Comment Submitted by Stephen Pelz, Housing Authority of the County of Kern

While providing clarity to the process for using Capital and Operating funds for financing activities, the proposed rule has some significant flaws: 905.715: HUD needs to establish a timeframe for the HUD review and approval process. It is difficult to leverage private capital if the review and approval process takes many months or even years. 990.405: Item J, Amount of Operating Fund for Debt Service. The requirement to demonstrate a debt service coverage ratio of 3.0 is unreasonable, unworkable and will effectively prevent the use of operating funds for debt service. Was this a typo? The industry standard is typically 1.10 DSCR with 1.20 being the maximum allowed by some funding sources. Requiring a 3.0 DSCR will prevent this option from being used with tax credits, state grant funds and AHP funds in California because the funding sources will not allow a DSCR as high as 3.0. In addition, it is difficult to imagine a project attaining 3.0 DSCR unless the amount borrowed is extremely small. A project needing to borrow only $500,000 for 10 years at 7% interest would have to demonstrate a net operating income exceeding $210,000. That is not realistic or likely for average size projects. A DSCR of 1.2 is a better option here.