American Reinvestment & Recovery ActIPED’s Annual Affordable Housing &

Development UpdateJune 4, 2009

Richard S. GoldsteinRonne ThielenDavid Reznick

Low Income Housing Tax Credit Provisions

• Prior to passage, Congress considered a number of alternatives.

• Four principal proposals were included at various stages of the legislation—two passed, the others were dropped.

• Provisions dropped—the “accelerator”—allowing taxpayers to take 200% of the regular Housing Credit amount for 1st 3 years–-and 5 year credit carryback.

• Provisions included are HOME gap financing—now known as the Tax Credit Assistance Program and the “exchange” program—now known as the Section 1602 program.

• HUD administers TCAP—issued guidance on May 4.

• Treasury administers Exchange—also issued guidance on May 4.

TCAP Financing

• Appropriation of $2.25 billion under the heading “HOME INVESTMENT PARTNERSHIPS PROGRAM”.

• Funds being administered under new program—”Tax Credit Assistance Program”.

• Funds made available to State housing credit agencies.

• Apportioned among the States based on 2008 HOME funding formula (including local participating jurisdictions).

TCAP Financing

• HUD has announced apportionment to States—States must apply to HUD for funding—applications due June 3.

• Funds to be distributed competitively AND pursuant to State QAPs to owners with Housing Credit awards.

• States must describe the TCAP selection criteria and any weightings it assigns-- priority must be given to projects which can be completed within 3 years.

• States do not have to amend QAPs.

TCAP Financing

• Housing Credit awards in FISCAL YEARS 2007, 2008 or 2009 are eligible—includes tax-exempt bond deals. Note that “awards” must be given by September 30, 2009.

• States may define “award of LIHTCs”—can be as early as the date of public notice of an LIHTC funding decision.

• Funds must be expended quickly:

--75% must be committed by one year from enactment,

--Owners must expend 75% of funds within 2 years and 100% within 3 years.

TCAP Financing

• Failure of owner to meet deadlines can result in redistribution of funds by housing credit agency to other projects.

• Any funds not expended within 3 years revert to HUD for redistribution to other States.

TCAP Financing

• Funding is subject to Housing Credit rules, including rent, income and use restrictions instead of corresponding HOME requirements.

• All projects subject to Davis Bacon wage rates and limitations on certain facilities, including “swimming pools”.

• Projects also subject to Fair Housing, non-discrimination, Section 504, NEPA, Lead Paint rules, Anti-Lobbying, Drug Free Workplace, other OMB regulations.

• HUD Secretary has broad waiver authority but not labor standards, environment, fair housing and non-discrimination.

TCAP Financing

• Statute states that funds are for “capital investments”.

• Guidance states that “capital investment means costs that are includible in eligible basis”.

• Guidance creates a problem for projects needing funding to take down land or for other costs not includible in eligible basis.

TCAP Financing

• Housing credit agencies responsible for asset management to ensure compliance, at owner’s expense.

• May contract out asset management—potential opportunity.

• Eligible basis not reduced by receipt of award.

• Expectation is that gap financing will generally be made available as soft loans, but guidance permits disbursement as grants.

TCAP Financing

• HUD given access to information on awards and must establish an internet site that identifies all projects selected for funding an a link to State QAPs.

• States must execute TCAP Written Agreements with project owners which set forth all requirements, including cross-cutting Federal requirements.

• Restrictions are enforceable through recordation of regulatory agreements, which cannot be executed until environmental clearance completed.

• Cannot escrow funds.

Exchange Program

• Permits housing credit agencies to exchange a portion of their Housing Credits for cash grants from the Treasury Department that would be provided as grants to project owners.

• Exchangeable credits equal:

--100% of credits returned in 2009 and unallocated credits from 2008, plus

--40% of the State’s 2009 population based credits and any national pool credits awarded in 2009.

Exchange Program

• Grants equal the amount of Housing Credits exchanged times 10 times 85%.

• After exchanging Housing Credits, housing credit agency makes a subaward to finance construction or acquisition/rehabilitation of qualified low-income buildings.

• Eligible and depreciable basis is not reduced by the amount of the “grant” (should say subaward).

• Statute not clear on income recognition, but informal guidance from IRS indicates that funds are not taxable.

Exchange Program

• Subawards may be made with or without an allocation under Section 42, but if subaward made without an allocation, only if the housing credit agency determines that “such use will increase the total funds available to the State” for affordable housing.

• Guidance states that projects must be “qualified low-income buildings under Section 42”.

• Housing credit agency must establish a process in which Housing Credit award recipients “are required to demonstrate good faith efforts to obtain investment commitments for such credits before the agency makes such subawards.”

Exchange Program

• Any subawards made are subject to the same rent, income and use restrictions as apply under Section 42.

• Grant may not exceed amount needed for feasibility.

• States may use subawards either as “gap filler” or in lieu of tax credit equity if none is available.

Exchange Program

• Guidance states that funds must be disbursed as a grant.

• Housing credit agency must perform asset management to ensure compliance with Section 42; agencies may collect reasonable fees from owners.

• Housing credit agencies may contract out asset management duties—another opportunity.

Exchange Program

• Grants not used by 1/1/2011 to make subawards must be returned to Treasury.

• All disbursements must be made by 12/31/2010.

• Subawards returned to the housing credit agency after 1/1/2011 go back to Treasury.

Exchange Program

• State housing agencies must impose restrictions, including a requirement for recapture of funds, to ensure compliance (to be repaid to Treasury).

• Recapture provisions not well understood.

• Restrictions may be enforced by liens or other methods approved by Treasury.

• Subawards must be evidenced by written agreements between State and owner.

Exchange Program

• Only guidance issued thus far is procedural—how to apply for grants. IRS may issue additional guidance—not clear on timing

• Applications can now be submitted and can be submitted through 2010 (but disbursements must be made by end of 2010).

• States must enter into Grant Agreements with Treasury.

• Extensive reporting requirements imposed on States.

Thank you.

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