Maryland Attorney General Opinion 96 OAG 017

Gen. 17] 17

HOUSING

C ONSTITUTIONAL L AW – S EPARATION OF P OWERS – F EDERAL
P R E E M P T IO N – W H ETH ER “ L O C A L A P P R O V A L ”
R EQUIREMENT IMPLEMENTED BY D EPARTMENT OF H OUSING
AND C OMMUNITY D EVELOPMENT V IOLATES S EPARATION OF
P OWERS P RINCIPLE OF S TATE C ONSTITUTION OR F EDERAL
L OW I NCOME H OUSING T AX C REDIT L AW

April 13, 2011

The Honorable Jamie Raskin
Maryland Senate

You have asked for our opinion concerning part of the process
that the Department of Housing and Community Development
(“DHCD”) follows in administering two of its multi-family rental
housing programs. In particular, as a condition to the award of
program benefits, DHCD requires that a project have the
endorsement of the governing body of the jurisdiction in which it
will be located. You have posed the following two questions
concerning this local approval requirement:

1. To the extent that these requirements
effectively confer a veto power on the
executive and legislative governments of local
jurisdictions over the allocation of funding
from these statewide programs that are
administered by the Executive branch, do
these requirements violate the constitutional
separation of powers by delegating exercise of
an Executive function in state government to
the formal decision-making processes and
discretionary judgments of non-Executive
actors or by conditioning exercise of
Executive functions on the formal decision-
making processes and discretionary judgments
of non-Executive actors, i.e., the executive
and legislative branches of the governments of
the local jurisdictions?

2. The federal Low Income Housing
Tax Credit program vests administrative
18 [96 Op. Att’y

authority over the Tax Credit to state housing
finance agencies. Do the state requirements
discussed above violate the federal law
governing the tax credit program by in essence
delegating effective state administrative
control over the federal programs to local
jurisdictions? Does this scheme defeat the
purposes of the program?

For the reasons discussed below, it is our opinion that the local
approval requirement, as designed by the General Assembly and
implemented by DHCD, does not violate the separation of powers
principle of the State Constitution. Moreover, in our view, the
requirement does not violate the federal law that is the basis for one
of the programs.

I

Background

Your inquiry concerns two programs administered by DHCD
to finance affordable multi-family rental housing projects. One
program, known as the Rental Housing Production Program
(“RHPP”), is established by State law. The other, called the Low
Income Housing Tax Credit Program (“Tax Credit Program”), is
based on federal tax law and is implemented by state agencies.
DHCD administers both housing programs, as well as others,
according to a comprehensive underwriting and approval process.

A. Rental Housing Production Program

RHPP is currently codified at Annotated Code of Maryland,
Housing and Community Development Article (“HCD”), §4-1501
et seq. The purpose of RHPP is, among other things, to “increase
the supply of decent, safe, and sanitary rental housing for occupancy
by families of lower income.” HCD §4-1503. The program
provides various types of financial assistance for projects that set
aside a minimum number of dwelling units for families with incomes
below a certain threshold. HCD §§4-1504, 4-1505, 4-1506.1 RHPP

1 The program is also authorized to help finance the conversion of
office or commercial space to rental housing, although such projects are
relatively infrequent. See HCD §1-1504(a)(1).
Gen. 17] 19

is funded with special funds appropriated in the State budget. HCD
§4-504(c)(1)(ii).

The statute establishes a number of conditions for participation
in RHPP. For example, financing is limited to “development costs”
as defined by HCD §4-1501. Certain criteria must be applied in
determining the maximum income limits for qualifying families.
HCD §4-1505. The statute provides a formula for establishing the
minimum number of rental units that must be income restricted and
sets forth a minimum period of time that rental units must be
restricted to lower income families. HCD §4-1504.

Your inquiry concerns a requirement that a project have the
endorsement of the local government in order to be eligible for
RHPP financing. In particular, the statute provides that DHCD “may
approve an application for a project only if the political subdivision
in which the project is to be situated has: (1) approved the project;
and (2) (i) contributed to reducing the development costs or
operating costs; or (ii) otherwise supported the project.” HCD §4-
1508(a) (emphasis added). In deciding whether to finance a project,
DHCD is to consider, among other relevant factors, the contribution
of the political subdivision for the project. HCD §4-1508(b).

DHCD has incorporated the statutory local approval
requirement in its regulations. Those regulations require that local
approval “shall be evidenced by a certified copy of an ordinance or
resolution duly adopted by the appropriate governing body of the
political subdivision and approved by the chief executive officer of
the political subdivision, if any, setting forth: (1) The identity of the
sponsor; (2) The location and nature of the project; and (3) Approval
of the loan.” COMAR 05.05.01.07C.

B. Tax Credit Program

The Tax Credit Program has its origins in the federal Low
Income Housing Tax Credit Law, which was part of the federal Tax
Reform Act of 1986. Pub.L. 99-514, Title II, §252(a), 100 Stat.
2189 (October 21, 1986), codified at 26 U.S.C. §42. The Low
Income Housing Tax Credit Law uses federal tax credits to create
incentives for developers to construct and renovate low income
rental housing. See Ballard, Profiting from Poverty: The
Competition Between For-Profit and Nonprofit Developers for Low-
Income Housing Tax Credits, 53 Hastings L. J. 211, 216-19 (2003);
Shah, Having Low Income Housing Tax Credit Qualified Allocation
Plans Take into Account the Quality of Schools at Proposed Family
20 [96 Op. Att’y

Housing Sites: A Partial Answer to the Residential Segregation
Dilemma, 39 Ind. L. Rev. 691 (2006).

Administration of the program is delegated by the federal
statute to state and local housing agencies – referred to as “housing
credit agencies.” See 26 U.S.C. §42(h). In Maryland, DHCD acts
as the housing credit agency and allocates tax credits for residential
rental properties in the State. Within DHCD, the Tax Credit
Program is the responsibility of the Community Development
Administration (“CDA”), which is authorized by State law to carry
out housing and community development programs. HCD §4-211.

CDA’s powers are subject to various constraints under State
law. Its agreements must be approved by the Secretary of Housing
and Community Development (“Secretary”) and, in some cases, by
the Board of Public Works. HCD §4-213(a). A project financed by
CDA must comply with applicable zoning and building codes. HCD
§4-213(c). CDA’s enabling law also directs it to “work closely,
consult, and cooperate with local elected officials” and “give
primary consideration to local needs and desires.” HCD §4-
213(f)(i)-(ii). In carrying out this legislative direction, CDA has
long required explicit approval of a project by the local governing
body.2 The Court of Special Appeals has held that the agency has
correctly construed the legislative intent of this statute in requiring
local approval of projects. Forestville Park Ltd. v. State, 50 Md.
App. 570, 539 A.2d 46 (1981).

In Forestville, CDA entered into an agreement with a
developer to provide financing for limited income purchasers of
homes built by the developer. As required by a CDA regulation, the
agreement was contingent on a resolution by the local governing
body, endorsed by its chief executive, approving the project and
acknowledging CDA’s participation. Although the county council
passed a resolution approving the project, the county executive
declined to endorse it and CDA withdrew from the agreement. The
developer sued to enforce the agreement, arguing that the local

2 For projects that fit the description of “community development
projects” in HCD §4-217, and for which CDA provides financing under
HCD §4-225(a)(1), there is an additional local approval requirement.
CDA must obtain approval of the land use for the project by a resolution
of the local government for the jurisdiction in which a project is to be
located. HCD §4-213(b).
Gen. 17] 21

approval was required solely with respect to land use3 and should not
have been required as to the agreement generally.

The Court of Special Appeals held that CDA had reasonably
construed the statutory mandate to cooperate with local jurisdictions.
It stated:

[w]e think that when the Legislature provided
in [HCD §4-213(f)] that the CDA “shall work
closely, consult and cooperate with local
elected officials” it meant precisely what it
said, and that [HCD §4-213(f)] applies to all
phases of a CDA undertaking in any political
subdivision of the State. It is difficult to
understand how CDA can “work closely,
consult and cooperate” with the local elected
government officials if that language were
construed to mean that CDA possessed the
authority to put the project in the county or
municipality, notwithstanding the opposition
of local elected officials. Indeed, if CDA
could, as [the developer] would have it, say
that “we have consulted and cooperated and
now we are going to put the project in your
area irrespective of your opposition,” the
directive mandated in [HCD §4-213(f)]
would amount to a hollow expression devoid
of real meaning…. To arrive at any other
result would require the Court to rewrite the
statute and thwart the legislative will.

50 Md. App. at 577-78. The Court also concluded that the CDA
regulation requiring the endorsement of the chief executive of local
government was within the agency’s authority to adopt regulations
and was an accurate interpretation of legislative intent. Id.4

3 Land use approval is required by statute for projects designated
as “community development projects.” See footnote 2 above.

4 The regulation at issue in Forestville was later repealed and
replaced with new regulations that incorporate the local approval
requirement. In particular, COMAR 05.05.06.04A requires CDA to
administer the Tax Credit Program in accordance with the State’s
Qualified Allocation Plan (the “QAP”), created pursuant to 26 U.S.C.
(continued...)
22 [96 Op. Att’y

C. DHCD Process

DHCD has incorporated the local approval requirement in its
procedures for applications for financing under various programs,
including RHPP and the Tax Credit Program. Those procedures are
set forth in DHCD’s Multifamily Rental Financing Program Guide
(January 24, 2011) (the “Guide”). Competition for financing
assistance is high and, pursuant to the process outlined in the Guide,
DHCD conducts a comprehensive underwriting and construction
review process to assess applications.

DHCD first determines whether a project meets certain
threshold requirements. Guide at pp. 9-24. Among the threshold
factors is “Local Government Support and Contribution.” Id. at pp.
11-12. In particular, the Guide indicates that an application for
funding include either a final resolution of support, or a letter of
support from the highest elected official of the local jurisdiction
indicating his or her favorable support of the project in the current
funding round. After DHCD approves the application for financing,
the Guide states that the project sponsor is to submit a resolution
supporting the project from the local governing body and its highest
elected official prior to closing. Id. In addition, a “local
contribution” is to be made to the project by the local governing
body from local resources to reduce development or operating costs
of the project. Id.5

If a project satisfies the threshold criteria, DHCD rates it
according to the nature and character of the development, and then
ranks it against the other projects included in that funding round.
Guide at pp. 25-45. To establish the ranking, DHCD evaluates each
project and awards points, up to a maximum of 315, based on
various criteria. Id. at pp. 25-26. DHCD’s evaluation criteria

4 (...continued)
§42(m). The QAP incorporates by reference DHCD’s Multifamily Rental
Financing Program Guide, which includes the local approval requirement.
See Part I.C. of this opinion.

5 The Tax Credit Program and RHPP are not the only DHCD
programs for which applicants must obtain local approval. For example,
DHCD’s Division of Neighborhood Revitalization (“NR”) must obtain
local approval prior to funding a small business loan or grant under the
Neighborhood Business Development Program and prior to financing a
loan or grant under the Community Legacy Program. HCD §§6-306(b)(4),
6-207(b).
Gen. 17] 23

include: (i) the capacity of the project’s development team (e.g.,
experience, financial capacity and minority participation); (ii) the
project’s public purpose (e.g., income targeting, family housing,
housing for individuals with disabilities, and tenant services); (iii)
the project’s location and marketability (e.g., housing in certain
designated impacted areas and projects in rural areas); (iv) the
project’s development quality (i.e., amenities, design criteria, and
sustainability); (v) the project’s construction or rehabilitation cost
limits; and (vi) the amount of non-State resources and long-term
operating subsidies supporting the project.

After the projects are rated and ranked, recommendations for
funding are submitted to the Director of DHCD’s Division of
Development Finance, who in turn submits a detailed written
presentation of the recommended projects to DHCD’s Housing
Finance Review Committee (the “Loan Committee”), an advisory
committee that has a majority of members from outside DHCD. See
HCD §4-208.6 DHCD staff presents information and
recommendations to the Loan Committee concerning projects
applying for RHPP and Tax Credit Program financing. After those
presentations, the Loan Committee decides whether to recommend
approval of the projects to the Secretary.

The Secretary approves (or disapproves) each project in
writing. The Secretary typically also provides DHCD staff with
specific parameters for possible modifications of the financing terms
and conditions of approved projects, depending on individual project
needs and circumstances. The approvals also delegate authority
among DHCD staff to perform the necessary tasks and to execute
documents to complete transactions.

6 The Loan Committee’s members are appointed by the Governor
on the recommendation of the Secretary. HCD §4-208. The Loan
Committee is comprised of three employees of DHCD; one employee of
the Executive Branch of State government who is not employed by
DHCD; and three members of the public. Id.
24 [96 Op. Att’y

II

Analysis

A. Whether the Local Approval Requirement Violates
Separation of Powers

You first ask whether the local approval requirement
improperly delegates to local governments a function of the
executive branch of State government and thereby violates the
separation of powers principle of the State Constitution.

1. Separation of Powers

The Maryland Constitution states, in relevant part, “That the
Legislative, Executive, and Judicial powers of Government ought to
be forever separate and distinct from each other ....” Maryland
Declaration of Rights, Article 8. A core function of the Legislature
under the Constitution is its power to make laws. See Christ v.
Department of Natural Resources, 335 Md. 427, 441-45, 644 A.2d
34 (1994). In carrying out its law-making function, the Legislature
frequently authorizes both executive branch agencies and political
subdivisions to carry out various governmental functions. We
understand your reference to “separation of powers” to be whether
the Legislature intruded on the sphere of the Executive Branch by
delegating certain authority to local governments with respect to
these housing finance programs.

2. State Laws Contingent on Local Government Action

It has long been established that the General Assembly has
broad latitude in placing contingencies on the effectiveness of
legislation. See State v. Kirkley, 29 Md. 85, 102 (1868); Baltimore
v. Clunet, 23 Md. 449, 469-470 (1865). “A valid law may be passed,
to take effect upon the happening of a future contingent event, even
where that event involves the assent to its provisions by other
parties.” Clunet, supra. Making one governmental entity’s action
contingent on approval by another governmental entity is a common
way of creating checks and balances in government and, indeed,
appears in the State Constitution itself. See, e.g., Maryland
Constitution, Article II, §10 (allowing for Senate confirmation of
gubernatorial appointees).
Gen. 17] 25

The required assent may be that of a local government. There
are numerous examples of laws in which the Legislature has
conferred powers on an executive branch agency, but made those
powers contingent on, or constrained them by, powers exercised by
a local government. See, e.g., Annotated Code of Maryland, Courts
& Judicial Proceedings Article, §2-309 (providing for staffing and
compensation of sheriffs’ offices, subject to various county laws and
procedures); Annotated Code of Maryland, Criminal Procedure
Article, §2-102(b) (defining statewide arrest powers of police
officers that depend in part on local government approval of mutual
aid agreements); Annotated Code of Maryland, Education Article,
§5-202(d) (eligibility of local school system for State financial
assistance made contingent on extent of county funding of local
schools).

To our knowledge, none of these legislative enactments has
been found to violate the principle of separation of powers. For
example, in assessing the constitutionality of proposed legislation
that would have authorized commercial gambling, subject to the
enactment of a local ordinance approving gambling within a locality,
this Office concluded that the proposal “raise[d] no separation of
powers concerns.” 80 Opinions of the Attorney General 151, 152,
158 (1995). There appears to be no basis for reaching a different
conclusion when the implementation of a State law in a locality is
subject to approval, on a case by case basis, by the local government
through an ordinance or resolution.

3. Application to Local Approval Requirement

The Legislature exercised a core legislative function in
enacting the laws governing RHPP and the Tax Credit Program. It
imposed various conditions for those programs, which DHCD has
implemented in the comprehensive loan underwriting and approval
process detailed above. It made local approval an explicit condition
for assistance under RHPP and an implicit condition, as interpreted
by CDA and the courts, for assistance under the Tax Credit Program.
The inclusion of the local approval contingency in those laws was
well within the Legislature’s prerogative. In enforcing that local
approval requirement, DHCD is administering the law in accordance
with legislative intent – a core executive function. See Friedman,
The Maryland State Constitution: A Reference Guide (2006) at 19.
If DHCD were to ignore the requirement, it arguably would be
intruding on the legislative branch by effectively rewriting the law.
26 [96 Op. Att’y

B. Whether the Local Approval Requirement Violates Federal
Law

You ask whether the local approval requirement in State law
is at odds with the federal law governing the Tax Credit Program.
You also ask if the local approval requirement “defeat[s] the
purposes of the [Tax Credit] program.”

1. Federal Preemption of State Law

Your question raises the issue whether the federal law
governing the Tax Credit Program preempts the State law requiring
local approval. Under the Supremacy Clause of the federal
constitution, federal law prevails over a conflicting State law.
United States Constitution, Article VI, cl. 2. However, federal
statutes are not generally deemed to preempt State law unless it is
“the clear and manifest purpose of Congress.” Rice v. Santa Fe
Elevator Corp., 331 U.S. 218, 230 (1947); see also Lorillard
Tobacco Co. v. Reilly, 533 U.S. 525, 541 (2001). The congressional
purpose may be manifested either explicitly in the federal statute
(“express preemption”) or implicitly in the federal scheme (“implied
preemption”).

Express preemption occurs when the federal government has
explicitly foreclosed state action and acted to completely regulate a
certain area by express language. See Lorillard Tobacco Co., supra.;
see also 94 Opinions of the Attorney General 3, 5-10 (2009)
(analyzing express preemption provision of the federal Health
Insurance Portability and Accountability Act). Implied preemption
occurs when Congress intends federal law to “occupy the field” or
if State law conflicts with federal law such that the state law “stands
as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.” Crosby v. National Foreign
Trade Council, 530 U.S. 363, 372-73 (2000). Congressional intent
to “occupy a given field can be inferred from the pervasiveness of
federal regulation and/or the dominance of the federal interest in a
particular area of legislative activity.” Massachusetts Ass'n of Health
Maintenance Orgs. v. Ruthardt, 194 F.3d 176, 179 (1 st Cir. 1999).
It may be drawn from the text of the federal statute, as well as the
surrounding regulatory scheme and the federal government’s intent
in adopting the federal law. Id. at 179-180.
Gen. 17] 27

In the absence of federal preemption, state law may
complement or supplement a federal statutory scheme. “[M]atters
left unaddressed in such a [federal statutory] scheme are presumably
left subject to the disposition provided by state law.” O’Melveny &
Myers v. FDIC, 512 U.S. 79, 85 (1994) (finding that California state
laws on fraudulent conduct in banking matters were not preempted
by the federal Financial Institutions, Reform, Recovery and
Enforcement Act).

2. Federal Low Income Housing Tax Credit Law

As noted earlier, the federal Low Income Housing Tax Credit
Law is part of the Internal Revenue Code. Under that law, a state
housing credit agency must adopt a Qualified Allocation Plan
(“QAP”) prior to allocating any federal tax credits. 26 U.S.C.
§42(m). A QAP is defined as:

... any plan

(i) which sets forth selection
criteria to be used to determine housing
priorities of the housing credit agency
which are appropriate to local
conditions,

(ii) w h ic h a ls o g iv e s
preference in allocating housing credit
dollar amounts among selected projects
to

(I) pro jects serving
the lowest income tenants,

(II) projects obligated
to serve qualified tenants for the longest
periods, and

(III) projects which are
located in qualified census tracts (as
defined in [§42(d)(5)(C)]) and the
development of which contributes to a
concerted community revitalization
plan, and
28 [96 Op. Att’y

(iii) w h i c h provides a
procedure that the agency (or an agent
or other private contractor of such
agency) will follow in monitoring the
noncompliance with the provisions of
this section and in notifying the Internal
Revenue Service of such
noncompliance which such agency
becomes aware of and in monitoring for
noncompliance with habitability
standards through regular site visits.

26 U.S.C. §42(m)(1)(B). The federal statute also provides standards
for the selection criteria applied by a state housing credit agency. It
states:

The selection criteria set forth in a
qualified allocation plan must include

(i) project location,

(ii) housing needs charac-
teristics,

(iii) project characteristics,
including whether the project includes
the use of existing housing as part of a
community revitalization plan,

(iv) sponsor characteristics,

(v) tenant populations with
special housing needs,

(vi) public housing waiting
lists,

(vii) tenant populations with
individuals with children,

(viii) projects intended for
eventual tenant ownership,
Gen. 17] 29

(ix) the energy efficiency of
the project, and

(x) the historic nature of the
project.

26 U.S.C. §42(m)(1)(C). These are the only selection criteria
imposed by the federal law. Nothing in the statute prohibits state
housing credit agencies from including additional selection criteria
in their QAPs.

3. Relation of Federal Statute to Local Approval
Requirement

As is evident, the federal statute does not expressly preempt
states from imposing additional selection criteria for projects
assisted under the Tax Credit Program. Nor, in our view, does it
implicitly preclude a state from adopting additional state criteria,
such as the local approval requirement. The federal law establishing
the program lacks the “pervasiveness” and “dominance” in the area
of legislative activity that would lead a court to find implied
preemption.

In certain respects, the local approval requirement in State
law implements a factor expressed in the federal statute. In
developing selection criteria that projects must meet to be eligible
for federal tax benefits, a state is to look to the local needs of its
jurisdictions – the selection criteria are to be applied “to determine
housing priorities… appropriate to local conditions.” 26 U.S.C.
§42(m)(1)(B)(i). Moreover, under the federal statute, assistance may
not be provided without obtaining at least the views of the local
jurisdiction. The statute prohibits allocation of tax credits to a
project unless the housing credit agency notifies “the chief executive
officer (or the equivalent) of the local jurisdiction within which the
building is located of such project and provides such individual a
reasonable opportunity to comment on the project.” 26 U.S.C.
§42(m)(1)(A)(ii).

In sum, the federal law requires that (1) the local government
is aware of the proposed project; (2) the local government has an
opportunity to comment on the proposed project; (3) the proposed
project is appropriate to local conditions; and (4) the proposed
project meets the needs of the local jurisdiction and local tenant
populations. The local approval requirement in State law appears
30 [96 Op. Att’y

consistent with those objectives and, in our view, does not defeat the
purpose of the Low Income Housing Tax Credit Law.

III

Conclusion

In our opinion, the local approval requirement, as designed by
the General Assembly and implemented by DHCD, does not violate
the separation of powers principle of the State Constitution.
Moreover, the requirement is not at odds with the federal Low
Income Housing Tax Credit Law and is not preempted by that law.7

Douglas F. Gansler
Attorney General

Anthony J. Mohan
Assistant Attorney General

Honora W. Sutor
Assistant Attorney General

Robert N. McDonald
Chief Counsel
Opinions and Advice

7 You have not asked about, and we do not address, the impact, if
any, of the federal Fair Housing Act in relation to these programs. See In
re Adoption of the 2003 Low Income Housing Tax Credit Qualified
Allocation Plan, 848 A.2d 1, 17-18 (N.J. App. Div.), cert. denied, 861
A.2d 846 (2004) (state agency’s administration of Low Income Housing
Tax Credit program did not violate federal Fair Housing Act).