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Welcome
• Presenters• Brad Baumann, CLA – New Markets Tax Credits
• Christopher Moss, CLA – Opportunity Zones
• Tim Hess, Invista Analytics – Historic Tax Credits & Tax Increment Financing
• City of Oshkosh – Tax Increment Financing
WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor
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New Markets Tax CreditsBrad Baumann, Principal, CLA
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Real Estate Cost Analysis
Real Estate Cost Analysis
Cost Segregation
(New Buildings)
Commercial Energy
Efficiency Deduction
(179D)
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History of the New Markets Tax Credit Program
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• Created by Congress as part of the Community Renewal Tax Relief Act of 2000
• Codified in Section 45D of the Internal Revenue Code
• Administered by the CDFI Fund (Community Development Financial Institutions Fund)
• Non-Permanent Program
• Most recently extended through 2019 at $3.5B/year
• Bipartisan support for permanent expansion
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Purpose of the New Markets Tax Credit Program
To encourage private investment in low-income communities by incentivizing investors to do so.
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Low-Income Community
- Lower risk- More favorable returns
- Higher risk- New Markets Tax Credit
to incentivize riskThriving Community
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The New Markets Tax Credit Process
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Federal Government (US Treasury)
• 1.) Certifies Community Development Entities (CDEs) for the NMTC program.
2.) Authorizes Annual Credit Authority (Allocation Amount) for NMTCs
CDFI Fund
• 3.) Oversees the NMTC program and provides allocation awards to CDEs
Community Development Entities
• 4.) CDEs determine what projects will be selected for NMTC financing
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Benefits of the NMTC Program
Allows investors to receive 39% Federal income tax credit based on the amount of investment (Loans and Equity) into the project.
• 7 year compliance period
• Investor receives 5% of tax credits in years 1-3 (15%)
• Investor receives 6% of tax credits in years 4-7 (24%)
For Recipient of Financing:
• Significant benefit at the end of the 7-year compliance period in the form of a forgivable loan
• Recipients will also receive below market interest rates on their loan which will reduce debt service obligations.
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Program Definition and Essential Acronyms
CDE must use….
Sub All of the proceeds from….
QEIs to make….
QLICIs in….
QALICBs located in….
LICs.
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???
?
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Breakdown of Definition
Community Development Entities must use…
Substantially All of the proceeds from…
Qualified Equity Investments to make…
Qualified Low-Income Community Investments in…
Qualified Active Low-Income Community Businesses located in..
Low-Income Communities.
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Translation of Acronyms
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• “Community Development Entity”: an entity that is certified by the CDFI Fund as an entity with a primary mission to serve or provide capital to low-income communities or personsCDE
• “Qualified Equity Investment”: an equity investment in a CDE that triggers the availability of the NMTC to the equity investorQEI
• “Qualified Low-Income Community Investment”: an equity investment or loan to a QALICB from a CDE.QLICI
• “Qualified Active Low-Income Community Business”: a corporation, partnership, or LLC that is qualified to receive QLICIsQALICB
• “Low-Income Community”: is a census tract with a poverty rate more than 20% or median family income is less than 80% of the area median income.LIC
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NMTC Structure Example
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CDFICDE
Investment Fund
How would I finance this Project?
InvestorLender
Investment that generates
NMTCs
Loan
Loan Equity
NMTCs
NMTCs
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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor
Qualified Active Low-Income Community Business (QALICB)
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Qualifying as a QALICB(Qualified Active Low-Income Community Business)
• At a minimum, the client’s existing or proposed project must be located in a “Qualified Census Tract” deemed by the CDFI
or
• Is serving a Targeted Population.
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Mixed-Use Real Estate
Office
Retail
Non-Profit
Health Related Facilities
Medical Facilities
Manufacturing/Industrial
Operating Businesses
Hotels
Community Centers
K-12 Schools, Universities, Vocational Training, other educational services
Theatres, Museums, Restaurants, and other entertainment venues
For Sale Housing: Condos and Single Family Homes
Typical Projects (But Not Limited To)
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Businesses Prohibited for QALICBs
x Golf course
x Country club
x Massage parlor
x Hot tub or suntan facility
x Racetrack or other gambling facility
x Any store where the principal purpose is the sale of alcoholic beverages for consumption off premise
x Farming
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QALICB Selling Points
• Creates or maintains quality jobs
• Increases wages
• Assistance to low-income businesses
• Assistance to minority or women-owned businesses
• Increases home ownership
• Provides goods and services
• Increases environmental services
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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor
New Markets Tax Credit Potential Structure and Benefits
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$6MM New Markets Tax Credit Sample Structure
New Markets Tax Credit Investor
Investment Fund
Sub- CDE
“QALICB”Qualified Active Low-Income
Community Business
$1.92MM
Investment
@
$0.82/Credit
Leverage Lender
$4.08MM
Loan
$6MM
Allocation
$4.08MM
Loan A$1.71MM
Loan B
Parent CDE (s)
$210,000
Allocation
Fee
Sources and Uses
SourcesLoan A: $4.08MM
Loan B: $1.71MM
Project Contribution: $650,000
Total: $6.44MM
UsesProject Hard/Soft Costs: $5.885MM
NMTC Closing Fees: $555M
Total: $6.44MM
$2.34MM
Tax Credit
External Funding from Project $650,000
Project Sources $4.08MM
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NMTC Closing Net Benefits AnalysisNMTC Benefit
BenefitAmount
% of Allocation Comments
NMTC Allocation $6MM 100%
NMTC Equity $1.92MM 32%
NMTC Fees NMTC Costs % of Allocation
Allocation Fee $210,000 3.5% Paid at closing
NMTC Legal Fees Fees $140,000 1.89%Legal fees for project, CDEs, Investor and Lender
(if applicable) *QALICB Legal estimated @ $45,000
Accounting/Consulting/Title $100,000 1.89% Paid at closing
CDE Asset Management Fees $210,000 3.5%Asset Mgmt. fee paid over 7 years (Can be
Reserved at closing) – Reserved in this analysis
CDE Tax/Audit Fee $105,000 1.05% Audit/Tax fee for CDEs over 7 years (Can be Reserved at closing)
Benefit $1.155MM 19.25%
Interest Savings (Estimate): $600M
Net Benefit $1.755MM 29.25%
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The NMTC Process for Borrowers
Provide Allocation Request
Report/CDE Application to
CDE
Bank loans (if needed) need to be approved to be paired with
NMTCs
Identify Investor
CDE, Bank, and Investor will provide Term
Sheets
Closing Process (8-12 weeks)
Funding
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CLAconnect.com
Brad Baumann, [email protected]
Direct: 920-232-2214
Thank You
WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor
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Opportunity ZonesChristopher K. Moss, Principal, CLA
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Disclaimers
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen, LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her CliftonLarsonAllen, LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen, LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
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Opportunity Zone Program
Created by the Tax Cuts and Jobs Act of 2017
Formed to generate economic activity and job creation in low-income communities
Encourages investment of unrealized capital gain into these low-income community projects/businesses
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Opportunity Zones
• Deferral of capital gains
• Reduction of deferred gain over time
• Permanent gain exclusion on appreciation of investment
Benefits
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Opportunity Zones
• Capital Gain Deferral Period• Deferred until investment is sold, or Dec. 31, 2026
whichever comes earlier
• If investment is not sold before Dec. 31, 2026 any remaining deferred gain is recognized at that time
Benefits
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Opportunity Zones
• Permanent Reduction of Deferred Gain• Investments held less than 5 years result in 100%
deferred gain recognition
• Investments held > 5 years, < than 7 years result in recognition of 90% of deferred gain
• Investments held > 7 years results in 85% deferred gain recognition
Benefits
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Opportunity Zones
• Permanent exclusion for investments held for at least 10 years
• At sale of investment, election made to step up basis in investment to FMV
• Election results in a permanent exclusion from income of any post-acquisition capital gain
• Results in permanent benefit for depreciation deductions
• Taxpayers can recognize losses by not making the permanent exclusion election
Benefits
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Opportunity Zones – Timing of Investment
• From date asset sold – 180 days to put into a QOZ Fund
• Funds do not need to go to a qualified intermediary
• The date the money is transferred to fund will be the start of the 10 year hold window
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Opportunity Zone Timeline
Year 0 $20MM Gain Invested into Opportunity Zone. $20MM Gain Deferral.
Year 1
Year 2
Year 3
Year 4
10% Step-Up Basis on original $20MM Capital Gains ($2,000,000).Year 5
Year 6
Year 7 Additional 5% Step-Up Basis ($1,000,000). $3,000,000 Step Up Total. $17MM of Original Gain Recognized.
Year 8
Year 9
Year 10 Opp. Zone Fund exits structure with $30MM Buyout. $10MM in Capital Gains recognized and not taxable.
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Opportunity Zone
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Comparison to Non-OZ
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Comparison to §1031
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Opportunity Zones
• Does not have to be like-kind property
• Real or personal property
• Substantially all must be located in an OZ
• No identification of replacement property requirement
• Close on replacement within 180 days of sale
• Only need to invest gain from sale
• Can invest in partnership interests and stock
• Gain recognized – earlier of sale or 12/31/26
• 10% basis step up for 5 year hold, 15% for 7 year hold
• Permanent exclusion on appreciation if held longer than 10 years
§1031
• Must be like-kind property
• Real property, no personal property
• No location requirement
• Replacement property must be identified within 45 days
• Close on replacement within 180 days of sale
• Must invest entire proceeds from sale
• Cannot invest in partnership int. or stock
• Gain rec. – upon sale of replacement prop.
• No step up in basis
• No gain exclusion on appreciation
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Qualified Opportunity Zone (QOZ)
Low-income community population census tract, AND
• Nominated by the chief executive officer of the state
• Number of zones:– Limited to 25% of low-income communities in a state– If state has less than 100 low-income communities can choose 25 QOZ’s
• Contiguous Tracts– Contiguous tracts not in a low-income community may be designated QOZ’s if:
◊ Contiguous with a low-income community designated as a QOZ, and
◊ Median family income of the tract does not exceed 125% of the contiguous low-income community
– Contiguous tracts cannot make up more than 5% of census tracts designated in the state as QOZ’s
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Oshkosh (Region) Opportunity Zones
• https://wedc.org/programs-and-resources/development-opportunity-zone-tax-credit/
Wisconsin Economic Development Corporation (WEDC)
• https://greateroshkosh.com/doing-business/incentive-programs/
Oshkosh City Opportunity Zones website
• https://www.claconnect.com/services/tax/opportunity-zones
• Mapping tool available
CLA Opp. Zone website
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Oshkosh Opportunity Zones
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Qualified Opportunity Zone Fund
• Fund can be any partnership or corporation that holds at least 90% of its assets in QOZ property
• Must follow guidelines outlined by statute and the Treasury
• Requires self certification, no approval required by IRS• Complete a form and submit with Federal income tax return
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Investment Structure – Direct Investment
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Investor(s)Opportunity Zone Fund
Qualified Opportunity
Zone Business (Project)
Deferred Capital Gains Managing
Member (Developer)
Deferred Capital Gains
Acquisition
99% 1%
Qualified Opportunity Zone Business
Property (QOZBP)
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Investment Structure – Indirect Investment
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Investor(s)Opportunity Zone Fund
Special Purpose Entity
Partnership
Deferred Capital Gains
Developer
80% Interest
20% Interest
Project in Opportunity Zone Census
Tract
100% Interest
Qualified Opportunity Zone Business (QOZB)
Qualified Opportunity Zone Business
Property (QOZBP)
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What Can Opportunity Zones Invest In?
• Real Property– Original use must be with fund or must be
substantially improved
– Substantially Improved = At least 100% of adjusted basis in property
• Operating Businesses– Equity investments or stock purchase
• Equipment
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Related Party Issues
• Gains generated from a related party sale are not eligible for opportunity zone benefits
• Property purchased from a related party is an ineligible opportunity zone asset
• The definition of a related party is tied to its definition in §267(b) or §707(b)(1)
– However, must substitute 20% for 50% each place it occurs in each section
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Rev Ruling 2018-29
Eases substantial improvement test
Land can be backed out of calculation
Example:
• Purchase property for $100,000
• Land appraised at $50,000
• Substantial improvement requirement of $50,001
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Issues Addressed with Proposed Regs. (Released Oct. 2018)
• How to qualify for “Substantially All” with land improvements
• Types of taxpayers and gains that qualify
• Partnership gains
• Do you have to hold the investment for 10 years?
• How to certify funds (Form 8996) and capital gain deferral election (Form 8949)
• Sale and reinvestment of Opportunity Fund interest
• What are the benefits of investing through a two-tier structure or a Qualified Opportunity Zone Business?
– “Substantially all”
– 31 Month Working Capital Safe Harbor
• Fund level debt
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Substantially All - QOZBP
At QOZB Level “substantially all” =
70%
Still need clarification on
intangible property
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Types of Gains and Taxpayers
Types of gains allowed
• Capital gains – Short Term and Long Term
• §1231 Gains
• Some issues with §1256 contracts and straddles
• Gain cannot be generated via a related party sale
Types of taxpayers
• Trusts
• Individuals
• Partnerships
• Corporations
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Passthrough Gains
Partnership or S Corp can make election to invest in QOF
• Gain flows out to partners
• Can make election to use same asset sale date as passthrough, or
• Can elect to use last date of taxable year for passthrough
If fail to make election
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10 Year Investment Matters
Clarified the investment does not need to be held 10 years
If investment is sold prior, proceeds can be reinvested into new QOF within 180 days
Undetermined if the 10-year window is restarted
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• Available at the QOZB Level
• Allows for 31 months to deploy cash at QOZB level
• Alleviates some testing requirements on indirect structure
Working Capital Safe Harbor
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• Disposition (Sale/Exchange) of investor’s interest in the Opportunity Fund for post 10-year step-up
• Qualify Greenfield Development as Original Use or Substantial Improvement
• How to calculate/implement Gross Income Test
• How to calculate/implement Intangibles Test
• Debt refinance and distribution restrictions
• Recycling of assets within a QOF/Qualified Opportunity Zone Business
• How are penalties applied
Questions Outstanding (Waiting Further Guidance)
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Disposition of Investment
Regulations didn’t fix the issue that investment must be sold -
not the underlying asset
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This makes multiple asset funds difficult
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Greenfield Development
• Did not clarify what substantial improvement is for ground up construction
• Is $1 enough to qualify as substantial improvement or original use?
• How does asset testing play into this?
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Gross Income Test
Requires that 50% of income be from active trade or business within a zone
Need clarification on qualified income
Need measurement tests
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Debt Refinancing and Distributions
Debt financed distributions are allowed, but care should be taken– Must make sure opportunity zone investors have basis to take distributions
– Distributions cannot be a return of capital
– If return of capital, would trigger a partial disposition of QOF investment
– Can refinance and distribute to the extent of appreciation in property
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Further clarification on these rules is needed.
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Recycling of Assets
If a fund sells assets, the investors in the fund can reinvest into a new QOF.
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Can a QOZB or QOF sell assets and invest into another asset?Does this restart the 10 year hold?
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
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Penalties
• Drafting error on how penalty is calculated
• Right now it is 5% per month for a maximum of 60%
• Makes hitting these testing windows imperative
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Christopher K. Moss Principal [email protected]
Opportunity Zone Contacts
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WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor
Questions?
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Federal Historic Tax Credits
State Historic Tax Credits
▪ 20% Credit Applied to Federal Income Tax
▪ Subject to passive income restrictions
▪ More work to Monetize
▪ 20% Credit Applied to State Income Tax up to $3.5 million
▪ No passive income restrictions
▪ Easier to Monetize
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Works with Ownership TeamDecision Maker of State Registry ListingMakes Recommendation to NPS:▪ National Registry Listing▪ Description of Proposed Work▪ CertificationInterface with WEDC for State Credits
State Historic
Preservation
Office (SHPO)
Decision Maker on:▪ National Registry Listing▪ Description of Proposed Work▪ Certification of Completed Work
National
Park Service
WEDC
Administers State Credit Application / Award
Ownership Team
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That are associated with events that have made a significant contribution to the broad patterns of our history; or
That are associated with the lives of significant persons in our past; or
That embody the distinctive characteristics of a type, period, or method of construction, or that represent the work of a master, or that possess high artistic values, or that represent a significant
and distinguishable entity whose components may lack individual distinction; or
That have yielded or may be likely to yield,
information important in history or prehistory.
Listing Property on National
Registry of Historic Places
B u i l d i n g s h o u l d b e m i n i m u m o f 5 0 y e a r s o l d
Criteria for Evaluation
The quality of significance in American history, architecture, archeology, engineering, and culture is present in districts, sites, buildings, structures, and objects that possess integrity of location, design, setting, materials, workmanship, feeling, and association, and:
https://www.nps.gov/subjects/nationalregister/how-to-list-a-property.htmhttps://www.nps.gov/nr/publications/forms.htmhttps://www.nps.gov/nr/sample_nominations.htm
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A
B
C
D
Application Process
Part 1 Part 2
Evaluation of Significance Description of Rehabilitation
Part 3
Certification of Completed Work
Use to:
▪ Certify building contributes to significance of Historic District
▪ Make preliminary determination that building is likely to be listed on National Historic Register
NOTE
▪ Can skip to Part 2 if building already individually listed on National Historic Register
Use to:
▪ Document existing condition in detail with narrative and photos
▪ Document rehabilitation plan in explicit detail including narrative and architectural plans.
60 Day Review Time
Use to:
▪ Document completed work with photographs and floor plan with photo key.
Complete
Project
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Claim
Credits
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Submit Signed Part 3 with Taxes
Unused credits can carry over to
subsequent years up to 20 years
▪ Includes:
o Any expense in interior / exterior of building
o Developer fees
o Interest and Taxes
o Professional Services
Claim 20% of credit each year for
5 years
▪ Excludes:
o Additions
o Site work / landscaping
o Furniture / Appliances / movable cabinets / tacked carpeting
▪ https://www.irs.gov/pub/irs-mssp/rehab.pdf (186 pg audit guide)
State Credits
▪ 60 – 90 cents on the dollar
▪ Easier to use = Easier to find a buyer
▪ Simple WI-DOR form to transfer credits
Federal Credits
▪ 90 cents on the dollar
▪ Cannot buy/sell credits – Must be issued to title holder
▪ Syndication through limited partnership allowed to bring in investors
o Trade off between legal burden and ease of investor acquisition based on timing
Tax Credit Broker or Large Accounting
Firm can help
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Monetize
Credits
Ownership
Team
Historic Preservation Consultant
Consultants
Architect
Tax Credit BrokerAccountant
Attorney
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Financial Impact
Additional Consultants not inexpensive
Appraisal often less than desired
Preservation to Secretary of Interiors Standards can add substantial expense
An Example Project
Cost to Construct w/o HTC 3,450,000 3,450,000
Building Acquisition 550,000 550,000
Addt’l cost Sec of Int Standards 500,000
HTC Consultants 80,000
% of Eligible costs 75%
HTC Credits Claimed 1,374,000
% Savings after monetization 16.42%
Net cost after monetization 3,343,400 4,000,000
Total Costs 4,580,000 4,000,000
Monetization Proceeds (90%) 1,236,600 0
w/ HTC w/o HTC
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Historic Tax Credit Takeaways
01
70
Many Variables that can substantially impact how to proceed:
▪ Is the building listed on National Register?▪ What is owner’s tax position?▪ Operationalize Tax Credit or Monetize for Financing?▪ What is the intended use?▪ What is Layout of building and amount of Historic Fabric?
02 There are many competent experts to help
03Tough to generalize typical financial impact of HTC program
given how much specifics of individual project plays a role
04 Can combine with other incentive programs
05Benefits
▪ Preserving our History AND▪ Likely have positive financial impact for owner
Tax Increment Financingin Oshkosh
Timothy Hess, PhD
Time
Assessed Value
TIF Created
Baseline Value
Incremental Value
TIF Ends
Post TIF Assessed Value
Leverage Tax Revenue generated from
increment to finance portion of project
How TIF Works
Taxing Entities Revenue remains
fixed over life of TIF
Upon termination of TIF all revenues revert back to taxing entities
TIF Facts
• All states and Washington DC authorize some form of TIF except Arizona
• Between 2015 -2017 WI averaged 71 new TIFs per year
• Recent City of Oshkosh TIFs created
Year TID # Project Type2016 28 Beach Bldg Central City Redevelopment2016 29 Morgan District Central City Redevelopment2016 30 Washington Bldg Central City Redevelopment2017 31 Menominee Nation Arena Central City Redevelopment2017 32 Granary Bldg Central City Redevelopment2017 33 Lamico / Annex Central City Redevelopment2018 34 Oshkosh Corp HQ Industrial – Economic Development2018 35 Oshkosh Ave Corridor Redevelopment
• Statutory obligation to meet ‘but for’ finding in order to create TIF
The ‘But For’ Test
• State statutes require Joint Review Board (JRB) make the “but for” finding in its resolution to approve the creation of the district.
• Name comes from the assertion, "The development would not occur but for the use of TIF.”
• No statutory definition:• Financial Perspective – Internal Rate of Return• Offer from another municipality• A pro-basketball will not select this city• other
“Even if the developer expects a profit, it may not be large enough to compensate for the risk; therefore, the project may not be worthwhile.”
- 2019 WI DOR TIF Manual
https://www.revenue.wi.gov/DOR%20Publications/tif-manual.pdf
Local Authority – Local Priorities
• WI Statutes give broad authority to municipalities to create TIFs to address local priorities.
• Municipalities set TIF objectives, eligible and ineligible development, through policy.• Oshkosh has scoring Matrix for different types of TIF
• WI Statutes declare most costs eligible• Municipalities typically limits eligible costs on a
project-by-project basis.
https://www.ci.oshkosh.wi.us/PlanningServices/Documents/TIFPolicyApplication.pdf
Washington Bldg – 2016 TIF
Approval Process
Meet w/ City Staff
PrepareApplication
Submit Application &
Initial Presentationto Common Council
Ehlers Financial Review
City Prepares TIF Plan
Notice ofPublic
Hearing
Public Hearing&
Plan CommissionVote
Common CouncilVote
Official TIFStart Date
Joint Review Board Vote
Monetizing TIF
• City issues general obligation bond and gives proceeds up front to developer to finance project costs.
• City issues pay-as-you-go municipal revenue note agreeing to pay proceeds of tax increment revenue annually to developer over an agreed amount of time.
• Developer and operationalize proceeds over timeor
• Developer can monetize note through private lender• Better rate if part of overall financing package• Possible to finance just pay-go note
Net Present Value of Pay-Go TIF Note
𝑁𝑃𝑉 ≈ 𝐼 ∙ 𝜌 ∙ 𝜇1 − 1 + 𝑖 − 𝑛−𝑑
𝑖 1 + 𝑖 𝑑
where
I = incremental value
ρ = allocation percentage
µ = average tax rate
i = interest rate
n = number of years
d = delay till first payment
Net Present Value as a Proportion of Increment
Source: www.invista-analytics.com/wp/NPVv4n1.pdf
Net Present Value of Pay-Go TIF Note
Net Present Value of Pay-Go TIF Note
Example 1
$6,000,000 x 0.1524 = $914,400
Over the coarse of 12 years how much total tax revenue is this?
$6,000,000 x 0.025 x 10 x 0.90 = $1,350,000
Purchase price $1Baseline Assessment $0After completion assessment $6,000,000Incremental Value $6,000,000
You and city staff tentatively come to an agreement that they will provide 12 years of pay-go assistance. They are willing to provide 90% of the increment to you keeping the remaining 10% to pay for administrative costs or other public improvements over the life of the TIF. Your bank quotes a 5.5% interest rate on the TIF note. How much money is the note worth up front?
Net Present Value of Pay-Go TIF Note
Example 2
Example from HTC discussion.Purchase price $550,000After completion assessment $3,800,000Incremental Value $3,250,000
You have identified $500,000 worth of public improvements as part of the project that the city has agreed to finance through pay-go TIF. The city’s policy is to provide 90% increment. Further your bank has quoted a 6.5% interest rate. How long does the TIF note need to be to cover the costs of the public improvements?
$500,000 / $3,250,000 = 15.38%
13 Year lookup 15.25% 14 Year lookup 16.18%
Find first value in table greater than 15.38%
Justifying Use of TIF
Example 1 (Continued)
Cost to build $6,000,000Bank to finance 80% LTV $4,800,000Cash $1,200,000
20 yr term at 4.75%Use Year 11 NOI to estimate reversion proceeds. $2,358,000
10 Year IRR = 6.36%
20 yr term at 4.75%Use Year 11 NOI to estimate reversion proceeds. $2,358,000
10 Year IRR = 12.88%
TIF Proceeds = $914,400 Bank Financing = $ 3,885,600
No TIF IRR
Madison Typical Range
Oshkosh Max
w/ TIF IRR
Tax Increment Financing Takeaways:
• TIF can provide substantial financial assistance to those projects that meet the ‘but for’ test.
• The process in Oshkosh is well defined.
• Local elected officials are the primary decision maker.
• Suggestions to improve chances of success include:• Selecting projects that meet city objective• Substantially document everything
• Costs to construct, anticipated revenue, operational costs, any assumptions
• Keep city staff informed CONTACT INFORMATIONEmail: [email protected]: www.intista-analytics.comPhone: (920) 203-2177Address:
240 Algoma Blvd – Suite AOshkosh, WI
TAX INCREMENT FINANCING (TIF)
Questions?
Contact
Greater Oshkosh Economic Development Corporation
www.greateroshkosh.com
(920) 230-3321
City of Oshkosh
www.ci.oshkosh.wi.us
(920) 236-5000
Thank You For Attending!