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1 TAX CREDITS 101 SEPTEMBER 5, 2013. 2 Tax Credit Team Members CARA WALLO Asst. Director of LIHTC Programs (804) 343-5714 J. D. Bondurant Strategic Planner.

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Presentation on theme: "1 TAX CREDITS 101 SEPTEMBER 5, 2013. 2 Tax Credit Team Members CARA WALLO Asst. Director of LIHTC Programs (804) 343-5714 J. D. Bondurant Strategic Planner."— Presentation transcript:


2 2 Tax Credit Team Members CARA WALLO Asst. Director of LIHTC Programs (804) J. D. Bondurant Strategic Planner (804) Alena Henderson LIHTC Business Analyst (804) JAYNELL PITTMAN-SHAW Sr. Tax Credit Allocation Officer (804) Hope Rutter Tax Credit Allocation Coordinator (804) JIM CHANDLER Director of LIHTC Programs (804)

3 3 How does the LIHTC program work? Established by Congress with the Tax Reform Act of 1986 Significant Amendments in 1990, 1993, 2002 and 2008 Section 42 of the Internal Revenue Code

4 4 Illustration by Lancaster Pollard Credit Flowchart State Allocating Agency TC Syndicator DeveloperLender Equity Tax Credits Debt Tax Credits

5 5 Income Levels Served 20% of units at 50% of median income or 40% of units at 60% of median income More restrictive limits elected during Application process

6 6 9% vs. 4% 9% New construction or Rehabilitation credits 4% Acquisition credits 4% Tax-exempt bond credits

7 7 Tax Credit & Equity Calculation

8 8 Equity Calculation Pricing based on total credits available, timing of pay-ins and market conditions Equity is paid in several installments based on negotiated benchmarks (ex: land transfer, substantial completion of construction, stabilization, receipt of 8609s)

9 9 INCREASED EQUITY FOR DEVELOPMENT RESULTS IN: Lower Debt Lower Rents Investors TAX BENEFITS: Tax Credits (10 yrs) Tax Losses (15 yrs) (Depreciation & Interest Expense) Illustration from Nixon Peabody

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12 12 How many credits are allocated to Virginia each year? Per Capita Credits $2.25 per person* Previous Allocations: National Pool: 5 % of 2015 Credits: Non-competitive pool: New Construction Pool Estimated 2014 Credits: $18,414,992 ($6,463,491) $75,000 $920,750 ($ 500,000) $2,762,249 + $15,209, Population Estimate : 8,184,441

13 13 Credit Pools Non-Profit Local Housing Authority Regional –New Construction –N.VA Planning District 8/Inner Washington MSA –Northwest/North Central Virginia –Richmond MSA –Tidewater MSA –Balance of State At Large Non-Competitive –Developments for Persons with Disabilities

14 14 What are the responsibilities of housing credit agencies? Qualified Allocation Plan (QAP) Notify local CEO of proposed development & allow time for comment Obtain market study Provide a written explanation, when requested, if an allocation is not made according to established priorities

15 15 Qualified Allocation Plan Sets forth selection criteria to allocate appropriate to local conditions Gives preference to properties –Serving lowest income households –Remaining affordable for the longest periods –Located in QCTs (and the development contributes to a concerted community revitalization plan) Provides procedure for monitoring compliance

16 16 QAP: Sec 42 Selection Criteria 1.Project location 2.Housing needs characteristics 3.Project characteristics, including existing housing as part of community revitalization plan 4.Sponsor characteristics 5.Tenant populations with special housing needs 6.Public housing waiting lists 7.Tenant populations of individuals with children 8.Intended for eventual tenant ownership 9.Energy efficiency 10.Historic nature of the project

17 17 QAP: VHDAs Selection Criteria 1.Readiness 2.Housing Needs Characteristics 3.Development Characteristics 4.Tenant Population Characteristics 5.Sponsor Characteristics 6.Efficient Use of Resources 7.Bonus Points –Rents < 40% AMI –Rents and Incomes < 50% AMI –Extended Compliance –Sale to Nonprofit or Local Housing Authority –Tenant Ownership Option

18 18 Market Studies Provide a plethora of information to help us assess the housing needs and demands of low-income individuals and communities Help us determine if theres a market for the proposed project Help us understand the impact on existing LIHTC communities (VHDA owned/financed - lower rents, competing amenities, etc.) VHDA is able to review this data objectively because of its own market data; to minimize negative impact on its existing VHDA owned/ financed properties

19 19 Market Study Components PROJECT OVERVIEW – address, # units, construction type PRIMARY MARKET AREA – where will tenants come from ECONOMIC OUTLOOK – employment trends DEMOGRAPHICS – population, age of population, household status, incomes, etc. SUPPLY/RENT ANALYSES – existing & pipeline projects that will compete with the subject DEMAND ANALYSIS – absorption, capture rate – is there sufficient demand for additional units? For the type of construction proposed?

20 20 Market Studies – VHDA Guidelines No study over 12 months old will be accepted VHDA at its sole discretion may commission an additional market study or supplementary market data The market study must be submitted in electronic format to VHDA directly from the applicant Studies deemed inadequate by VHDA will cause the application, and perhaps the analyst, to be rejected

21 21 Market Studies – Industry Guidelines Standard terminology, e.g. primary market area, market demand, comparable property Standard methodology, e.g. absorption rate, capture rate Standard report format Membership/Best Practices National Council of Affordable Housing Market Analysts (NCAHMA)

22 22 Market Studies Before the credit allocation is made At the developer's expense Completed by a disinterested party Analyst approved by the Housing Credit Agency (VHDA) A Requirement Under IRC Section 42

23 Allocation Cycle Jul QAP Forum Aug 2013Release 2014 QAP changes for public comment Sep QAP Focus Group Sep 2013*2014 QAP Public Hearing/close public comments Oct 2013VHDA Bd of Commissioners Approve 2014 QAP Jan 2014How-to-Apply Workshops (4) Jan 2014*CEO notification letter info deadline Mar 2014Application for Reservation deadline May 2014Preliminary Rankings/ begin comment period May 2014Comment & Rebuttal period Jun 2014Review final rankings with VHDA Board Jun 2014Announce final rankings Nov 2014Application for Allocation deadline Dec 2014Finalize Allocations Dec 2016Dev. Place in Service, then issue 8609s

24 24 Submitting the Application Excel workbook having a self-score component Extensive documentation required but is a by-product of an objective, point based award system Transparent process

25 25 Alignment With VHDA Strategic Goals and Housing Policy Alignment in five areas: –Green building –Accessibility –Homelessness –Sustainability –Transit-oriented development

26 26 Alignment With VHDA Strategic Goals and Housing Policy Significant incentives for: LEED or EarthCraft green building standards Universal Design Standards Developments serving homeless populations Proximity to public transportation

27 27 VHDAs Multifamily Loan Program and LIHTC Program VHDA cannot require a VHDA loan as a condition of receiving a tax credit award We do have a unique opportunity to facilitate financing –Relationship established between developer and VHDA –Minimum Design & Construction Requirements apply to both VHDA loans and tax credit deals

28 28 Production Summary –Program Inception to Date (includes 9% and Tax-Exempt Bonds) 907 Developments 84,921 Units –60% TC deals with VHDA financing

29 29 What sets VHDA apart? Open, objective process Provide timely assistance We listen to stakeholder concerns and incorporate their input/suggestions into the program We provide program learning opportunities Manual and application are user friendly

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