Federal Low-Income Federal Low-Income Housing Tax CreditsHousing Tax Credits

October 18, 2007October 18, 2007Presented by Dale WittiePresented by Dale Wittie

Senior Tax Credit Allocation OfficerSenior Tax Credit Allocation Officer

Program OverviewProgram Overview

Federal program – created in 1986Federal program – created in 1986 SECTION 42SECTION 42 of the IRC 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 MillionVA 2007: $1.95 x 7,642,884 = $14.9 Million Ceiling Credits determined annually; adjusted for Ceiling Credits determined annually; adjusted for

inflation annuallyinflation annually

Total Credit AuthorityTotal Credit Authority PER CAPITA CREDITS: $14,903,623

PREVIOUS ALLOCATIONS: ($1,593,036)

NATIONAL POOL: $175,000+

10% OF ‘08 CREDITS: $1,490,362+

RETURNED CREDITS: $0

ESTIMATED 2007 CREDITS: $14,975,949+/-

Tax Exempt BondsTax Exempt Bonds

States are allocated Bond Cap annually $85 x State population 2007 VA - $650,000,000 18% is Governor’s Allocation 41% is Industrial Development 41% is Housing

(27% to VHDA, 14% to LHAs)

$175,000,000

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

QUALIFIED ALLOCATION QUALIFIED ALLOCATION PLANPLAN

To be To be qualifiedqualified, plan must:, plan must: Establish selection criteria used to Establish selection criteria used to

determine housing priorities appropriate to determine housing priorities appropriate to local conditionslocal conditions

Give preference to properties which:Give preference to properties which: Serve the lowest income householdsServe the lowest income households Remain affordable for the longest periodsRemain affordable for the longest periods Are located in a Qualified Census TractAre located in a Qualified Census Tract

Provide a procedure for monitoring Provide a procedure for monitoring compliancecompliance

Sec. 42(m)(1)(C)Sec. 42(m)(1)(C)Certain Selection Criteria Must be UsedCertain Selection Criteria Must be Used

1.1. Project locationProject location2.2. Housing needs characteristicsHousing needs characteristics3.3. Project characteristics, including existing housing as part of Project characteristics, including existing housing as part of

community revitalization plancommunity revitalization plan4.4. Sponsor characteristicsSponsor characteristics5.5. Tenant populations with special housing needsTenant populations with special housing needs6.6. Public housing waiting listsPublic housing waiting lists7.7. Tenant populations of individuals with childrenTenant populations of individuals with children8.8. Intended for eventual tenant ownershipIntended for eventual tenant ownership How states define these items and assign significance to them

varies

Financial FeasibilityFinancial Feasibility

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

Financial FeasibilityFinancial Feasibility

It is a code requirement that the allocating It is a code requirement that the allocating agency make this financial determination at agency make this financial determination at three specific times:three specific times:

At the time of initial application for creditsAt the time of initial application for credits At the time of allocationAt the time of allocation The date the building is placed in service, i.e. The date the building is placed in service, i.e.

at 8609 applicationat 8609 application

Financial FeasibilityFinancial Feasibility

In making this determination we consider:In making this determination we consider: The sources and uses of fundsThe sources and uses of funds The total financing planned for the projectThe total financing planned for the project The proceeds expected to be generated by The proceeds expected to be generated by

reason of the tax creditsreason of the tax credits The percentage of the housing credit dollar The percentage of the housing credit dollar

amount used for the project costsamount used for the project costs

Financial FeasibilityFinancial Feasibility

2 Primary Calculations Being Made:2 Primary Calculations Being Made:

Funding Gap – The difference between total Funding Gap – The difference between total sources and total usessources and total uses

(TDC and total permanent funding)(TDC and total permanent funding)

Maximum Allowable Credit – A function of Maximum Allowable Credit – A function of eligible basis, applicable fraction, applicable eligible basis, applicable fraction, applicable percentagepercentage

Housing PrioritiesHousing Priorities

Program has a public purpose.Program has a public purpose.

Section 42 allows the States significant latitude to:Section 42 allows the States significant latitude to: Define housing priorities in their stateDefine 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.How states choose to do this can vary significantly.

Virginia’s QAPVirginia’s QAP Objective scoring criteria - allocations based on point systemObjective scoring criteria - allocations based on point system In VA we seek a significant amount of feedback from In VA we seek a significant amount of feedback from

stakeholdersstakeholders All records are open to the public. All applicant documents are All records are open to the public. All applicant documents are

available for viewing on our website.available for viewing on our website. Applications are scored and ranked in accordance with the Applications are scored and ranked in accordance with the

QAP.QAP. Publish Preliminary Rankings, then hold Comment and Publish Preliminary Rankings, then hold Comment and

Rebuttal Periods.Rebuttal Periods. Final Rankings. Final Rankings.

2007 POOLS

The pool percentages were:

Northern VA 19.44% $2,911,324Richmond 13.15% $1,969,337Tidewater 20.47% $3,065,578Small MSA 16.31% $2,442,577Rural 8.13% $1,217,545LHA 7.5% $1,123,196NonProfit 15% $2,246,392At Large Pool

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

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.

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

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

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

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 CityFalls Church City

5% to anywhere in state Those unsuccessful in competitive pool may

apply here

NON-COMPETITIVEPRESERVATION POOL

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

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

Agency PerspectiveAgency Perspective

Agencies are administering a program that has Agencies are administering a program that has a public purpose.a public purpose.

Agencies in position to influence investment Agencies in position to influence investment of a significant amount of equity in a real of a significant amount of equity in a real estate transaction.estate transaction.

Tension between this public purpose and this Tension between this public purpose and this private transaction which subject to market private transaction which subject to market forces.forces.

Agency PerspectiveAgency Perspective

Agencies recognize that real estate Agencies recognize that real estate development is complicated, with unexpected development is complicated, with unexpected circumstances and unanticipated circumstances and unanticipated consequences.consequences.

Dialogue between the agency and the Dialogue between the agency and the developer. developer.

In most cases a solution can be found that In most cases a solution can be found that works for everyone.works for everyone.

SuggestionsSuggestions

Know Section 42 Know Section 42 Know the state’s QAP, application materials, Know the state’s QAP, application materials,

schedules, deadlines.schedules, deadlines. Participate in stakeholder input opportunities. Participate in stakeholder input opportunities.

Your chance to influence program priorities.Your chance to influence program priorities. Seek competent, experienced professional Seek competent, experienced professional

services.services.

QUESTIONSQUESTIONS