THE LIHTC Program

Transcript THE LIHTC Program

Tax Credit Basics

Source of Funds

• Internal Revenue Code, Section 42.

• For 2007, the amount of tax credits issued to each state is based on $1.95 per capita per year.

• Amount to allocate in 2007: $3,448,245 • Generally over-subscribed: 3 to 4:1 • 2007 Qualified Annual Plan – approved by Governor on 6/27/06 • 2008 Qualified Annual Plan – will be presented for approval to the NIFA Board on 6/22/07.

Qualified Allocation Plan (QAP)

• The QAP governs the annual distribution of tax credits.

• Applicants must meet threshold requirements.

• Points awarded for specific items contained in the application.

• The QAP and Application can be downloaded from NIFA website.

Types of Credits and Unit Requirements

• Types of Credits – Annual “9% cycle” for construction (new/rehab) – 4% credits with Tax Exempt Bonds – CRANE: Applications accepted monthly • To Qualify – 20% of Units at 50% Area Median Income or – 40% of Units at 60% Area Median Income Nebraska Investment Finance Authority © 2007

2007 Set-Asides

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CRANE

Acceptance into CRANE Program can occur only after an applicant has consulted with NIFA staff.

– – – – Eligible Projects Quality of life improvements (i.e. community facilities, needed social services or public infrastructure) – Housing for people living in, near or benefiting from a proposed economic development that includes job / wage creation and / or enhancement Special Needs Housing Native American Housing Improvements in response to judicial findings (or settlement agreements or consent decrees) relating to housing deficiencies, housing discrimination or other housing issues – – Improvements as part of a neighborhood redevelopment plan for which there is a significant and material public investment Historic Preservation in combination with any of the above eligibility criteria Nebraska Investment Finance Authority © 2007

LIHTC Fees

• Application Fee: Greater of 1% of annual credit request or $500.

• Reservation/Carry-over Fee: 2% of annual credit request.

• Allocation Fee: Due at Cost Certification: 2% of annual credit actually allocated.

• Annual Compliance Fee: 2% of annual credit actually allocated.

Commitment to Affordability

• Only get credits for the low income units (qualified basis).

• Retain affordability period for 15 year compliance period plus a 15 year extended use period. • Income and rent restrictions.

• NIFA offers points for longer affordability periods.

Threshold Requirements

• Development Costs Determined • Preliminary Plans and Specifications • Site Control (valid for 90 days) • Zoning Approved (or conditional use permit) • Utilities are available and adequate • List of Board of Directors • State and/or Local Subsidies Nebraska Investment Finance Authority © 2007

Threshold Requirements (Continued)

• Syndicator Interest Letter (valid for 6 months) • Construction/Permanent Financing (valid for 6 months) • 15 Year Operating Proforma • Site Specific Market Study • Pre-notification to the Mayor • Capital Needs Assessment (for Rehab Only) Nebraska Investment Finance Authority © 2007

Ownership Structure

• The Limited Partner (L.P.) owns 99% or more and receives 99% or more of the credits.

• The L.P. pays generally between $.80 and $.85 per credit.

Partners in a Typical Tax Credit Development

NIFA Nebraska Department of Economic Development City or other Local Funds Lender New Limited Partnership (Project Owner) Tax Credit Investor (Limited Partner) Non-profit or For Profit Sponsor (General Partner) Developer \ Consultant Nebraska Investment Finance Authority © 2007

Calculations of Tax Credits & Equity

Total Development Cost Less: Non-eligible (i.e. land-soft cost) Eligible Basis Applicable fraction (% of LIHTC units) Qualified Basis Tax Credit Applicable Percentage Annual Tax Credit Tax Credit Period Equity at $.80 per Credit Total Development Cost Less: Equity Required Debt $3,000,000 (200,000) $2,800,000 X 100% $2,800,000 X 9% $ 252,000 X 10 yrs.

$2,520,000 X .80

In today’s market, the average development must have a least two or three sources of additional funding.

• Nebraska Affordable Housing Trust Fund • Federal Home Loan Bank • HOME funds • USDA – Rural Development • CDBG • TIF funds • Historic Tax Credits • Developer Note • Grants Nebraska Investment Finance Authority © 2007

Partnership Roles / Expectations

• Non-profit Roles

– Sponsor the Project – Develop the Project – Serve as General Partner – Serve as the Project Manager – Maintain the Project in Compliance – Provide specific guarantees to the investor Nebraska Investment Finance Authority © 2007

Compliance Monitoring

• Annual Owner Certification of Continuing Compliance Report, utility allowance, summary report, and tenant income certifications.

• File review and inspection required no later than the end of the 2 nd year following PIS.

• On-site reviews and inspections required at least every three years thereafter.

Types of Developer Guarantees

• Construction Completion Guarantee (i.e. Lien Free Construction) • Operating Guarantee (i.e. cover operating deficits) • Tax Credit Adjusters – Timing Adjuster – Recapture Nebraska Investment Finance Authority © 2007

Role of Investor Partner

• Provide equity financing through sale of credits.

• Monitor project during construction – approves distributions to developer for construction costs.

NIFA Website

http://www.nifa.org

Questions?

Robin Ambroz-Hollman, Manager of the LIHTC / CRANE Program 402-434-3900 [email protected]