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Nebraska Investment Finance Authority © 2007 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 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 New Limited Partnership (Project Owner) NIFA Non-profit or For Profit Sponsor (General Partner) Tax Credit Investor (Limited Partner) Nebraska Department of Economic Development Lender City or other Local Funds Developer \ Consultant
Nebraska Investment Finance Authority © 2007 Calculations of Tax Credits & Equity Total Development Cost$3,000,000 Less: Non-eligible (i.e. land-soft cost) (200,000) Eligible Basis$2,800,000 Applicable fraction (% of LIHTC units)X 100% Qualified Basis $2,800,000 Tax Credit Applicable PercentageX9% Annual Tax Credit $ 252,000 Tax Credit Period X 10 yrs. $2,520,000 Equity at $.80 per CreditX.80 $2,016,000 Total Development Cost$3,000,000 Less: Equity (2,016,000) Required Debt$ 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@example.com
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