Transcript THE LIHTC Program
Tax Credit Basics
Nebraska Investment Finance Authority © 2007
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.
Nebraska Investment Finance Authority © 2007
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.
Nebraska Investment Finance Authority © 2007
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
– 2007 Per Capita Allocation: $3,448,245 – At least 10% to Qualified Non-profits – 50% Rural \ 50% Urban (MSAs) – $1 million for CRANE projects Nebraska Investment Finance Authority © 2007
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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.
Nebraska Investment Finance Authority © 2007
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.
Nebraska Investment Finance Authority © 2007
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.
Nebraska Investment Finance Authority © 2007
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
$2,016,000 $3,000,000 (2,016,000) $ 984,000 Nebraska Investment Finance Authority © 2007
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.
Nebraska Investment Finance Authority © 2007
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.
• Assist with initial lease-up (i.e. tenant income certifications) • Ensure compliance Nebraska Investment Finance Authority © 2007
NIFA Website
http://www.nifa.org
Questions?
Robin Ambroz-Hollman, Manager of the LIHTC / CRANE Program 402-434-3900 [email protected]
Nebraska Investment Finance Authority © 2007