OLYMPIA — The state Legislature approved its $4.2 billion Capital Budget on Jan. 18 — a day late for affordable housing projects across the state to receive crucial funding.

Affordable housing developers had until 5 p.m. Jan. 17 to apply for federal low-income housing tax credits from the state Housing Finance Commission. But in order for projects to qualify for the tax credits, developers must show that they have enough funding lined up.

Without Capital Budget funding the crucial Housing Trust Fund before the Jan. 17 deadline, projects aimed at the lowest income demographics — such as homeless families and disabled veterans — won’t meet the commission’s criteria, according to Housing Finance Commission staff.

“Projects that are dependent on money from the Housing Trust Fund in the Capital Budget don’t qualify for the 2018 round” of federal tax credits, said Kim Herman, the commission’s executive director.

“We’ve been sounding the alarm for months that without a Housing Trust Fund by this deadline, those tax credits — approximately $178 million in federal funding over 10 years — will be diverted away from housing that will help solve our state’s homelessness crisis and provide homes for the lowest income people,” said Rachael Myers, executive director of the Washington Low Income Housing Alliance, an advocacy group that represents non-profit affordable housing developers across the state.

“We shouldn’t eliminate the possibly for these projects to be built just because they missed the deadline by two days,” Myers added.

The annual deadline is set by the Washington State Housing Finance Commission, which administers the federal tax credits through a competitive bidding process. The tax credits, which are awarded to states on a per capita basis, have to be doled out by the end of the year. Otherwise, the federal government takes back the tax credits and puts them in a national bidding pool.

The approval of the Capital Budget came as relief to several agencies in Kitsap County who, like their counterparts across the state, depend on the allocated funding in order to complete projects that are slated or underway.

Among the agencies and projects awaiting funding in Kitsap:

• Fort Ward Community Hall, Bainbridge Island: $92,000.
• Islandwood Community Dining Hall and Kitchen, Bainbridge Island: $200,000.
• ARC Community Center renovation, Bremerton: $81,000.
• Holly Ridge Center Building, Bremerton: $475,000.
• Manette Park renovation, Bremerton: $500,000.
• Ostrich Creek culvert improvements, Bremerton: $4.68 million.
• Pine Basin Watershed storm sewer improvements, Bremerton: $3.88 million.
• Quincy Square on Fourth, Bremerton: $250,000.
• Downtown Pocket Park at Rockwell, Port Orchard: $309,000.
• Port Orchard Marina breakwater refurbishment, Port Orchard: $1 million
• Morrow Manor (long-term transitional housing for domestic violence survivors and their children), Poulsbo: $773,000.
• North Kitsap Fishline’s Comprehensive Services Center: $530,000.
• Peninsula Community Health Services, Poulsbo: $395,000.
• Poulsbo Outdoor Salmon Observation Area, Poulsbo: $475,000.
• West Poulsbo parkland acquisition, Poulsbo: $400,000.
• Kitsap Regional Library Foundation, Silverdale Library: $250,000.
• In addition, four existing or proposed parks are alternates for funding from the state conservation fund: Central Park, Bainbridge Island; Morrow Manor Neighborhood Park, Poulsbo; Silverdale Waterfront Day Use improvements; and South Kitsap Regional Park facility improvements.

Alternative funding plan

Herman, of the state Housing Finance Commission, said although the application period for 2018 Federal Tax Credit for affordable housing developers is now closed, the commission will work to come up with alternative funding for projects that target highly vulnerable populations.

However, given the absence of the tax credits, Herman admitted that projects geared toward low-income demographics are going to have a harder time getting needed financing because of the higher subsidy level required.

“We will serve some people at all income levels but we may not serve quite as many this year,” Herman said.

Herman said projects receiving funds from well-resourced cities, such Seattle, will fare reasonably well, while projects in rural areas will be hit hardest.

“The projects that most likely will have the toughest time serving people at 30 percent area median income tend to be the rural projects because they don’t have as much extra subsidy money,” Herman said.

Herman declined to say at this point where any replacement funds for projects now lacking federal tax credits will come from.

Myers, of the Washington Low Income Housing Alliance, said this: “The state Department of Commerce and the Washington State Housing Finance Commission must work together to find a way to ensure those projects can still access the final funds they need. We’re counting on these agencies to quickly develop a solution that ensures we don’t leave behind people in our communities who are struggling the most.”

In 2017, developers applied for the highest-subsidy federal tax credits for 29 projects with a combined total of 1,791 units, according to data from the Housing Finance Commission. These projects are the ones impacted by the missed deadline.

An agreement on the Capital Budget was held up by negotiations over the so-called Hirst decision, a state Supreme Court mandate which made it harder for rural property owners to drill water wells.

While not technically connected, state Republicans and Democrats failed to come to an agreement on a Hirst fix during the last legislative session, prompting Republicans to refuse to pass a Capital Budget, which requires a 60 percent majority vote.

However, late into the evening on Jan. 18, both the House and Senate passed a Hirst fix compromise bill that allows limited drilling while local working groups develop governance rules for future water usage.

Shortly after clearing the Hirst fix vote, both chambers passed the $4.2 billion Capital Budget by wide margins. The Capital Budget includes $106 million for the Housing Trust Fund.

Negotiators from the House and Senate majority and minority caucuses and the governor’s office had been meeting regularly over the past few days trying to come to a decision. House Majority Leader Pat Sullivan, D-Covington, said negotiators worked until 1:30 a.m. Jan. 16.

— Josh Kelety is a reporter for the WNPA Olympia News Bureau