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

Minimum set-aside and income averaging: three federal options, one real state restriction

WHEDA's HTC Compliance Manual lists the same three minimum set-aside elections Section 42(g)(1) makes available nationally: at least 20% of units at 50% of county median income ("20/50"), at least 40% of units at 60% of county median income ("40/60"), or the Average Income Test (AIT) — at least 40% of units at an imputed average of 60% CMI, built from designations across the 20%-to-80% CMI band in 10-point increments using published MTSP limits. The manual is direct about the consequence of missing the election in year one: "If the project does not meet the minimum set-aside by the end of the first year of the credit period, the property does not qualify as a low-income housing project and the credit cannot be claimed in any year," and dropping below the elected set-aside at any later point in the compliance period costs the entire credit for that year.

Wisconsin's own restriction on AIT is the detail most likely to trip up an out-of-state underwriting model: "Wisconsin only allows projects that are 100% low-income to select the Average Income Test (AIT)." Appendix D of the 2027-2028 QAP states the same rule from the application side: "Applications electing the Average Income Test option and/or scattered site projects must be 100% low-income. Properties with Market Rate units must select the 20% at 50% CMI or 40% at 60% CMI set-aside options." A national AIT strategy built around mixing a handful of market-rate units into an income-averaged deal — a structure federal law itself does not categorically forbid — simply is not available in Wisconsin. Separately, and as a matter of general federal law rather than a Wisconsin-specific rule, AIT is not available for tax-exempt bond volume-cap purposes under Section 142, so a bond-financed 4% deal should confirm its minimum set-aside satisfies Section 142 independently of whatever election is made for Section 42 purposes.

The compliance manual also flags AIT's own regulatory recency as a real, live compliance risk rather than settled ground: the IRS published its original AIT final rule on October 12, 2022 (TD 9967, 87 FR 61489), then replaced the temporary recordkeeping and reporting procedures that accompanied it with a further final rule, TD 10036, effective September 30, 2025 — barely a year before this research. WHEDA's own guidance calls out "increased complexity in compliance and challenges regarding the next available unit rule, particularly in developments that include market-rate units" as reasons AIT carries more downstream risk than the two flat-percentage elections, independent of Wisconsin's 100%-low-income restriction.

CMI, not AMI: WHEDA's own terminology and where it now publishes the numbers

Wisconsin's compliance and underwriting documents consistently use "County Median Income (CMI)" rather than the more familiar national shorthand "AMI." The HTC Compliance Manual defines the term directly: "County Median Income (CMI): the average household income in a given county, as estimated by the Department of Housing and Unemployment Development [sic, HUD in context]." The underlying data is the same HUD-published, county-level median family income used everywhere else in the LIHTC program — this is a labeling convention, not a different methodology — but every WHEDA form, threshold, and scoring rule is written in CMI terms, and a national tool keyed only to "AMI" in its labels and cross-references risks a silent mismatch against WHEDA's own published tables and set-aside language.

Where WHEDA actually publishes the numbers has also changed shape between QAP cycles. The 2025-2026 QAP carried income and rent limits as a numbered document, "Appendix C: Income and Rent Limits." In the 2027-2028 QAP, Appendix C has been reassigned entirely to Selection Criteria, and income/rent limits instead live on a standalone "Multifamily Data Library" page at wheda.com, which currently posts Multifamily Tax Subsidy Project (MTSP) Limits (for projects placed in service May 1, 2026 or later), HERA Special Limits (for pre-2009 hold-harmless-area projects), Average Income Limits, WHEDA-Financing-Only Limits (built from HUD county median income estimates), Section 8 Income Limits, and a link out to HUD's own Wisconsin Fair Market Rent data, alongside archived prior-year sets back to 2020. A citation to "Appendix C" for income limits that predates the 2027-2028 cycle now points to the wrong document.

Rents, other income, and the annual rent-increase ceiling

Appendix D's rent test layers three separate ceilings: gross rent on a low-income unit plus its applicable utility allowance may not exceed the lesser of (i) the IRS maximum household expense figure in effect when the HTC application is submitted, (ii) achievable market rent as established in the market study, or (iii) any HAP/RAP or other subsidy program rent already committed to the project — with units carrying a firm Project-Based Rental Assistance commitment permitted to exceed those limits on documentation of the assistance amount. On top of the general Section 42 ceiling, units designated at or above 60% of CMI in any set-aside face a second, tighter cap: the lesser of 95% of the HTC gross rent limit or 90% of the market study's estimated achievable market rent. Market-rate units are simply capped at market-study achievable rent, and any parking fee charged to residents must be independently supported in the market study.

Ancillary income is separately constrained: laundry, tenant fees, and similar non-rental revenue must be itemized in the application and may not exceed 2% of total rental revenue (parking income is excluded from that 2% cap), and WHEDA will not consider commercial income at all when sizing the Debt Coverage Ratio at initial application. Once a project is operating, a distinct compliance-period rule caps how fast rents can move even within the federal limits: "Rent charged to existing tenants (excluding households receiving rental assistance) may not [be] increased by more than 5% annually, including due to changes in utility allowance calculations" — meaning a utility allowance swing large enough to otherwise justify a bigger gross-rent jump for an existing tenant still runs into this 5% annual ceiling.

A separate unit-mix rule reaches across income bands and bedroom counts: within each income band a project serves, no fewer than 10% of each bedroom size offered must be designated at that income band (market-rate and employee units are excluded from the requirement, and WHEDA may waive it for rehabilitation of existing multifamily housing where it isn't achievable, or for an individual unit type on a pre-approved, case-by-case basis).

The pro forma: a debt-coverage band, not just a floor, plus a real operating-expense range

Appendix D's underwriting assumptions include a 7% vacancy rate for new properties (5% if the market study supports it, or if an existing property's actual vacancy has run at or below 5% for each of the three preceding years, backed by copies of those years' operating statements), 2% annual revenue escalation, and 3% annual expense escalation — figures a developer should expect WHEDA to substitute for whatever more optimistic numbers an application proposes, with downstream consequences for debt sizing and deferred fee: "WHEDA may modify the operating expense assumptions submitted to align with its assumptions, which may result in a re-sizing of the amortizing debt and/or deferred developer fees and other negative consequences on financial feasibility."

The debt coverage rule is where Wisconsin departs most sharply from a floor-only model: "Applications must demonstrate a Debt Coverage Ratio on all hard debt of 1.15 to 1.40 during years 1 – 15. If a project has a declining DCR it may exceed the maximum DCR only to the extent necessary to maintain the minimum required." A deal that is comfortably over-covered — a common outcome when a developer pads assumptions conservatively — can run into the 1.40 ceiling just as one that is too thin can run into the 1.15 floor, a real underwriting trap for anyone used to states that only enforce a minimum. Financing itself must be at least 80% "committed" at the time of application (equity from HTCs calculated per the QAP's own rules, the WHEDA permanent loan at WHEDA's posted terms, or other sources with a firm lender/grantor commitment), and any deferred developer fee must be projected to repay within the 15-year compliance period at initial application — except for Noncompetitive Federal 4% transactions only, where a remaining balance may extend past year 15 with the equity investor's written approval.

An Operating Reserve funded with no less than six months of operating expenses is required, and must be sufficient to also cover debt service (TIF-financed debt excluded from that test). HTC equity pricing for 2027 applications must fall within WHEDA-published bands — $0.74 to $0.85 for 4% and 9% Metro-county deals, $0.72 to $0.84 for 4% and 9% Non-Metro deals, and $0.65 to $0.73 for State Credits — and basis boosts are geography- and credit-type-specific: a 9% or State Non-Metro application may request a 30% HFA boost, a 9% or State Metro application may request 15%, and Federal 4% applications cannot receive an HFA boost at all; conversely, a 30% QCT/DDA boost is available to State and/or Federal 4% applications but never to 9% applications.

Utility allowances: the standard federal methods, minus one

Appendix I runs the four utility allowance methods Treasury Regulation § 1.42-10 makes generally available — Local Utility Company Estimate, the HUD Utility Schedule Model, an Energy Consumption Model prepared by a properly licensed, unrelated engineer, or the applicable Local PHA utility allowance — with one explicit exception: "NOTE: Agency Estimates permitted per IRS Treasury Regulation § 1.42-10 are not applicable in Wisconsin." A national utility-allowance workflow that defaults to a state housing agency's own self-certified estimate as a fallback method will not work in Wisconsin; an owner must fall back to one of the other three methods instead. Properties layering Rural Housing Service or HUD Section 8 assistance follow those programs' own utility allowance schedules instead of the Section 42 methods entirely.

Utility allowances must be reviewed at least once per calendar year regardless of whether rates changed, but an owner is not required to implement a new allowance until the building has held 90% occupancy for 90 consecutive days or the end of the first credit-period year, whichever comes first. Any change requires 90 calendar days' notice to both WHEDA and residents, based on utility rate data no older than 60 days before that notice period begins, and any change of $5.00 or more from the prior year's calculation requires a written explanation on WHEDA's Form 205. Cable, telephone, and internet costs are explicitly excluded from the utility allowance calculation.

A quantified incentive to serve deeper than the statutory minimum

WHEDA's scoring system doesn't just set a minimum set-aside floor — it pays real points for going below it, and the depth required to earn those points varies by the relative income level of the county. Appendix C's "Serves Lowest-Income Residents" category (10 points) ties the minimum-set-aside election a developer already made to an additional, county-tier-specific depth requirement.