Tax Credit Basics

1. Tax Credit Basics Nebraska Investment Finance Authority

2. Source of Funds • Funds originated from the Internal Revenue Code, Section 42. • Tax Reform Act of 1986 • The amount of tax credits issued to each state is based on $1.80 per capita per year. • Amount to Allocate in 2005: $3,130,724 • Generally over-subscribed: 3:1

3. Types of Credits and Unit Requirements • To qualify: 20% of Units at 50% AMI or 40% of Units at 60% AMI • Types of Credits: • Annual “9% cycle” for construction (new/rehab) • First Round Applications Due: 10/1/04 • Second Round Applications Due: 2/14/05 • CRANE Applications: Accepted monthly • 4% credits with Tax Exempt Bonds: Applications accepted monthly. AMI = Area Median Income

4. Ownership Structure Tax Credit Apartments, Limited Partnership Tax Credits General Partner (Developer) 1% Limited Partner (Tax Credit Investor) 99% Equity

5. Ownership Structure • The Limited Partner (L.P.) owns 99% or more and receives 99% or more of the credits. • The L.P. pays the General Partner (Applicant/Developer) generally between $.75 and $.85 per credit.

6. Commitment to Affordability • Only get credits for the low income units (qualified basis). • Retain affordability period for 15 year compliance period plus a 15 year extended use period. Income and rent restrictions. • NIFA offers points for longer affordability periods.

7. Syndication Rate and Gap • The current syndication rate (value of the credits) is from $.75 to $.85 per $1 of credit. • Capital from an award of credits. • Annual credit amount X 10 year credit period X syndication rate. • Cash from sale of credits fills the gap between the permanent loan and the total development cost.

8. 2005 Set-Asides 2005 Per Capita Allocation: $3,130,724 At least 10% to Qualified Non-profits 50% Rural – 50% Urban (MSAs) $1 million for CRANE projects

9. Qualified Allocation Plan and Rules • The QAP governs the annual distribution of tax credits • Points are awarded for specific items • Applicants must meet threshold requirements. • QAP and Application can be downloaded from NIFA website: www.nifa.org

10. Threshold Requirements • Development Costs Determined • Preliminary Plans and Specifications • Site Control (valid for 90 days). • Zoning Approved (or conditional use permit) • Utilities are available and adequate. • List of Board of Directors • State and/or Local Subsidies

11. Threshold Requirements • Syndicator Interest Letter (valid for 6 months). • Construction/Permanent Financing (valid for 6 mos.) • 15 Year Operating Proforma • Site Specific Market Study • Pre-notification to the Mayor • Capital Needs Assessment (for Rehab Only)

12. Underwriting • Site information • Construction design • Estimated development costs • Financing structure • Organization Structure (capacity at G.P level?) • Market Study • Financial Feasibility

13. Calculations of Tax Credits and Equity Total Development Cost $3,000,000 Less: Non-eligible (i.e. land-soft cost) (200,000) Eligible Basis $2,800,000 Applicable fraction X 100% Qualified Basis $2,800,000 Tax Credit Applicable Percentage X 9% Annual Tax Credit 252,000 Tax Credit Period X 10 yrs. $2,520,000 Equity at $.80 per Credit X .80 $2,016,000 Total Development Cost $3,000,000 Less: Equity $2,016,000 Required Debt $ 984,000

14. Low-Income Housing Tax Credits Affordable Housing Trust Fund Federal Home Loan Bank HOME funds USDA – Rural Development funding CDBG TIF funds Historic Tax Credits Tax Exempt Bond Financing Developer Note Grants In today’s market the average development must has a least two or three sources of funding.

15. Other Important Dates • Conditional Reservation: • Follow-up information due within 60 days of Board approval. • Carry-over Application • Due November 1 for projects receiving allocations prior to June 30. Projects receiving allocations after June 30 have 5 months from the date of conditional reservation. • Cost Certification Application • Due 60 days from PIS. • Annual Compliance Reports • Due by January 15th following the PIS date, and each year thereafter.

16. LIHTC Fees • Application Fee: Greater of 1% of annual credit request or $500. • Reservation/Carry-over Fee: 2% of annual credit request. • Allocation Fee: Due at Cost Certification: 2% of annual credit actually allocated. • Annual Compliance Fee: 2% of annual credit actually allocated.

17. Maximums • NIFA does not prescribe maximum per unit costs. • NIFA allows no more than $450,000 per development. Developers no more than 34% of total allocation. • Developer Fees and Contractor Profit/Overhead combined can be no more than 20% of eligible basis.

18. Compliance Monitoring • Annual Owner Certification of Continuing Compliance Report required. • File review and inspection required no later than the end of the 2nd year following PIS. • On-site reviews and inspections required at least every three years thereafter.

19. Contact for Allocation Questions • Michael D. Fallesen Manager of LIHTC and IDB Programs 1230 “O” Street, Suite 200 Lincoln, NE 68508 Phone: 402-434-3919 Fax: 402-434-3921 Email: mike.fallesen@nifa.org

20. Contacts for Compliance

21. NIFA Website http://www.nifa.org