The American Recovery & Reinvestment Act of 2009 signed by President Obama on February 17, 2009</li></ul>13<br />
HERA of 2008<br /><ul><li>Temporary provisions:
Increase in-state LIHTC allocation authority by 10% = .20 (per capita) for 2008 and 2009
Additional $11 billion nationally of Tax-Exempt Housing Bonds in 2008 (additional 38.6% for each state)
Temporarily fix at 9% the credit rate for new construction and substantial rehabilitation costs</li></ul>14<br />
2009 OHFA Allocation<br /> 3,642,361 Population of Oklahoma per IRS for 2009 LIHTC<br />x 2.30Times two dollars and thirty cents per capita<br /> $8,377,430 Total 2009 Credits available per capita<br />+$305,2312008 unused credit ceiling from 8610 carryovers to 2009<br /> $8,682,661 Tax Credits available to award in 2009 <br />-$4,206,112 Amount of 1st cycle 2009 awards<br />+1,678,057 Amount of 2009 Credits returned by TCAP Applicants<br />-$4,000Amount of tax credits awarded for ARRA applicants<br /> $6,150,606 Amount of Tax Credits Available to award 2nd cycle 2009<br />15<br />
HERA of 2008 (continued)<br /><ul><li>Permanent provisions:
HUD Moderate Rehabilitation projects are no longer prohibited from participation in the LIHTC program. Effective for buildings placed into service after July 30, 2008.
The 10-year hold provision for acquisition credits is no longer applicable to federally or state assisted buildings. HUD Section 8, 221(d)3, 221(d)4, 236 and RD section 515 properties and similarly assisted properties under various state programs.
Allowable Related Party interest in subsequent ownership is increased to 50% from 10%.</li></ul>16<br />
HERA of 2008 (continued)<br /><ul><li>Permanent provisions (continued):
30% basis boost previously allowed for properties located in qualified census tracts or difficult to develop areas is allowed for any project that needs additional credits to be financially feasible as determined by the state housing finance agencies. Apples to projects placed in service after July 30, 2008. Does not apply to Tax Exempt bond financed properties.
The definition of federal subsidy no longer includes “or any below market federal loan” allowing HOME, RD and section 515 projects to utilize the 9% credit for new construction or substantial rehabilitation costs. Tax Exempt bond financed projects are still limited to the 4% tax credit.
Federal Grants received after construction no longer reduce tax credit basis – relief for IRP financed deals and other properties receiving federal operating subsidies.
Allowable eligible basis for community service facilities increased to 25% of total cost up to $15M; plus 10% of total cost in excess of $15M.</li></ul>17<br />
HERA of 2008 (continued)<br /><ul><li>Permanent provisions (continued):
Minimum threshold to qualify for substantial rehabilitation is increased to $6,000 per unit or 20% of acquisition basis from $3,000 or 10%. Indexed for inflation going forward.
LIHTC bond posting requirement is eliminated provided investor agrees to extend statute of limitations to three years after IRS notification.
Extends the time period to satisfy the 10% cost incurred test necessary for carryover to 1 year from 6 months.
Tenant re-certifications no longer required for 100% LIHTC properties.</li></ul>18<br />
Example<br /><ul><li>Change in Maximum Credits due to 9% and Basis Boost:</li></ul> Adjusted Eligible Basis 10,000,000 10,000,000<br /> X 130% Basis Boost 100% 130%<br /> X Applicable Percentage 7.94% 9.00%<br /> = Total Annual Credits 794,000 1,170,000<br /> X 10 Years (Total Credits) 7,940,000 11,700,000<br />47.35% Increase<br />Obviously, HERA put substantially more resources on the table to attract other non-financial investors back into the LIHTC market.<br />19<br />
ARRA of 2009<br /><ul><li>Not withstanding the tremendous resources included in the HERA legislation to boost the LIHTC industry, many 2007 and most 2008 allocated properties had not closed due to the frozen LIHTC market. In response to this, ARRA included provisions to “jump start” stalled projects.
Section 1602: Grants to States for Low-Income Housing Projects in Lieu of Low-Income Housing Credits
State HFA’s have the ability to exchange eligible LIHTC allocations with Treasury for $0.85 per dollar of credit allocation exchanged. The proceeds from the exchange are to be used by the HFA to provide funds to projects with or without an allocation of LIHTC in the form of grants or forgivable loans.</li></ul>20<br />
ARRA of 2009 (continued)<br /><ul><li>The amount of LIHTC an HFA may exchange for $0.85 is equal to the following:
100% of the state housing credit ceiling for 2009 attributable to unused and returned credits from the 2008 housing credit ceiling plus any amount of state housing credit ceiling returned in 2009. (This provisions applies to 2007 and 2008 allocations).
40% of the state housing credit ceiling for 2009 attributable to the 2009 ceiling including any amounts reallocated from other states with unallocated credits. Amounts exchanged under this provision serve to reduce the state’s 2009 credit ceiling.</li></ul>21<br />
ARRA of 2009 (continued)<br /><ul><li>Grants or loans received by the project from exchange funds are not includable in taxable income and do not reduce basis. Treat as tax exempt interest income.
Funds received cannot exceed 85% of the amount Recipients of exchange funds must demonstrate a good faith effort to obtain private equity commitments. Good faith effort is determined by each state HFA.
of buildings eligible basis including any increase for buildings located in high cost areas. Direct tracing is not required.
Funds received under this program must be expended by December 31, 2011 – originally this date was December 31, 2010</li></ul>22<br />
Carry Back of Credits<br /><ul><li>Can be carried back 1 year
What other program can you do something for society and have society give you something in return</li></ul>26<br />
CRA Bank Benefits for Banks<br /><ul><li>Shortage- Allows for CRA credit regardless of project locations as long as it is within the fund’s trade territory (i.e. a Tulsa bank can receive credit for a project in Oklahoma City)*
Regulators do vary on the scope of inclusion. Please check with your Regulator for their interpretation.
See OCC report dated 2/08– further adopted by FDIC and Federal Reserves
By purchasing tax credits in a MHEG fund banks can potentially fulfill the Investment portion of the CRA exam, typically the most difficult portion for most banks to meet, as well as opportunities to meet the lending and service tests.
All documentation that the Examiners require is provided by MHEG.</li></ul>27<br />
Fund vs. Direct vs. Proprietary Funds<br /><ul><li>Funds
Operating Expense Comparison and Analysis to MHEG’s extensive database </li></ul>30<br />
Points to Consider<br />MHEG does not want the capital you need for normal operations. <br /><ul><li>The dollars you are considering placing with MHEG are actually dollars you owe to the IRS as a result of your successful operations.
You receive no monetary return with your payment to the IRS.
You will receive an above market return and a CRA Investment Credit, if applicable, when you purchase tax credits with MHEG.
Your participation benefits the community and you receive a monetary return without jeopardizing your normal business capital.</li></ul>31<br />
What to Expect in the Future<br /><ul><li> At the end of the 15-year tax credit compliance period, our goal is to exit the partnership in a manner that allows the property to continue to comply with the states extended compliance period.
The general partner or managing member in most cases has a right of first refusal to purchase our interest for an amount stipulated in the IRS code.
Since the project still has restricted rents, it will not be able to refinance much additional debt. Our exit usually does not generate significant cash or create a tax event. Therefore, we do not include any residual value in our analysis of return to investors.</li></ul>(note: this narrative is greatly oversimplified, but does represent the results of a typical exit)<br />32<br />
Tax Credit Syndicator - MHEG<br /><ul><li>Non-profit organization established in 1993 at the request of Governor Ben Nelson - rural areas underserved
Mission: Change lives for a better tomorrow by promoting the development and sustainability of quality affordable housing
Service area today includes Nebraska, Kansas, Iowa and Oklahoma</li></ul>33<br />
MHEG Profile<br /><ul><li>Our developments range from 6 to over 200 units and include:
specialty needs developments: elderly, assisted living, transitional homeless facilities, and developmentally disabled residents</li></ul> Number of Developments: 245 Number of Counties Represented: 105<br /> Number of Housing Units: 6,708 Number of Cities Represented: 128<br /> Equity raised: $570 million<br />Current as of 12/15/09<br />34<br />