(a) Moneys in the housing program fund shall be allocated by the agency for the following purposes:

(1) To fund the operating and administrative costs of the agency;

(2) To pay certain expenses of bond issues and to support future bond issues by making additions to the loan funds, in order to make loans at a lower interest rate for targeted low income and special need groups, when determined appropriate by the bond finance committee and approved by the board;

(3) To make grants to local housing programs administered by eligible political subdivisions subject to one-to-one matching funds provided by each participant during the initial phase of the allocation process administered by the agency. The agency may prescribe the manner in which such grant funds are to be allocated to local housing programs, considering such factors as population, the adequacy of the existing housing stock to serve very low and low income households, and such other factors as may be deemed reasonable and appropriate by the agency. The agency shall establish a minimum grant amount to ensure that a viable housing program can be established by each eligible local housing program. In counties under one hundred thousand (100,000) in population, the agency may limit participation to one (1) local housing program; and

(4) To the extent that funds still remain in the housing program fund after all eligible political subdivisions applying have been awarded grants, the agency may utilize any such remaining funds for demonstration housing projects on the basis of such competitive factors as level of income to be served, cost of the housing relative to average costs in the applicable area, amount of leveraging of public and private funds, amount of local match, if any, and innovative aspects of the project, except that funds accruing prior to fiscal year end but not reported to the department of revenue until the beginning of the next fiscal year can be used to fund projects submitted during the fiscal year.

(b) Special consideration shall also be given to projects to be administered by qualified not-for-profit corporations in areas of the state which would otherwise go unserved by the state's housing program fund.

(c) It is further provided that grants provided to local programs under subdivisions (a)(3) and (4) shall not be pledged as support for tax exempt borrowing by such local programs, but must be used to directly subsidize the cost of providing housing to very low and low income households.