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Federal Low-Income Housing Tax Credits October 18, 2007 Presented by Dale Wittie Senior Tax Credit Allocation Officer.

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Presentation on theme: "Federal Low-Income Housing Tax Credits October 18, 2007 Presented by Dale Wittie Senior Tax Credit Allocation Officer."— Presentation transcript:

1 Federal Low-Income Housing Tax Credits October 18, 2007 Presented by Dale Wittie Senior Tax Credit Allocation Officer

2 Program Overview Federal program – created in 1986 Federal program – created in 1986 SECTION 42 of the IRC SECTION 42 of the IRC Credits are allocated to states - formula Credits are allocated to states - formula Greater of: Greater of: $1.95 x State Population (or) $2,275,000 $1.95 x State Population (or) $2,275,000 VA 2007: $1.95 x 7,642,884 = $14.9 Million VA 2007: $1.95 x 7,642,884 = $14.9 Million Ceiling Credits determined annually; adjusted for inflation annually Ceiling Credits determined annually; adjusted for inflation annually

3 Total Credit Authority PER CAPITA CREDITS: $14,903,623 PREVIOUS ALLOCATIONS: ($1,593,036) NATIONAL POOL: $175, % OF 08 CREDITS: $1,490,362+ RETURNED CREDITS: $0 ESTIMATED 2007 CREDITS: $14,975,949+/-

4 Tax Exempt Bonds States are allocated Bond Cap annually $85 x State population 2007 VA - $650,000,000 18% is Governors Allocation 41% is Industrial Development 41% is Housing (27% to VHDA, 14% to LHAs) $175,000,000

5 Sec. 42(m) Responsibilities of Housing Credit Agencies Have a Qualified Allocation Plan Notify local CEO of proposed development & allow time for comment Obtain comprehensive market study Make available a written explanation, when requested, if an allocation is not made according to established priorities

6 QUALIFIED ALLOCATION PLAN To be qualified, plan must: Establish selection criteria used to determine housing priorities appropriate to local conditions Establish selection criteria used to determine housing priorities appropriate to local conditions Give preference to properties which: Give preference to properties which: Serve the lowest income households Serve the lowest income households Remain affordable for the longest periods Remain affordable for the longest periods Are located in a Qualified Census Tract Are located in a Qualified Census Tract Provide a procedure for monitoring compliance Provide a procedure for monitoring compliance

7 Sec. 42(m)(1)(C) Certain Selection Criteria Must be Used 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 How states define these items and assign significance to them varies

8 Financial Feasibility IRC Section 42(m)(2)(A) requires that the credit dollar amount allocated to a development not exceed the amount that the Agency determines is necessary for the financial feasibility of the project and its viability as a qualified LIHTC IRC Section 42(m)(2)(A) requires that the credit dollar amount allocated to a development not exceed the amount that the Agency determines is necessary for the financial feasibility of the project and its viability as a qualified LIHTC

9 Financial Feasibility It is a code requirement that the allocating agency make this financial determination at three specific times: At the time of initial application for credits At the time of initial application for credits At the time of allocation At the time of allocation The date the building is placed in service, i.e. at 8609 application The date the building is placed in service, i.e. at 8609 application

10 Financial Feasibility In making this determination we consider: The sources and uses of funds The sources and uses of funds The total financing planned for the project The total financing planned for the project The proceeds expected to be generated by reason of the tax credits The proceeds expected to be generated by reason of the tax credits The percentage of the housing credit dollar amount used for the project costs The percentage of the housing credit dollar amount used for the project costs

11 Financial Feasibility 2 Primary Calculations Being Made: 2 Primary Calculations Being Made: Funding Gap – The difference between total sources and total uses Funding Gap – The difference between total sources and total uses (TDC and total permanent funding) (TDC and total permanent funding) Maximum Allowable Credit – A function of eligible basis, applicable fraction, applicable percentage Maximum Allowable Credit – A function of eligible basis, applicable fraction, applicable percentage

12 Housing Priorities Program has a public purpose. Section 42 allows the States significant latitude to: Define housing priorities in their state Define housing priorities in their state Allocate credits in accordance with those priorities. Allocate credits in accordance with those priorities. How states choose to do this can vary significantly.

13 Virginias QAP Objective scoring criteria - allocations based on point system Objective scoring criteria - allocations based on point system In VA we seek a significant amount of feedback from stakeholders In VA we seek a significant amount of feedback from stakeholders All records are open to the public. All applicant documents are available for viewing on our website. All records are open to the public. All applicant documents are available for viewing on our website. Applications are scored and ranked in accordance with the QAP. Applications are scored and ranked in accordance with the QAP. Publish Preliminary Rankings, then hold Comment and Rebuttal Periods. Publish Preliminary Rankings, then hold Comment and Rebuttal Periods. Final Rankings. Final Rankings.

14 2007 POOLS The pool percentages were: Northern VA 19.44% $2,911,324 Richmond 13.15% $1,969,337 Tidewater 20.47% $3,065,578 Small MSA 16.31% $2,442,577 Rural 8.13% $1,217,545 LHA7.5% $1,123,196 NonProfit15% $2,246,392 At Large Pool

15 RULES OF RANKING Developments qualifying to compete in the Nonprofit or Local Housing Authority pools will compete there first If not ranked high enough to receive credits, those developments then drop into the appropriate geographic pool Developments will not receive partial credits from any pool; those credits drop into the At-Large pool

16 RULES OF RANKING Elderly Deals Limited No more than 20% of credits (or 1 development) in any pool will be allocated to an elderly development.

17 RULES OF RANKING At-Large Pool: Applications not ranking high enough to receive credits in other pools. It has 2 tiers. Tier 1 – Highest-ranking eligible developments not fully funded from the geographic pools Tier 2 - All other developments above threshold not funded

18 NONPROFIT POOL Material participation 100% share of general partnership Not controlled by for-profit Not formed for purpose of NP pool Board and staff not involved as for-profits Authorized to do business in Virginia Substantially based or active in the community Not a joint venture unless 100% nonprofit $650,000 limit unless all nonprofit pool developments funded

19 LOCAL HOUSING AUTHORITIES POOL Housing Authority must own 100% of GP interest Development must be within HA jurisdiction or HOPE VI development Maximum $650,000 credits per project May not compete in the NP (non-profit) pool

20 Non-elderly preservation properties not feasible for tax-exempt funding. Funded at 15% of Per Capita Credits (approx. $2.2MM) 10% to: Arlington Co Fairfax Co. Alexandria City Fairfax City Falls Church City 5% to anywhere in state Those unsuccessful in competitive pool may apply here NON-COMPETITIVE PRESERVATION POOL

21 20%+ units =/< 50% income EarthCraft or LEED certification or at least 20 amenity points 1/3+ deferred developer fee Local loans/grants >= 20% TDC Scoring threshold requirement NON-COMPETITIVE PRESERVATION POOL

22 NON-COMPETITIVE DISABILITY POOL Provide accessible housing meeting needs of people with disabilities at or below 40% of the AMI and providing rent subsidy Funded at 6% of Per Capita Credits (Approx. $900,000) Submit a brief written proposal to VHDA at any time during the calendar year

23 Agency Perspective Agencies are administering a program that has a public purpose. Agencies are administering a program that has a public purpose. Agencies in position to influence investment of a significant amount of equity in a real estate transaction. Agencies in position to influence investment of a significant amount of equity in a real estate transaction. Tension between this public purpose and this private transaction which subject to market forces. Tension between this public purpose and this private transaction which subject to market forces.

24 Agency Perspective Agencies recognize that real estate development is complicated, with unexpected circumstances and unanticipated consequences. Agencies recognize that real estate development is complicated, with unexpected circumstances and unanticipated consequences. Dialogue between the agency and the developer. Dialogue between the agency and the developer. In most cases a solution can be found that works for everyone. In most cases a solution can be found that works for everyone.

25 Suggestions Know Section 42 Know Section 42 Know the states QAP, application materials, schedules, deadlines. Know the states QAP, application materials, schedules, deadlines. Participate in stakeholder input opportunities. Your chance to influence program priorities. Participate in stakeholder input opportunities. Your chance to influence program priorities. Seek competent, experienced professional services. Seek competent, experienced professional services.

26 QUESTIONS


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