Accessing Tax Credits and Community Facility Financing

1. Accessing Tax CreditsandCommunity Facility Financing December 6, 2010

2. Overview • Background • Hawaii Community Facility Loan Program • New Market Tax Credits

3. Council for Native Hawaiian Advancement • Certified as a Community Development Financial Institution (CDFI) by the U.S. Treasury Department • Partner with Rural Community Assistance Corporation (RCAC) to administer the Hawaii Community Facility Loan Program • Partner with Alaska Growth Capital (AGC) to utilize New Market Tax Credits for Hawaii Projects

4. What is RCAC? • A nonprofit that serves the 13 Western States and works in communities with populations under 50,000 people. • A Community Development Financial Institution (CDFI) Certified Lender • An approved Lender for all USDA RD guaranteed programs • A lender for community facilities, environmental infrastructure and affordable housing

5. Types of Projects Financed by RCAC • Medical facilities including, medical clinics, ambulance facilities and fire stations • Educational facilities including, child care facilities, after school programs facilities and charter schools • Women’s facilities including, battered women’s shelters and assisted living facilities

6. Community Facility Projects Juneau Family Health and Birth Center, Juneau, AK Colusa Regional Medical Center, Colusa California Newburg Head Start Facility, Newburg, OR

7. Hawaii Community FacilityLoan Program

8. Hawaii Community Facility Loan Program • Eligible Applicants: Nonprofit organizations • Eligible Areas • Rural areas with populations of 50,000 or less in Hawaii • Rural areas with populations of 20,000 or less in Hawaii when a USDA community facility loan product is used as a take-out or guarantee

9. Hawaii Community Facility Loan Program • Eligible Projects: • Community facility projects that • primarily serve low-income populations or • that serve the general population in a community where the median household income does not exceed the statewide median household income ($66,701)* * 2008 HI Median Household Income, U.S. Census Bureau

10. Project Development

11. Feasibility Short-Term Financing (1 Year) Typically used to Plan and Assess Feasibility of a Community Facility Project • Max Amount: $10,000 • Max Term: 12 months • Interest Rate: Set at time of closing • Fees: 1% Loan Fee • Collateral: Unsecured Promissory Note*

12. Predevelopment Short Term Financing Typically used for Architectural, Engineering and Legal Development Max Amount: Based on line item pre- development budget Max Term: 1-3 Years Interest Rate: Set at closing Fees: 1% Loan Fee Collateral: Secured by Project Real- Estate*

13. Acquisition/Construction Short-Term Financing (1-3 Years) Typically used to purchase and renovate, or for new construction of a community facility project Max Amount: $2,000,000 Max Term: 1-3 years (commensurate with construction period) Interest Rate: Set at closing Fees: 1%

14. Long-Term Financing (15-30 years) Typically used for purchase or acquisition of existing facility or to amortize cost of newly constructed or renovated facility Max Amount: $5,000,000 Max Term: 30 years or remaining useful life of security Interest Rate: Set at time of closing Fees: 1% loan Fee plus any USDA guarantee fee charges* Collateral: Project Real-Estate

15. Hawaii Community Facilities Loan Example A Charter School wants to expand its facilities and seeks to build two classrooms. After completing the planning and engineering phase, the school is seeking short-term construction financing followed by a long-term consolidation. Total cost for the project is estimated to be $500,000.

16. Hawaii Community Facilities Loan Example Good Faith Estimate 1. Short Term Loan – typically for renovation and/or new construction Short Term Project Capital $500,000 *Closing Costs (Value $5,000/Inspections $800/Doc Fees $300/Title $2,000) 8,100 Loan Origination Fee (1%) 5,000 *Interest Reserve (to pay interest payments until project completion) 27,500 Total Short Term Loan Amount (balloon payment at maturity) $535,600 Max Monthly Interest Payments *(5.5% for 24 months – paid by reserves) $2,421 Real-Estate Taxes & Insurance *TBD by County Collateral: Secured by Project Real-Estate. Committed Take-Out Source Required * variables – several factors will vary and are used to produce an estimate for discussion and financial modeling

17. Hawaii Community Facilities Loan ExampleGood Faith Estimate 2. Long Term Loan – typically for acquisition or terming out Short Term Loan Long Term Capital Need – Purpose: Pay Off Short Term Loan $535,600 *Closing Costs (Doc Fees $300/Title $1,500/Misc $500) 2,300 *Loan Origination Fee (.5% when a roll over of Short Term Loan) 2,678 *USDA Guarantee Fees (1% of 90% of loan) 4,820 Total Long Term Loan Amount (amortized) $545,398 Monthly Principal & Interest Payments *(7% for 360 months) $3,629 Real-Estate Taxes & Insurance *TBD by County Collateral: Secured by Project Real-Estate. Must meet USDA CF or BI Loan Requirements * variables – several factors will vary and are used to produce an estimate for discussion and financial modeling

18. Hawaii Community Facilities Loan Benefits • Multiple phases of financing to fit needs • Ability to roll over interest payments during construction period • Reduced interest rates to assist rural communities

19. Hawaii Community Facility Loan Application Process Preliminary Application Form • Organizational Chart • List of Board of Directors • Financial Statements (2 years)

20. Hawaii Community Facility LoanApplication Process Preliminary Application Formal Application Review Closing and Approval Review Underwriting

21. New Market Tax Credits

22. New Market Tax Credits • What is the NMTC Program? • Created in 2000 and administered by the U.S. Dept of Treasury • Provides incentive through tax credits for individuals and corporations to make investments in distressed communities • Stimulates economic and community development by attracting investment capital from private sector

23. New Market Tax Credits • CNHA’s Role • In 2009, CNHA partnered with Alaska Growth Capital and received a $50M NMTC allocation • Native Hawaiian NMTC program will be used to deploy capital to communities in Hawaii

24. New Market Tax Credits Eligibility • Eligible low-income communities are census tracts with at least 20% poverty or when the median family income is below 80% of the area median family income. • Eligible areas in the State of Hawaii are as follows:

25. Eligible Areas - Kauai

26. Eligible Areas - Maui

27. Eligible Areas – Big Island

28. Eligible Areas - Molokai

29. Eligible Areas - Oahu

30. Eligible Areas- Honolulu

31. Additional Eligibility Requirements • At least 50% the gross income of the business must be derived in the eligible area • At least 40% of the tangible property must be located in the eligible area • At least 40% of services performed by employees must be done in an eligible area.

32. Examples of Eligible Projects • Charter schools • Community centers • Businesses seeking to acquire/upgrade facilities • Healthcare Facilities • Retail Shopping Centers

33. Ineligible Projects • Residential Rental Property • Single Family Residential Mortgages • Golf Course • Race Track • Gambling Facility • Liquor Stores • Affordable housing ***

34. How Does It Work? Lender NMTC Investor Investment Fund Community Development Entity Qualified Active Low-Income Community Business (QALICB)

35. NMTC Tax Investor • Purchases Tax Credits from ACG/CNHA • Is able to claim aggregate total of 39% tax credits over 7 years. (5% for 3 years, 6% for 4 years) • AGC/CNHA then use funds to invest in project entity

36. Project Entity • Responsible to raise necessary funds through bank loans, grants, venture capital, etc. • Will receive funds from the sale of NMTC credits by AGC/CNHA • Is responsible to make Interest Only payments for 7 years on borrowed funds.

37. AGC/CNHA • Coordinate funds from both the tax investor as well as investors found by project entity • Facilitate transfer of funds to project entity and assist with legal agreements. • Complete all necessary audit reporting to IRS

38. NMTC Example A health clinic has decided to open an urgent care facility. This clinic would provide healthcare for the entire community. The health clinic is estimating that facility costs are approximately $10 million. Through years of fundraising, they have raised $2M and have secured a bank loan for $6M.

39. NMTC ExampleGood Faith Estimate 1. Sources of Capital Based on Total Project Costs$10,000.000   NMTC Investor Source (Sale Rate of *68% Less Transaction Costs) $1,552,000   Owner’s Leveraged Lender $6,448,000   Existing Equity in Project or Other Source $2,000,000  2. NMTC Subsidy to Project Owner $1,552,000 The NMTC investor source amount becomes a subsidy at the 7 year maturity 3. Cost of Funds Over 7 Year Project Term$2,215,440   Loan A (Owner’s Lender): *4% interest over 7 years $1,805,440  Loan B (NMTC Subsidy): *$30,000annual cost over 7 years $210,000  QEI Closing Costs $200,000 This section assumes that Loan A represents an interest only loan obtained by the Owner  4. Cost of Funds Net of Subsidy$663,440   Total Interest & Costs Over 7 Years $2,215,440  Less Subsidy -$1,552,000 Note: Cost of Funds Expressed as an Annualized Interest Rate 1.5%

40. NMTC ExampleGood Faith Estimate 5. Estimated Interest Only Monthly Payments First 7 Years$23,994 Loan A (Owner’s Lender): monthly payment $21,494  Loan B (NMTC Subsidy): monthly payment $2,500 This section assumes the Owner has obtained conventional financing at the rate indicated in section 4 6. Estimated Pay Off & Term Loan at 7 Year Maturity  Loan A Estimated Pay Off Amount at End of 7 Years $6,448,000 Estimated Monthly P & I on a *(7% Interest Rate at 25yrs)$45,573 This section assumes the project is real-estate based with conventional real-estate financing * variables – several factors will vary and are used to produce an estimate for discussion and financial modeling

41. NMTC Project Benefits • Tax investment is forgiven after the 7 year period and becomes equity. • Interest Only payments for 7 years allows the business to establish itself before principal payments begin

42. NMTC Project Benefits • Business can seek competitive interest rates on long-term or consolidation financing due to project equity • Continue to seek fundraising opportunities through grants and government programs.

43. Is NMTC Right for this Project? • Is the total project cost over $5,000,000? • Is the business in an eligible census tract? • Has the project raised approximately 70% of the projected capital?

44. Contact Information Jon Arbles, Associate TiLeaf Group jarbles@tileafgroup.com 808-937-2053 Lilia Kapuniai Council for Native Hawaiian Advancement lilia@hawaiiancouncil.org 808-596-8155 Cyndy Elliott RCAC loan officer 209-576-0430 RCAC Corporate Office - West Sacramento, CA 916-447-9832