HOUSING PROGRAMS LIMITED
55 Beattie Place, P.O. Box 1089
Greenville, SC 29602
July 11, 2005
Correspondence Filing Via Edgar and Overnight Delivery
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 4561
450 Fifth Street, NW
Washington, D.C. 20549
Attn: Mr. Steven Jacobs
Re: Housing Programs Limited
Form 10-KSB for the year ended December 31, 2004 File No. 0-13808
Ladies and Gentlemen:
This letter responds to the comments of the staff of the Securities and Exchange
Commission (the "Staff") addressed to Housing Programs Limited, a California
limited partnership (the "Partnership"), in a letter dated June 24, 2005. The
Partnership's response to the Staff's comments are set forth below and are
numbered to correspond to the numbering of the Staff's comments in the Staff's
letter.
* * * * *
Form 10-KSB for the year ended December 31, 2004
Financial Statements and Notes
Note 1 - Organization and Summary of Significant Accounting Policies
Recent Accounting Pronouncements
1. Comment: You determined that all of the entities in which you hold an
interest at December 31, 2004 are VIEs and that you are not the
primary beneficiary of any of these entities. Please tell us how you
determined each of these entities were VIEs. In your response, please
advise us of the authority and obligations of the general partner(s)
of the Local Limited Partnerships, and your relationship with each of
the general partners. Finally, please quantify the equity investment
at risk for each general partner of the Local Limited Partnerships,
net of any upfront fees received.
Response: The Partnership first became involved with the local
limited partnerships in the mid 1980s. The Partnership historically
has used the equity method of accounting for its investments in local
limited partnerships. The individuals involved with the creation of
the Partnership are no longer employed by National Partnership
Investments Corp. ("NAPICO"), the general partner of the Partnership.
With the exception of one general partner that is wholly-owned by
NAPICO and serves as the general partner of one local limited
partnership, the general partners of the local limited partnerships
are not affiliated with the Partnership or NAPICO. Accordingly, the
Partnership's initial consideration of the requirements of FASB
Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities (FIN 46R) was based primarily on documents
related to the formation of the Partnership and the local limited
partnerships in its adoption of FIN 46R and financial information
available as of December 31, 2003 and 2004. There may be other facts
and circumstances related to the Partnership's involvement with the
local limited partnerships that might be relevant in making
determinations required by FIN 46R; however, the Partnership
necessarily based its determination upon those written documents
available and other information that is currently available to the
Partnership.
The Partnership's determination that the local limited partnerships
are variable interest entities ("VIE") was made based on
consideration of paragraph 5 of FIN 46R. The Partnership specifically
determined that all four of the local limited partnerships are VIEs
based on paragraph 5(b)(1).
With respect to all four local limited partnerships that were
determined to be VIEs under paragraph 5(b)(1), the group of equity
holders at risk was comprised only of its limited partners (the group
that contributed the capital necessary to fund the acquisition of
properties owned by local limited partnerships). The general partners
were not considered to have equity at risk because their capital
contributions were insignificant. Based on the terms of the related
local limited partnership agreements, the limited partners were not
deemed to have the right to make decisions that have a significant
effect on the operations or success of the local limited partnership.
Therefore, all four local limited partnerships were determined to be
VIEs and no further evaluation under paragraph 5 of FIN 46R was
necessary.
The Partnership noted that each general partner's relationship with
the local limited partnerships involves the following significant
activities related to its rights and obligations under the related
limited partnership agreements:
o The general partner shall manage and conduct the business of the
local limited partnerships;
o Employees of the general partner (or its affiliates) are actively
involved in managing the operations of the local limited
partnerships;
o The general partner has the obligation to fund any recourse
obligations of the local limited partnerships;
o The general partner is authorized to develop land acquired by the
local limited partnership with off-site and on-site improvements,
and to construct, rehabilitate, maintain, operate and manage the
housing units and other facilities of the respective local
limited partnership;
o The general partner is authorized to borrow funds, execute and
issue mortgage notes and other evidences of indebtedness;
o The general partner is authorized to apply for and obtain from
the respective government agency, contracts for leasing, interest
subsidies, tax abatement and tax limitation, as well as other
supplemental payments and subsidies;
o The general partner shall promptly take any and all action which
may be necessary or appropriate to perfect and maintain the local
limited partnerships, as a limited partnership under state law,
and to develop, maintain, and operate the respective local
limited partnerships in accordance with provisions of the local
limited partnership agreement and applicable Federal, state and
local laws and regulations;
o The general partner shall cause the local limited partnerships to
obtain and maintain at all times, insurance in such amounts and
at terms customary for a project similar to the local limited
partnerships; and
o The general partner is responsible for obtaining a management
agent for the respective local limited partnerships.
In addition, the local limited partnership agreements each state that
the Partnership, as limited partner, shall not take part in the
management of the local limited partnership's business or transact
any business for the local limited partnership, nor have any power to
sign for or to bind the local limited partnership or to subject the
local limited partnership to any liability or obligation.
The Partnership's approach to the quantification of the equity
investment at risk for each general partner of the local limited
partnerships consisted of reviewing the partnership agreements for
the determination of the capital contribution of the respective
partners. The Partnership considered payments to the general partners
of certain fees as defined in the local limited partnership
agreements that could be considered a reduction of the capital
contributed; however these fees were generally in consideration of
services performed by the general partner or covenants provided by
the general partner to fund development deficits and operating
deficits within a defined time period at the inception of each local
limited partnership, and were determined to be reasonable in relation
to the nature of the services provided. Therefore, the Partnership
concluded that these fees should not be considered a reduction of
capital contributed by the general partner.
2. Comment: You refer to the your maximum exposure to loss at December
31, 2004 relative to determining the primary beneficiary for the
identified VIEs. Please tell us whether you evaluated the expected
losses and residual returns and equity investment at risk as
applicable, at the time you became involved with the Local Limited
Partnerships, as opposed to your equity at risk at December 31, 2004.
Additionally, please tell us whether you included your rights to tax
credits when evaluating the expected cash flows.
Response: The Partnership refers to the maximum exposure to loss at
December 31, 2004 as a result of its involvement with unconsolidated
VIEs in order to comply with the disclosure requirements of paragraph
24(c) of FIN 46R and not for purposes of determining the primary
beneficiary for the identified VIEs.
The Partnership evaluated the equity investment at risk based on the
provisions of the local limited partnership agreements in place and
any subsequent amendments to such local limited partnership
agreements. As provided in paragraph 38 of FIN 46R, the Partnership
was unable to obtain all of the information necessary to make its
determination at the date the Partnership first became involved with
the local limited partnerships. The local limited partnership
agreements are considered "living" documents that capture changes in
structure and terms of the respective local limited partnerships.
Accordingly, the Partnership's evaluation of equity investment at
risk was considered to be performed as of the date on which FIN 46R
was first applied, or December 31, 2004. Although the Partnership has
not performed a quantitative analysis to determine the relative
exposures of the Partnership and the general partners to the expected
losses of the respective local limited partnerships, the Partnership
generally believes that at December 31, 2004 it would have the
greatest exposure based on provisions in the local limited
partnership agreements that provide for allocations and distributions
in accordance with ownership interest. The Partnership considered
this factor, together with other factors in paragraph 17 of FIN 46R,
in the determination of the primary beneficiary of all four local
limited partnerships determined to be VIEs.
The Partnership was never eligible for the receipt of tax credits
with respect to any of its local limited partnership investments.
Therefore, if a quantitative analysis of the relative exposures of
the Partnership to the expected losses and residual returns had been
performed at December 31, 2004, the Partnership's rights to any tax
credits would not have been a factor in the expected cash flows.
3. Comment: Please explain to us the circumstances in which you have the
right to replace the general partner of the Local Limited
Partnerships.
Response: The local limited partnership agreements provide the
limited partner (the Partnership) with the right to designate an
additional or successor general partner if:
o The general partner or the partnership shall be in material
default in the performance of any of their respective obligations
so as to seriously impair the operations or prospects of the
partnership and/or the project;
o The net worth of the general partner endangers the status of the
partnership as a partnership for Federal tax purposes;
o The general partner shall retire or cease to exist;
o A material breach of any of the general partner's duties or
obligations under the local limited partnership agreement;
o A material breach of the mortgage or mortgage note, the
Regulatory Agreement or any other agreement given with respect to
the financing of the project; provided, however, the general
partner shall have 30 days to cure said breach but only if during
said 30 days the general partner takes all steps necessary to
prevent a foreclosure of the mortgage loan;
o Termination, withdrawal or reduction of any governmental subsidy
relating to the project, unless a comparable subsidy has been
obtained; or
o Failure of the net worth of the general partner to meet both the
test for ruling purposes of a sole corporate general partner,
under Internal Revenue Service Rev. Proc. 72-13, and the
then-current such test, if any, applicable to the general partner
as any time during the term hereof.
* * * * *
As requested by the Staff, the Partnership acknowledges that: (a) the
Partnership is responsible for the adequacy and accuracy of the disclosure in
the filings; (b) Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with respect to
the filings; and (c) the Partnership may not assert Staff comments as a defense
in any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have further questions regarding the information provided, please contact
the undersigned or Stephen Waters. Mr. Waters can be reached directly at (864)
239-1554 or by fax at (864) 239-5824.
Sincerely,
/s/ David R. Robertson
David R. Robertson
President and Chief Executive Officer
National Partnership Investments Corp.,
the general partner of Housing Programs
Limited