Housing Association of Nonprofit Developers

1

• Housing Association of Nonprofit Developers
• www.handhousing.org
• Tax Credit Update
• 9/24/2009
• Erik T. Hoffman
• Partner, Klein Hornig LLP
• Washington DC

2
Presentation Overview

• Outline
• TCAP Funds Impact on Your Deal
• Exchange Funds Impact on Your Deal
• Update on the QAPs for DC, MD, VA
• Federal Lobbying EffortsRound Two for Exchange
  Credits

3
The American Recovery and Reinvestment Act of
2009 TCAP

• Tax Credit Assistance Program (TCAP)
• 2,250,000,000 available to State Housing Credit
  Agencies
• MD 31,701,696 allocated in June for 2008
  awardees
• DC 11,644,346 10/15/09 competition focus
  2007/2008 deals
• VA 44,247,749 allocated in May 2009 funding
  round
• 9 Projects or Bond/4 projects awarded thru
  9/30/09
• Bond financing preliminary/nonbinding approval
• Federal Deadlines (versus State Deadlines)
• Commit 75 by 2/16/2010
• Spend 75 by 2/16/2011
• Spend 100 by 2/16/2012

4
The American Recovery and Reinvestment Act of
2009 TCAP

• HUD Guidance for TCAP
• March 9 Deadline for HUD Guidance
• Arrived May 3rd, Revised June 27
• Section 42 provisions will apply to rent, income
  and use restrictions
• Cross-cutting Requirements
• NEPA and Enviro ReviewNew Guidance
• Davis Bacon Wages (no allocating to less than 12
  units)
• Section 504
• Lead-based Paint
• Fair Housing, Civil Rights, Non-discrimination
• NO Uniform Relocation Act (waived by HUD)

5
The American Recovery and Reinvestment Act of
2009 TCAP

• TCAP Funds and Impact on Your Project
• Eligible Uses Tracing Requirement
• Eligible Basis Costs, Land Acq., On-site Demo,
  HazMat
• NOT for Reserves, Perm. Loan Fes, Commercial, Tax
  Credit Fees, Swimming Pools, other non-basis fees
  (legal)
• Negotiate in GC Contracts for Requisitions
• Impacts of large TCAP Loans on Capital Accounts
• Nominal LIHTC Required
• If no investor, significant structuring/securities
  law issues
• Partnership Agreement Potential Adjusters and
  New Guaranties
• Issues for 501c3 Entities and Private Inurement
  Restrictions
• Practical Issues

6
The American Recovery and Reinvestment Act of
2009 Exchange Funds

• Exchange Funds 1602 of ARRA
• Summary Grants provided to credit agencies
  for financing construction or acquisition and
  rehabilitation of LIHTC buildings, with or
  without an allocation of tax credits.
• Grant amount available 10 x 85 x LIHTC Amount
  Elected by State
• 40 of States 2009 LIHTC allocation
• 40 of States 2009 share of the National Pool
• 100 of unused 2008 housing credit carried
  forward to 2009, and
• 100 previously allocated credit returned to
  state in 2009
• DC 33 million (40 of the 2009, 3.9 million)
• MD 44//80 million (40 of the 2009, 5.6
  million, 4.2 of 08)
• VA 61 million (40 of the 2009, about 7.2
  million)

7
The American Recovery and Reinvestment Act of
2009 Exchange Funds

• Treasury Guidance for Exchange Credits
• Eligible Uses to finance construction and
  acquisition of qualified low-income buildings
• Original Guidance restricted to permitted uses in
  Section 42 (i.e., not for land)
• Recently reversed (9/21) and may pay for costs
  to the same extent as equity raised from LIHTC
  (deleted example re land)
• Treasury Guidance restricts Exchange to 85 of
  Eligible Basis (Need additional financing)
• Grant or Forgivable Loan and Taxable Income
• Federal Issuesintent clear, Guidance needed for
  tax opinions
• State Issuesokay if tract Federal exemptions
• Basis Issues
• Not reduced per ARRA, but do you get depreciable
  basis?

8
The American Recovery and Reinvestment Act of
2009 Exchange Funds

• Applicant must demonstrate a good faith effort to
  obtain investment commitments for such credits.
• Demonstrating a good faith effort for DC DHCD,
  MDCDA, VHDA
• Other Section 42 Requirements
• 10 Test with basis in owner by 1 year from the
  date of the allocation (presumably remains
  cliff issue)
• Expended by 12/31/2010 unless satisfy new 30
  Test for extension to 12/31/2011 to Use Funds
• Placed In Service by End of 2nd CY after subaward
• Recapture (issue for Investors in deals with
  Exchange funds)
• Cure before RecaptureState Agency can set time
  and milestones
• Payment due within reasonable period if fail to
  cure (i.e., 90 days)
• Amountfull recapture less 1/15th per year burn
  off
• Trigger for 1602 Recapturegreater of Set Aside
  or lesser of 1602 or Extended use Applicable
  Fraction

9
State QAP Updates

• DC DHCD
• 2009 Awards in Underwriting Stage (3-4x Credits
  Available)
• November 9 Deadline for Final Applications and
  Underwriting
• October 15th TCAP
• Aggressive Timetable for 2010 Closings
• MDCDA
• Full pipeline of 2007/2008 Deals with TCAP and
  2009 Deals (preallocated majority of 2010
  credits)
• Delayed 2009 Fall Round to February 2010
• VHDA
• 2009 Awards in Process with Mix of Exchange and
  TCAP
• 2010 Round Changes and Anticipated Credits

10
Federal Legislative Efforts

• ACTION Consensus Proposal (at Novogradac
  website)
• Supported by Group of 50 (actually 74)
• Extend Exchange Program into 2010
• Allow Exchange of 4 Credits for Tax Exempt Bond
  Financing
• Broaden Investor Base
• 5-year Carryback 2008-2010 Taxes if Reinvest in
  Affordable Housing
• Extend AMT Relief in HERA for the Carryback
• Continue 5-year Carryback for Future Deals
• Broaden Appeal to non-C Corps with changes to
  Passive Loss Rules
• Impacts on your Letter of Intent or Partnership
  Agreement