/3% simply is the Texas rule, mandatory rather than optional, and numerically identical to CTCAC's own alternative rate.

The expense test runs backwards from California's

Section 11.302(d)(2) is the single biggest structural departure from California. TDHCA does not publish a per-unit-per-year minimum operating expense table the way CTCAC does. Instead, the Underwriter weighs, in descending order of persuasiveness: the property's own historical or certified financials; third-party quotes; the Applicant's other TDHCA-monitored properties; the proposed management company's comparable properties; TDHCA's own Regional and Statewide Operating Expense Database; and the Institute of Real Estate Management's Conventional Apartments Income/Expense Analysis book. If the Applicant's total expense estimate is within 5% of the Underwriter's own independent figure, the Applicant's number is accepted as reasonable; otherwise the Underwriter's figure controls for DCR purposes.

The management fee is accepted if it falls within 4%–6% of effective gross income; outside that range it requires documentation. Property tax has no California-style flat 1%-of-total-development-cost floor — assessed value is instead computed from the county taxing authority's own published capitalization rate, or a 10% cap rate if the county doesn't publish one, with exemption or PILOT claims requiring separate documentation.

The closest thing Texas has to an expense-floor mechanism is the Feasibility Conclusion's operating-expense-ratio ceiling: a Development is presumptively infeasible if first-year operating expense ÷ effective gross income exceeds 68% for small Rural developments (36 units or fewer) or 65% for all other developments (the test does not apply at cost certification). This is structurally the opposite of California's: CTCAC sets a minimum dollar expenses cannot fall below; Texas sets a maximum ratio expenses cannot exceed relative to income. The Texas test does not, by itself, stop an Underwriter or Applicant from assuming implausibly low expenses — that risk is controlled instead by the reasonableness/comparables/5%-tolerance mechanism above, not by a numeric floor.

Other feasibility triggers, all tested through year 15 of the 30-year pro forma, not all 30 years: first-year DCR below 1.15 (1.00 for USDA); DCR below 1.15 in any of years 2–15; negative cash flow at any point in years 2–15 (or throughout the full Direct Loan term, if one exists). A Development can still be re-characterized as feasible despite failing these with ≥50%-unit project-based Section 8/RAD, USDA rental assistance, public housing status, qualifying Supportive Housing, or below-market rents under a long-term project-based restriction.

What's genuinely different from California, and what's genuinely unsettled

No Texas statute or TDHCA rule does anything comparable to California's AB 846, which directly caps how much an existing tenant's rent may rise year over year at a regulated property. A widely-reported "10% cap on LIHTC rent increases" does exist, but it is the federal methodology change to how fast HUD's published income-limit table itself may rise year over year (part of the same annual-change-cap mechanism in the second section above) — not an operational rule limiting what a landlord may charge a sitting household. A Texas property's maximum allowable rent moves more slowly because of that federal table cap, but nothing stops an owner from raising an in-place tenant's actual rent all the way up to the new, slower-moving ceiling in a single year. Texas has no general residential rent-control law at all, LIHTC or otherwise.

As already noted, Texas runs one unified, HUD-derived table set across all its subsidy programs rather than a second state-law schedule the way California's HCD statute works.

TDHCA's own Regional and Statewide Operating Expense Database is a real, positive difference from California, which collects comparable per-property expense data from tax-credit owners' annual filings but does not publish it. TDHCA does publish it, built from year-end 2024 data reported through Owners' Financial Certifications. TDHCA explicitly disclaims it as a pro forma input, though: "Real Estate Analysis is providing this data as advisory and solely as a point of reference ... under no circumstances should it (or any derivative thereof) be used in whole or in part for developing an operating expense pro forma." Treat it as a sanity-check comparable, never an auto-filled pro forma line.

Texas Government Code Chapter 2258 sets prevailing-wage requirements only for public-works contracts let by a public body — a state agency, county, municipality or other political subdivision. On its face, a privately-owned LIHTC development is not obviously a "public work" let by a "public body" in that sense, even when TDHCA tax-exempt bonds or a TDHCA Direct Loan sit in the capital stack, but that reading has not been tested in this context — absent a Housing Authority general partner or a direct public contract, it is worth confirming with counsel on a deal-specific basis rather than assumed outright. Federal Davis-Bacon (24 CFR Section 92.354) applies on its own terms regardless of that state-law analysis, whenever HOME funds are layered into the construction financing. This is a narrower reach than California's Labor Code Section 1720 regime, which attaches whenever qualifying public funds are in the deal — though even there, only 52.6% of 2020–2023 California LIHTC awards actually carried prevailing wage in practice, per the Terner Center's own study, not the near-universal reach sometimes assumed.

PHA utility-allowance fragmentation is the same unsolved data problem as California's, at larger scale: secondary sources put the statewide PHA count above 400 (against California's roughly 100+), spread across municipal, county and regional authorities, each publishing its own schedule on its own timeline. TDHCA's own 34-county schedule is a genuine partial win, but it leaves the majority of the state's fragmented-registry problem exactly as unsolved as California's.