09-002267RP Atlantic Housing Partners, Lllp vs. Florida Housing Finance Corporation Status: Closed DOAH Final Order on Tuesday, July 14, 2009.

Summary: The proposed amendments to rules are within Respondent's delegated legislative authority. Petitioner's challenge is dismissed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ATLANTIC HOUSING PARTNERS, )

LLLP, )

)

Petitioner, )

)

vs. ) Case No. 09-2267RP

)

FLORIDA HOUSING FINANCE CORPORATION, )

)

)

Respondent, )

)

and )

)

EASTWIND DEVELOPMENT, LLC; )

HOUSING TRUST GROUP, LLC; THE )

GATEHOUSE GROUP, LLC; AMERICAN )

REALTY DEVELOPMENT CORP.; AND )

LANDMARK DEVELOPMENT CORP., )

)

Intervenors. )

)

FINAL ORDER

Pursuant to notice, a final hearing was conducted in this

case on May 26 and 27, 2009, in Tallahassee, Florida, before

Administrative Law Judge R. Bruce McKibben of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: M. Christopher Bryant, Esquire

Oertel, Fernandez, Cole & Bryant, P.A.

301 South Bronough Street, Fifth Floor

Post Office Box 1110

Tallahassee, Florida 32302-1110

For Respondent: Hugh R. Brown, Esquire

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301-1329

For Intervenors Eastwind Development, LLC, and

Housing Trust Group, LLC:

Michael P. Donaldson, Esquire

Carlton Fields, P.A.

215 South Monroe Street, Suite 500

Post Office Drawer 190

Tallahassee, Florida 32302-0190

For Intervenors Gatehouse Group, LLC; American Realty

Development Corporation; and Landmark Development

Corporation:

J. Stephen Menton, Esquire

Rutledge, Ecenia & Purnell, P.A.

119 South Monroe Street, Suite 202

Post Office Box 551

Tallahassee, Florida 32302

STATEMENT OF THE ISSUE

The issue in this case is whether certain proposed rules of

Respondent, which require applicants in Respondent's Universal

Application funding cycle to designate their own applications as

either "Priority I" or "Priority II" applications that may be

submitted by any "Pool of Related Applicants" and which give

preference to Priority I applications over Priority II

applications in selection for funding, constitute invalid

exercises of delegated legislative authority. 1

PRELIMINARY STATEMENT

A Petition for Administrative Determination of Invalidity

of Proposed Rule was filed at the Division of Administrative

Hearings ("DOAH") by Petitioner, Atlantic Housing Partners,

LLLP, on April 27, 2009. On May 6, 2009, Petitions for Leave to

Intervene were filed by Eastwind Development, LLC, and Housing

Trust Group, LLC. A Petition for Leave to Intervene was filed

by The Gatehouse Group, LLC; American Realty Development, LLC;

and Landmark Development Corporation on May 8, 2009. Both

Petitions for Leave to Intervene were granted pending

determination of the parties' standing. Standing was,

thereafter, stipulated to by the parties prior to the

commencement of the final hearing.

At the final hearing held on the date and place set forth

above, Petitioner called two witnesses: Steve Auger, executive

director of Respondent (which will also be referred to herein as

"Florida Housing"), and Scott Culp, executive vice president of

Petitioner. Florida Housing called one witness, Steve Auger.

Intervenors called two representative witnesses: Sean Wilson,

executive vice president of Housing Trust Group, LLC; and

Marc S. Plonskier, president of The Gatehouse Group, LLC.

Petitioner's Exhibits 1 through 33 and 38 were admitted into

evidence. Respondent/Intervenors' Exhibits 2 through 6, 14, and

16 through 19 were admitted. Official Recognition was taken of

Sections 420.507, 420.508, 420.5087 and 420.5099, Florida

Statutes (2008); and CS/CS/HB 161 and CS/CS/SB 360 (Enrolled)

from the 2009 Legislative Session.

The parties ordered a transcript of the final hearing.

They were given ten days from the date the transcript was filed

at DOAH to submit proposed final orders. The Transcript was

filed at DOAH on June 2, 2009. The parties then stipulated to

June 18, 2009, as the date for filing their proposed final

orders. The parties timely submitted Proposed Final Orders, and

they were duly considered in the preparation of this Final

Order.

FINDINGS OF FACT

The Parties

1. Petitioner is a Florida limited liability partnership

engaged in the development of affordable housing 2 in this state.

Petitioner regularly submits applications for public financing

of affordable housing developments; and in 2008, submitted 46

such applications to Respondent. Petitioner possesses the

requisite skill, experience and credit-worthiness to

successfully produce affordable housing. Petitioner and its

predecessor entities have successfully completed the

construction of over 90 affordable housing developments and in

excess of 22,000 affordable housing units in Florida from funds

distributed by Florida Housing.

2. Respondent is a public corporation created by Section

420.504, Florida Statutes (1980), to administer the governmental

function of financing or refinancing affordable housing and

related facilities in Florida. Its statutory authority and

mandates appear in Part V of Chapter 420, Florida Statutes

(2008), at Sections 420.501 through 420.55, Florida Statutes

(2008). Respondent has a board of nine individuals who govern

its operations.

3. Intervenors, Eastwind Development, LLC; Housing Trust

Group, LLC; The Gatehouse Group, LLC; American Realty

Development, LLC; and Landmark Development Corporation are each

Florida limited liability corporations engaged in the business

of providing affordable housing. Eastwind and Housing Trust

Group are relatively small developers as compared to Petitioner;

e.g., Housing Trust Group has approximately ten employees and

has developed about 12 projects in Florida and one in Georgia.

Gatehouse, American Realty and Landmark are also smaller

developers than Petitioner. By way of example, those entities

submitted nine, six and seven applications, respectively, in the

2008 application cycle.

The Proposed Rule

4. Florida Housing has proposed several new or revised

definitions, instructions, exhibit forms, and application

sections to its existing rules concerning application by

developers for state funding to construct affordable housing.

The proposed rules create a priority ranking system for use by

Florida Housing when reviewing competing applications for

funding.

5. The rule language itself does not, per se , create the

new priority ranking system. Rather, the amended rules

incorporate by reference the "2009 Universal Application

Instructions: Multifamily Mortgage Revenue Bonds (MMRB)

Program-HOME Investment Partnerships (HOME) Rental Program-

Housing Credit Program." It is in the Instructions that

language appears regarding the priority system.

6. A sampling of the new priority language can be found in

the Application Instructions, March 19, 2009, Draft, page 5,

which states in part:

During the ranking process, as outlined in

the Ranking and Selection Criteria section

of the Application Instructions, preference

will be given to Priority I Applications.

And at Page 93, the proposed Instructions also state:

[U]nless otherwise provided, when applying

the SAUL Cycles for the Special Set-Asides

and each Geographic Set-Aside, Priority I

Applications will be considered for funding

first and if funds remain after funding all

eligible Priority I Applications in each

set-aside that can be funded, the Priority

II Applications in that set-aside will be

considered for funding.

The priority system itself will be more fully discussed herein.

Historical Application Context

7. Prior to the implementation of what is now called the

Universal Cycle (discussed more fully below), Florida Housing

implemented various approaches and processes to equitably

allocate funds to developers of affordable housing. The

allocation process has historically evolved over the years based

on changing needs in the State, input from developers, and other

relevant factors.

8. Prior to 2002, the process used by Florida Housing was

called the "Combined Cycle." The significance of the Combined

Cycle was that it attempted to allocate funds by using a single

competitive application process for all applicants at one time.

In other words, all applications for potential funding under

various programs were "combined" into one application and

allocation process. Under that process, applications were

prepared by applicants requesting funds from the various

programs and competing for those funds, much like a competitive

bidding process. Unlike the application forms now being used,

the prior applications required detailed and voluminous

information concerning each proposed project. The Combined

Cycle applications had to be complete and accurate when

submitted with no chance to edit, correct, or provide additional

explanation. With this limitation in mind, applicants spent a

good deal of time making certain the initial application was

complete and correct.

9. An unintended result of the rigid Combined Cycle

process was that good quality applications were sometimes

eliminated from funding consideration due to something as minor

as a spelling or typographical error. Applicants during this

time period became very adept at filling out the application

forms. 3 The applications were generally of high quality and

applicants generally demonstrated their ability to move forward

with development.

10. The Combined Cycle process was ultimately supplanted

by the Universal Cycle in 2002, and that process is currently in

place. The Universal Cycle will be described more fully below.

Available Funding

11. It is the duty and responsibility of Florida Housing

to interact with entities interested in developing affordable

housing in this state. Florida Housing allocates resources to

fund affordable housing, most of which comes from three programs

referred to as: "HOME," the federally funded multi-family

mortgage revenue bond program; "SAIL," the State Apartment

Incentive Loan; and the federal low income housing tax credit

program (referred to herein as the "tax credit").

12. The government, in its effort to protect financially

marginalized citizens from excessive housing costs, provides the

aforementioned funds to developers to build affordable housing.

A discussion of the various funding sources is in order to

better understand the process.

13. Tax Credits : Low income housing tax credits come in

two varieties: competitively awarded "9%" tax credits, and non-

competitively awarded "4%" tax credits. The "9%" and "4%"

designations relate to the approximate percentage of a

development's eligible cost basis that is awarded in annual tax

credits.

14. For the nine percent tax credits, each state receives

an allocation of tax credits every year from the federal

government using a population-based formula. Tax credits are a

dollar for dollar offset on federal income tax liability. When

Florida Housing awards tax credits to an applicant, the

applicant gets the credit amount every year for ten years. The

developer may sell its future stream of tax credits to a

syndicator, who, in turn, sells them to investors (which are

often Fortune 500 companies that have profits that the investor

seeks to shelter from federal income taxes).

15. As an example, if an award of $1 million in tax

credits every year for ten years is sold for 85 cents on the

dollar, it generates $8.5 million in equity to the developer to

help finance construction of its proposed project. Unlike the

proceeds from issuance of bonds where there is debt that has to

be paid back over time, the $8.5 million the developer gets from

that award is cash equity, so there is no debt associated with

it. Tax credits are a very rich subsidy and, consequentially,

are the most sought after funding source that Florida Housing

distributes.

16. The four percent tax credits are "non-competitive" tax

credits that get paired with tax exempt mortgage revenue bonds.

As long as more than half of the total development cost of an

affordable rental development is financed through the issuance

of tax exempt bonds, the developer is eligible for an award of

four percent tax credits. As with the nine percent credits,

four percent credits are awarded every year for ten years, and

the developers then syndicate these credits. The tax credit

program was created in 1986 by the federal government and every

year since then, Florida Housing has received an allocation of

tax credits.

17. HOME Funds : Florida Housing also receives a portion

of the state's tax exempt bond allocation, some of which it

issues to finance the construction of affordable multi-family

rental housing. The tax exempt bond proceeds are loaned to

developers to finance the construction of a development. The

cash flow generated from rental income pays back those bonds

over time.

18. SAIL Funds : Funds are also available through a

portion of documentary stamp tax revenues collected on real

estate transactions in Florida. For state fiscal year 2009-

2010, the Legislature did not appropriate any money for SAIL due

to the state's current budget crisis. As a result, the

challenged rule provisions in the instant case will not apply to

the SAIL program in the 2009 application cycle.

19. All of these resources are allocated to finance the

construction or substantial rehabilitation of affordable

housing. A portion of the units are then set aside for

residents earning a certain percentage of area median income

("AMI"); generally, the units are targeted to tenants earning

60 percent of AMI or below.

The Universal Cycle

20. The process used by Florida Housing to review and

approve the Universal Cycle applications operates generally as

follows:

Applicants submit applications by a specified date.

Respondent reviews all applications to determine if

certain threshold requirements are met. A score is

assigned to each application.

A list of all applications, along with their score, is

published by Respondent on its website. The

applicants are then given a specific period of time to

alert Respondent of any errors they believe Respondent

made in its initial review of the application.

Applicants also have an opportunity to cure any errors

within their applications (although there are certain

mandatory items which cannot be cured).

After the cure period, Respondent issues a "final"

score for each application. Applicants are then given

an opportunity to contest their final score by way of

an informal or formal administrative hearing.

After the appeal period, Respondent issues the final

rankings which determine which of the applicants will

be selected to receive funding from one of the

programs.

The selected applicants are then invited to the credit

underwriting process wherein third party financial

consultants (selected by Respondent, but paid for by

the individual applicants) determine whether the

project proposed in the application is financially

sound.

21. The scoring of applications first addresses whether

certain threshold requirements, such as the applicant's

experience, appropriate zoning, sufficient infrastructure in the

area, and minimum set-asides (more later on this issue), are

being met and whether there is a basic plan for financing the

project. Florida Housing then looks at such features as

programs for tenants, amenities of the development as a whole

and of the individual units, local government contributions to

the project, and local government ordinances and planning

efforts that support affordable housing in general. The initial

scoring of applications very frequently results in perfect

scores (66) for many applicants.

22. Because there are so many applications with perfect

scores, Florida Housing has built a tiebreaker system into its

review process. Tiebreakers include such things as leveraging,

i.e. , the amount of corporate (applicant) resources available

per set-aside unit. Proximity is another tiebreaker which takes

into account how close the proposed project is to such things as

public transportation, schools, grocery stores and medical

facilities. Proximity points are also awarded for being

geographically separated from other similar developments that

have been financed within the past three years. The number of

units allocated for the most extremely low income individuals

has also been used as a tiebreaker. For the upcoming (2009)

Universal Cycle, a tiebreaker has been established which

addresses the timeliness of submission of evidence of the

developer's ability to proceed.

23. Lastly, Respondent assigns a randomly selected

"lottery number" to each application. The applications are all

identified and inserted into a computer software program which

randomly assigns a number from one through a high number

commensurate with the number of applications at issue. The

lottery number is a final tiebreaker of sorts and applications

are finally ranked--all other things being equal--in lottery

number order.

24. Final rankings are used to determine which

applications are preliminarily selected for funding. Some

applications are selected to meet certain targeting goals that

address housing needs of particular demographic groups (such as

farm workers, commercial fishery workers, the homeless, or the

elderly). There are also goals addressing specific geographic

needs (such as the Florida Keys or inner city areas). These are

referred to as "special set aside" or targeting goals.

25. After the set-aside goals are addressed, Respondent

then uses the final rankings to achieve a distribution of

affordable housing units among counties with small, medium or

large populations. Within the county size groups, Respondent

uses a formula called SAUL (an acronym for Set-Aside Unit

Limitation) to evenly distribute the units. 4 This formula helps

prevent any one large county, for example, from getting all the

large county units, even if all the applications for that county

receive perfect scores and prevail on all tiebreakers.

26. The SAUL process is described with examples in the

Universal Application Instructions at pages 94 through 100. The

process is further described as follows:

When an Application is selected for

tentative funding, the total number of set-

aside units committed to in that Application

will be credited toward meeting the SAUL for

the county in which the proposed Development

is located. The total number of set-aside

units for each Application will be computed

by multiplying the total number of units

within the proposed Development by the

highest Total Set-Aside Percentage the

Applicant committed to as stated in the last

row of the set-aside breakdown chart for the

program(s) applied for in the Set-Aside

Commitment section of the Application.

Results that are not a whole number will be

rounded up to the next whole number.

Id. at 95.

27. The tentatively approved applications would,

therefore, be used to address the SAUL for their targeted

county. As an example, if there were 20 applications from large

counties, the top seven were all from Broward County and Florida

Housing had established a SAUL for Broward County of 200 units,

then as Florida Housing was going through the ranking, it would

fund up to 200 units in Broward County and only then select the

next highest ranked application from a different county.

28. Sometimes Florida Housing finds that it receives a lot

of applications from just a few counties in the medium county

grouping. If the only medium county applications Florida

Housing receives are from Hernando and Pasco counties, for

example, then those are the only medium counties it can fund.

If Florida Housing receives applications from a wide array of

counties, then the SAUL mechanism tries to get funding to as

many counties as it can before the funding runs out.

29. The purpose of the complex application review process

in the Universal Cycle is to equitably and reasonably distribute

affordable housing throughout the state.

The Rule Amendment Process

30. Respondent often finds it necessary to tweak its

Universal Cycle review rules to address needed changes, to

prevent perceived abuses of the process, or to make the

distribution of funds more equitable. Amendments to the rules

are generally made on an annual basis.

31. Proposed amendments to the Universal Cycle application

review rules are the basis for the instant rule challenge.

Florida Administrative Code Rules 67-21.003 and 67-48.004 adopt,

by reference, Respondent's Universal Cycle Application

Instructions, application form, and exhibits forms. Those items

contain changes to the Universal Cycle review process. A

description of the process for making those proposed changes,

which are euphemistically referred to as Priority I-Priority II

or "PI-PII" by the parties, will follow.

32. The amendment process for the instant rule changes

commenced in the early fall of 2008. 5 The first public meeting

on the changes was held August 8, 2008; it was followed by four

rule-development workshops: September 25, 2008, in Tallahassee;

October 30, 2008, in Orlando; December 11, 2008, in Bonita

Springs; and February 17, 2009, in Tallahassee. The public

meeting and workshops resulted in a number of comments, both

written and oral, from developers. The written comments,

including emails, letters, and other documents, were posted on

Respondent's website for review by all interested persons.

33. One of the primary concerns raised by some developers

during the rule development period had to do with the increase

in the number of applications being filed in recent years. The

perception by many who submitted comments was that the increased

number of applications was due to some larger developers

"gaming" the system. That is, some developers believed that

larger developers were filing numerous applications simply for

the purpose of acquiring more favorable lottery numbers in the

tiebreaker phase of review. Indeed, in the 2008 Universal

Cycle, roughly 85 percent of the tax credits allocated by

Florida Housing were determined by the lottery number assigned

to the application, so the importance of the lottery number is

apparent.

34. There were also some comments offered during the

rulemaking process as to another effect of the large number of

applications by some developers, the "barricade" application

concept. These concerns addressed a belief by some developers

that applications were being filed which were not financially

feasible. The perception was that the applicant filing a

barricade application did not intend to actually build the

project; rather, the applications were filed to use up the SAUL

for a specific county so that funds would then go to other

counties and other projects. The evidence presented on this

concept was not persuasive, although the witnesses seemed very

sincere about their concerns.

35. The concern about possibly insincere applications was

somewhat borne out by the fact that in 2007, only about 24 of

187 applications submitted passed the threshold review. During

the period given to developers to cure their deficient

applications (those that did not pass threshold review), about

one third of the applications were not cured. That is, they

were simply withdrawn from the review process.

36. There has been a marked increase in the number of

applications filed during recent years. In 2006, there were 104

applications filed; in 2007, there were 187; and in 2008, there

were 282 applications filed. Over the period of those three

years, there had also been an increase in the funds available

for distribution by Florida Housing, a fact which may explain

why there were more applications being filed. Conversely,

Florida Housing had begun approving larger funding amounts per

project, thus somewhat negating the impact of the increase in

available funds. So while there was indeed more money to

distribute, the money was not going to more projects; each

individual project was just getting more money than before.

Rationale for the Rule Amendments

37. Based upon the increased number of applications

submitted during the Universal Cycle in recent years (and in

response to the concerns stated by many developers), Florida

Housing determined it best to limit the number of applications

from any one developer (including any single purpose entities

created by a developer). The method employed by Respondent to

effectuate this goal was to initiate a priority system. The

priority system proposed by Respondent allowed each related-

party applicant to designate up to three of its applications as

Priority I; the remainder of that applicant's applications would

be deemed Priority II. An applicant could designate three

additional applications as Priority I, if those applications

were submitted as a joint venture with a qualified not-for-

profit organization. The purpose of this caveat to the rule was

to encourage the involvement of not-for-profit applicants.

38. The purpose of the rule was also to generate as many

"quality" applications by as many different applicants as

possible. Florida Housing believes that if each developer is

forced to internally prioritize its applications, only the best

applications will be filed. Some developers, Petitioner

included, indicate that all of their applications will be

exceptional and prioritization would not change that fact.

There was no competent evidence presented to suggest that

applications filed in the 2008 Universal Cycle were of an

inferior nature. 6

39. In the 2008 Universal Cycle, a small number of

developers (including Petitioner), who submitted the largest

number of applications received the largest percentage of

allocated funds. In fact, over 40 percent of the tax credit

allocation went to two large developers. Likewise, 40 percent

of the SAIL funds went to a single developer. This resulted in

a concentration of Florida Housing's development portfolio in a

smaller group of developers. Florida Housing views that

concentration as a "disastrous" situation in the current

financial market.

40. Set-asides are an important component of the

application review and approval process. Every three years a

study is performed on each county within the state to determine

how many renter households within the county are earning

60 percent or less of the AMI and paying more than 40 percent of

their annual income for rent. These are referred to as "cost-

burden" households. The cost-burden households are broken down

into the following groups: families, the elderly, farmworkers

and commercial fishermen. The study also assesses needs for

persons who are homeless.

41. Funds are also allocated by way of geographic

targeting. 7 Counties are divided into three groups: small,

medium, and large (based on population). Each of the three

groups must receive at least ten percent of the funds, but the

need is determined and then adjusted up to ten percent if it is

actually less than that. Once the percentages are established,

funds are allocated in accordance with the stated percentages.

The example given by Florida Housing was that if large counties

were deemed to have 66 percent of the need, medium counties

30 percent, and small counties four percent, then the small

county percentage would be moved up to ten percent (the smallest

allowed amount) and the large county would be reduced to

60 percent.

42. There are also some set-asides for the preservation of

existing affordable housing complexes. And there is a small

set-aside for rural development as well. Each set-aside group

essentially has its own separate funding from its share of the

funds distributed by Florida Housing. An area of state critical

concern, the Florida Keys, is given the highest priority during

review. Then the various groups (families, the elderly,

farmworkers, commercial fishermen and homeless) are considered.

Then, after each of these, the geographic set-asides are

considered.

43. For 2009, there are no SAIL funds available, so the

families-elderly-farmworker/fisherman-homeless categories are

not a concern. Instead, the area of critical concern, the

preservation projects and geographic targeting are addressed as

relevant set-asides.

44. Under the PI-PII system, PI applications are given

consideration in advance of PII applications. That is, all PI

applications are funded before a PII application is considered.

The only significant exception to that rule is that certain

preservation set-asides may be funded from PII, even if PI

applications are not filed. There may be other situations that

could result in a PII being funded prior to a PI, but no such

scenario was elucidated at final hearing.

45. Anecdotal evidence suggests that not-for-profit

developers have shied away from the Universal Cycle due to a

perception that the increase in applications has turned the

system into an "odds game" in which it is not feasible for them

to participate. The ability of established for-profit

developers to increase their number of Priority I applications

by partnering with not-for-profits is a goal of the rule to

address this problem. Florida Housing believes the increased

involvement by not-for-profits will be beneficial to the

affordable housing program.

46. The priority system will also likely have an impact on

several key factors relating to the equitable distribution of

affordable housing around the state. By having to concentrate

its efforts on three (or six) key applications, a developer is

more likely to make those designated applications complete and

thorough at the outset of the process. This will allow for

faster commencement of projects by some applicants as more due

diligence is performed prior to the completion of the review

process.

47. Applicants will also be more likely to file their PI

applications in the strongest markets, i.e., where the projects

are most needed. This will help Florida Housing more quickly

and efficiently approve additional units in its most critical

areas of concern.

CONCLUSIONS OF LAW

48. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding. § 120.56, Fla. Stat. 8

49. Respondent engaged in rulemaking under Section 120.54,

Florida Statutes. There is no dispute as to whether Respondent

followed the rulemaking procedures and process correctly.

50. Petitioner and each of the Intervenors, as persons who

are "Developers" as defined by Florida Housing, have standing to

participate in this proceeding.

51. Petitioner and Intervenors challenge the proposed

application instructions (incorporated by reference in the new

rule amendments) as an invalid exercise of delegated legislative

authority. They claim that Florida Housing does not have

specific authority to require an applicant to designate

applications as Priority I or II, to limit applicants to only

three non-joint venture PI applications, to limit applicants to

only six total PI applications, and to re-designate applications

as Priority II.

52. Rulemaking is a legislative function , and as such, it

is within the exclusive authority of the Legislature under the

separation of powers provision of the Florida Constitution. See

Southwest Florida Water Mgmt. Dist. v. Save the Manatee Club,

Inc. , 773 So. 2d 594, 598-599 (Fla. 1st DCA 2000). An

administrative rule is valid only if adopted under a proper

delegation of legislative authority. See Save the Manatee ;

Chiles v. Children A, B, C, D, E, and F , 589 So. 2d 260 (Fla.

1991); Askew v. Cross Key Waterways , 372 So. 2d 913 (Fla. 1978).

53. The administrative rulemaking standard is set forth in

Section 120.536, Florida Statutes, and in the closing paragraph

of the statutory definition of "invalid exercise of delegated

legislative authority" in Subsection 120.52(8), Florida

Statutes, which states:

A grant of rulemaking authority is

necessary but not sufficient to allow an

agency to adopt a rule; a specific law to be

implemented is also required. An agency may

adopt only rules that implement or interpret

the specific powers and duties granted by

the enabling statute. No agency shall have

authority to adopt a rule only because it is

reasonably related to the purpose of the

enabling legislation and is not arbitrary

and capricious or is within the agency's

class of powers and duties, nor shall an

agency have the authority to implement

statutory provisions setting forth general

legislative intent or policy. Statutory

language granting rulemaking authority or

generally describing the powers and

functions of an agency shall be construed to

extend no further than implementing or

interpreting the specific powers and duties

c o n f e r r e d b y t h e s a m e s t a t u t e .

54. Subsections (8)(b) and (c) of Section 120.52, Florida

Statutes, although they are interrelated, address two different

problems or issues. Board of Trustees of Internal Improvement

Trust Fund v. Day Cruise Association, Inc. , 794 So. 2d 696, 701

(Fla. 1st DCA 2001); See also St. Johns River Water Mgmt. Dist.

v. Consolidated Tomoka Land Co. , 717 So. 2d 72, 81 (Fla. 1st DCA

1998). In addition, Subsections (8)(b) and (c) of Section

120.52, Florida Statutes, have to be read in pari materia with

the closing paragraph of the statute, also known as the "flush

left paragraph," which was intended to restrict agency

rulemaking. Golden West Financial Corporation v. Department of

Revenue , 975 So. 2d 567, 571 (Fla. 1st DCA 2008).

55. An invalid exercise of delegated legislative authority

exists where "[t]he agency has exceeded its grant of rulemaking

authority" in promulgating a proposed rule. See § 120.52(8)(b),

Fla. Stat. In addition, pursuant to Subsection 120.52(8)(c)

through (e), Florida Statutes, rules cannot enlarge, modify, or

contravene the specific provisions of law implemented, be vague,

or be arbitrary or capricious.

56. Subsections (1) and (2) of Section 120.56, Florida

Statutes, provide, in pertinent part, as follows:

120.56 Challenges to rules.-

(1) GENERAL PROCEDURES FOR CHALLENGING

THE VALIDITY OF A RULE OR A PROPOSED RULE.

(a) Any person substantially affected by

a rule or a proposed rule may seek an

administrative determination of the

invalidity of the rule on the ground that

the rule is an invalid exercise of delegated

legislative authority.

* * *

(e) Hearings held under this section

shall be de novo in nature. The standard of

proof shall be the preponderance of the

evidence. . . Other substantially affected

persons may join the proceedings as

intervenors on appropriate terms which shall

not unduly delay the proceedings. . . .

(2) CHALLENGING PROPOSED RULES/ SPECIAL

PROVISIONS.

(a) . . .The petitioner has the burden of

going forward. The agency then has the

burden to prove by a preponderance of the

evidence that the proposed rule is not an

invalid exercise of delegated legislative

authority as to the objections raised.

* * *

(c) When any substantially affected

person seeks determination of the invalidity

of a proposed rule pursuant to this section,

the proposed rule is not presumed to be

valid or invalid.

57. Petitioner has met its initial burden of going forward

in this case through the presentation of its case-in-chief.

58. The burden then shifts to Respondent to prove by a

preponderance of the evidence that the proposed rule is not an

invalid exercise of delegated legislative authority. Id. See

also Florida Board of Medicine v. Florida Academy of Cosmetic

Surgery, Inc. , 808 So. 2d 243, 251 (Fla. 1st DCA 2002).

59. A proposed rule may be challenged pursuant to Section

120.56, Florida Statutes, only on the ground that it is an

"invalid exercise of delegated legislative authority." An

Administrative Law Judge ("ALJ") is without authority to declare

a proposed rule invalid on any other ground. To do so would be

an impermissible extension of the judge's authority beyond the

boundaries established by the Legislature. See , e.g. , Schiffman

v. Department of Professional Regulation, Board of Pharmacy , 581

So. 2d 1375, 1379 (Fla. 1st DCA 1991) ("An administrative agency

has only the authority that the legislature has conferred it by

statute."); Lewis Oil Co., Inc. v. Alachua County , 496 So. 2d

184, 189 (Fla. 1st DCA 1986). Thus, for example, an ALJ may not

invalidate a proposed rule simply because, in the judge's

opinion, it does not represent the wisest or best policy choice.

See Board of Trustees of Internal Improvement Trust Fund v.

Levy , 656 So. 2d 1359, 1364 (Fla. 1st DCA 1995)("The issue

before the hearing officer in this [rule challenge] case was not

whether the Trustees made the best choice in limiting the

lengths of docks within the preserve, or whether their choice is

one that the appellee finds desirable for his particular

location."); Dravo Basic Materials Co., Inc. v. State,

Department of Transportation , 602 So. 2d 632, 634 (Fla. 2d DCA

1992) ("It is not our task, however, to write the best rule for

DOT. That was not the task of the hearing officer.")

60. Invalid exercise of delegated legislative authority is

defined in Subsection 120.52(8), Florida Statutes, as follows:

"Invalid exercise of delegated legislative

authority" means action that goes beyond the

powers, functions, and duties delegated by

the Legislature. A proposed or existing

rule is an invalid exercise of delegated

legislative authority if any one of the

following applies:

(a) The agency has materially failed to

follow the applicable rulemaking procedures

or requirements set forth in this chapter;

(b) The agency has exceeded its grant of

rulemaking authority, citation to which is

required by s. 120.54(3)(a)1.;

(c) The rule enlarges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required

by s. 120.54(3)(a)1.;

(d) The rule is vague, fails to establish

adequate standards for agency decisions, or

vests unbridled discretion in the agency;

(e) The rule is arbitrary or capricious.

A rule is arbitrary if it is not supported

by logic or the necessary facts; a rule is

capricious if it is adopted without thought

or reason or is irrational; or

(f) The rule imposes regulatory costs on

the regulated person, county, or city which

could be reduced by the adoption of less

costly alternatives that substantially

accomplish the statutory objectives. . . .

61. A rule must be authorized by a grant of rulemaking

authority and must implement specific powers and duties provided

by the enabling legislation. Southwest Fla. Water Mgt. Dist. v.

Save the Manatee Club, Inc. , 773 So. 2d 594 (Fla. 1st DCA 2000).

62. Florida Housing's rulemaking authority is generally

set forth in Section 420.507, Florida Statutes, which says in

pertinent part:

The corporation shall have all the powers

necessary or convenient to carry out and

effectuate the purposes and provisions of

this part, including the following powers

which are in addition to all other powers

granted by other provisions of this part:

* * *

(12) To make rules necessary to carry out

the purposes of this part and to exercise

any power granted in this part pursuant to

the provisions of Chapter 120.

* * *

(22) To develop and administer the State

Apartment Incentive Loan Program. In

developing and administering that program,

the corporation may:

* * *

(h) Establish, by rule, the procedure for

evaluating, scoring, and competitively

ranking all applications based on the

criteria set forth in s. 420.5087(6)(c);

determining actual loan amounts; making and

servicing loans; and exercising the powers

authorized in this subsection.

* * *

(24) To do any and all things necessary

or convenient to carry out the purposes of

and exercise the powers given and granted in

this part.

63. Also, in Section 420.508, Florida Statutes, the

following additional rulemaking authority is found:

(3) The corporation shall have the special

power to:

* * *

(c) Adopt and from time to time modify or

repeal rules for governing the making of and

participation in loans to sponsors for

projects to implement the powers authorized,

and to achieve the purposes set forth, in

this part.

64. It is clear that Florida Housing has the requisite

legislative authority to enact rules relating to the process

whereby Florida Housing distributes funds for building

affordable housing projects. The Universal Cycle process is, in

fact, amended almost annually. However, these are somewhat

general grants of rulemaking authority. Courts have held that

some general grants of authority may not be sufficient.

65. In Department of Business and Professional Regulation

v. Calder Race Course , 724 So. 2d 100 (Fla. 1st DCA 1998), the

court invalidated rules of the Division of Pari-Mutuel Wagering

allowing searches and seizures within racing facilities, even

though the Division had general rulemaking authority to "adopt

reasonable rules for the control, supervision, and direction of

all applicants, permittees, and licensees and for the holding,

conducting, and operating of all racetracks," and had authority

to conduct investigations in enforcing the statutes. Id. at

102.

66. In Bd. of Trustees of Internal Improvement Trust Fund

v. Day Cruise Ass'n , 794 So. 2d 696, 700 (Fla. 1st DCA 2001),

the Trustee's authority to regulate the use of state-owned

submerged lands did not include the authority to prohibit

anchoring or mooring by vessels engaged in gambling activities

outside of Florida's territorial waters.

Although framed as a regulation of anchoring

or mooring, the proposed rule does not

regulate the mode of or manner of

mooring . . . Instead it deliberately and

dramatically interferes with certain kinds

of commerce solely on account of activities

that occur many leagues from the dock.

Id. at 702. In the absence of a specific power or duty enabling

or requiring the Trustees to regulate cruises to nowhere, to

regulate gambling, or to regulate on the basis of activities

occurring aboard vessels after they leave sovereignty submerged

lands and adjacent waters, the Trustees' proposed rule exceeded

the Trustees' rulemaking authority and was an invalid exercise

of delegated legislative authority. Id. at 704.

67. In State Department of Children and Family Services v.

I.B. and D.B. , 891 So. 2d 1168 (Fla. 1st DCA 2005), the court

invalidated as lacking specific authority a Department of

Children and Family Services ("DCFS") rule that deprived

adoption applicants of a hearing to contest DCFS' placement

determination for an adoptive child. Although statutes provided

the Department with broad authority to "conduct, supervise, and

administer a program for dependent children and their families,"

with goals including "the permanent placement of children who

cannot be reunited with their families," the Department lacked

authority to dispense with hearings in the interest of achieving

a statutory goal of expediting the adoption process. Id. at

1171.

68. In Smith v. Department of Corrections , 920 So. 2d 638

(Fla. 1st DCA 2005), the court considered a rule of the

Department of Corrections which allowed the Department to charge

inmates for copying services and found it to be invalid for lack

of a specific grant of authority. The cited rule authority

merely sets forth the general rulemaking authority of the

Department with regard to, among other things, "[t]he rights of

inmates" and "[t]he operation and management of the correctional

institution or facility and its personnel and functions," and

was found inadequate. Id. at 642. Notably, the wisdom in

adopting the rule-–to deter inmates from seeking unlimited free

copies-–based on past experience and lack of arbitrariness, was

held not sufficient authority for the rule. Id. at 641.

69. The general rulemaking authority relied upon by

Florida Housing to promulgate the proposed changes to its rules

are specific as to Florida Housing's right to create rules

regarding the application process. The question is whether the

general rules suffice in the instant rulemaking process. It is

the finding of the undersigned ALJ that Florida Housing's

ability to effectively review and approve requests for funding

requires a broad range of approaches during the application

process. The creation of devices such as the subject priority

system would seem consistent with Florida Housing's general

authority.

70. Assuming, arguendo , that the requisite rulemaking

authority exists, there is also the question of whether the

amendment proposed by Florida Housing "enlarges, modifies, or

contravenes the specific provisions of law implemented" as set

forth in Subsection 120.52(8)(b), Florida Statutes, or are

arbitrary and capricious under Subsection 120.52(8)(e), Florida

Statutes.

71. Petitioner logically argues that the authoritative

language in Subsection 420.507(22)(h), Florida Statutes, refers

to "all" applications. By limiting the number of applications

that can be given priority consideration, Florida Housing's rule

amendments may not effectively address all applications

submitted. Rather, only Priority I applications are looked at

for funding and, once all PI applications are addressed, then

PII applications are considered. Failure to include all

applications equally would be a modification or contravention of

the underlying statute. Florida Housing demonstrated that all

applications are being considered, but the priority system, just

like the scoring system and the use of lottery numbers,

categorizes the applications leaving some of them at the top of

the list.

72. Considering again, arguendo , that the proposed changes

do not modify or contravene the statute, the question still

remains as to whether the changes are arbitrary and capricious,

in violation of Subsection 120.52(8)(e), Florida Statutes. If a

proposed rule is "justifiable under any analysis that a

reasonable person would use to reach a decision of similar

importance, it would seem that the [rule] is neither arbitrary

nor capricious" within the meaning of Subsection 120.52(8),

Florida Statutes. Dravo Basic Materials Company, Inc. v. State,

Department of Transportation , 602 So. 2d 632, 634 (Fla. 2d DCA

1992).

73. Action taken by an agency that the Legislature has

specifically authorized the agency to take is neither arbitrary

nor capricious. See Florida Manufactured Housing Association,

Inc. v. Department of Revenue , 642 So. 2d 626, 627 (Fla. 1st DCA

1994) (proposed rules that "add nothing whatsoever to the

requirements of the law, but instead fit squarely within [the

statute implemented]" are not arbitrary or capricious).

74. In the instant case, Florida Housing has created a

rule which is intended to address a perceived flaw in existing

rules. The new rule provisions, while arguably not the very

best means of addressing the problem, fit squarely within the

provisions of Subsection 420.507(22), Florida Statutes.

Specifically, the rule amendments "establish, by rule, the

procedure for evaluating, scoring, and competitively ranking

all applications based on the criteria set forth in

s. 420.5087(6)(c)."

75. The newly created provisions do limit the number of

Priority I applications any one applicant may file. They do

not, however, limit the total number of applications an entity

may file, nor do they give any one applicant preference over

another. Rather, the rule creates a system wherein all

applications are encouraged to be complete and approvable. The

potential for "gaming" the Universal Cycle process is greatly

diminished by the new rule provisions.

76. The proposed priority system certainly has an impact

on some developers. Nonetheless, it is a clearly enunciated and

logically-based system, all things taken into consideration.

The rules, as amended, are within Florida Housing's delegated

legislative authority, are not arbitrary and capricious, and do

not contravene, expand or modify the underlying statute.

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

ORDERED that Respondent, Florida Housing Finance

Corporation's Proposed Rules 67-21.003 and 67-48.004, which

propose to incorporate by reference the 2009 Universal Cycle

Application Instructions, are not invalid exercises of delegated

legislative authority.

DONE AND ORDERED this 14th day of July, 2009, in

Tallahassee, Leon County, Florida.

R. BRUCE MCKIBBEN

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 14th day of July, 2009.

ENDNOTES

1/ Verbatim from the parties' Joint Prehearing Stipulation.

2/ Affordable housing is defined in Subsection 420.602(3),

Florida Statutes, as:

(a) With respect to a housing unit to be

occupied by very-low-income persons, that

monthly rents, or monthly mortgage payments

including property taxes and insurance, do

not exceed 30 percent of that amount which

represents 50 percent of the median adjusted

gross annual income for the households

within the metropolitan statistical area

(MSA) or, if not within an MSA, within the

county in which the housing unit is located,

divided by 12.

(b) With respect to a housing unit to be

occupied by low-income persons, that monthly

rents, or monthly mortgage payments

including taxes and insurance, do not exceed

30 percent of that amount which represents

80 percent of the median adjusted gross

annual income for the households within the

metropolitan statistical area (MSA) or, if

not within an MSA, within the county in

which the housing unit is located, divided

by 12.

(c) With respect to a housing unit to be

occupied by moderate-income persons, that

monthly rents, or monthly mortgage payments

including taxes and insurance, do not exceed

30 percent of that amount which represents

120 percent of the median adjusted gross

annual income for the households within the

metropolitan statistical area (MSA) or, if

not within an MSA, within the county in

which the housing unit is located, divided

by 12.

3/ The developers euphemistically referred to themselves as

"good application filler-outers" at that time.

4/ SAUL is effectively one of the "tweaks" done by Florida

Housing in a prior rule amendment process to address county

groupings of applications. There is no specific statutory

authority for creating a SAUL, but it is an accepted part of

Florida Housing's review process.

5/ The Florida Administrative Weekly notice concerning the rule

amendments stated the following purpose and effect for the

amendments: "[T]o encourage public-private partnerships to

invest in residential housing; to stimulate the construction and

rehabilitation of residential housing which in turn will

stimulate the job market in the construction and related

industries; and to increase and improve the supply of affordable

housing in the State of Florida."

6/ It is true that many applications did not meet threshold

requirements, but that is not a definitive indicator of whether

the ultimate application would be deficient.

7/ To the extent allocation of funds relates to SAIL funds,

those funds are not relevant in the current Universal Cycle and

need not be considered as part of this Order.

8/ Unless specifically stated otherwise herein, all references

to the Florida Statutes will be to the 2008 version.

COPIES FURNISHED :

F. Scott Boyd, Executive Director

and General Counsel

Joint Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399-1300

Liz Cloud, Program Administrator

Bureau of Administrative Code

Department of State

R.A. Gray Building, Suite 101

Tallahassee, Florida 32399-0250

Wellington Meffert, General Counsel

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301

Sherry Green, Corporation Clerk

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301

M. Christopher Bryant, Esquire

Oertel, Fernandez, Cole &

Bryant, P.A.

301 South Bronough Street, Fifth Floor

Post Office Box 1110

Tallahassee, Florida 32302-1110

Shaw P. Stiller, General Counsel

Department of Community Affairs

2555 Shumard Oak Boulevard

Tallahassee, Florida 32399-2100

Hugh R. Brown, Esquire

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301-1329

J. Stephen Menton, Esquire

Rutledge, Ecenia, & Purnell, P.A.

119 South Monroe Street, Suite 202

Post Office Box 551

Tallahassee, Florida 32302

Michael P. Donaldson, Esquire

Carlton Fields, P.A.

215 South Monroe Street, Suite 500

Post Office Drawer 190

Tallahassee, Florida 32302-0190

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original Notice of Appeal with the agency clerk of

the Division of Administrative Hearings and a copy, accompanied

by filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.