LIHTC Gap Financing
Assisted Housing Stability Payments
Green Retrofit Investments
New Markets Tax Credits
Public Housing Capital Fund
Repeal of Alternative Minimum Tax (AMT) Limits on Tax Exempt Bonds Issued in 2009 and 2010
Substantial Rural Funding
LIHTC Exchange
LIHTC Gap Financing
Provision(s):
The act calls for state housing finance agencies to competitively allocate $2.25 billion in HOME Funds for capital investments in low-income housing tax credit projects. Some details are:
• 75% of funds must be committed by housing credit agencies within one year of enactment.
• 75% of funds must be expended by owners within two years of enactment.
• Failure by an owner to expend within the two year time frame will result in redistribution by the credit agency to “a more deserving project” in the state.
• 100% of funds must be expended within three years of enactment
Impact:
These funds should provide a form of gap financing, enabling more development. The “equity gap” is caused by the discrepancy between the anticipated dollar value of the tax credits, and that actually received by the borrower since tax credit prices have fallen significantly. This gap financing will be able to help many projects that have stalled due to lack of equity.
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Assisted Housing Stability Payments
Provision(s):
$2.0 billion to fully fund project-based contracts (Section 202, Section 811, Section 8 and properties). The payments will fund the full contract amount for a 12-month period.
Impact:
Providing funds to these projects on a consistent basis could alleviate developers/owners,’ investors’ and lenders’ concerns about the stability of these payments to the projects. Lack of stable payments increases risk, which translates to higher interest rates on loans.
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Green Retrofit Investments
Provision(s):
$250 million in grants or loans for energy retrofits and green investments in HUD assisted multi-family and public housing (Section 202, Section 811 and Section 8 properties). Projects taking advantage of this financing would be required to commit to a minimum of 15 years additional years of affordability, to be determined by HUD.
Impact:
These grants and loans will help HUD assisted housing become more energy efficient while extending the affordable housing stock. Grants or low cost loans of this type should lower the project’s operating and utility costs. In cases where there is tenant subsidy for utility allowances, there should be a savings in the subsidy and direct savings for the Government. Conspicuously absent from this provision are USDA 515 properties.
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New Markets Tax Credits
Provision(s):
The act allocates $3 billion in New Markets Tax Credit for both the 2008 and 2009 funding rounds ($1.5 billion each year). The new 2008 NMTC’s will be allocated to Community Development Enterprises (CDE’s) or Community Development Financial Institutions (CDFI’s) which submitted allocation applications in 2008, but did not receive an allocation or received an allocation in an amount less than requested. Importantly, this provision permits the 2009 NMTC’s to offset the alternative minimum tax.
Impact:
NMTC’s have been successfully used to develop and/or rehabilitate large areas within a community. These are typically community and commercial projects in low-income neighborhoods and it is possible to use NMTC's with residential LIHTC's. These financings are done on the basis of selling the New Market Tax Credits to generate equity and, in conjunction with loans can make a project feasible. NMTC's have been oversubscribed in past years, so allocating additional credits should be beneficial.
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Public Housing Capital Fund
Provision(s):
$4 billion will be allocated for public housing agencies’ capital and management activities. HUD will allocate $3 billion of this amount under current formulae and $1 billion will be competitively allocated for priority investments, including investments that leverage private sector funding or financing for renovations and investments energy conservation retrofit projects.
Impact:
These funds would allow the public housing agencies to administer additional programs, hire more staff and contract for more studies to encourage development within their program areas. Hence, the funding should act as an enabler for future development and planning efforts.
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Repeal of Alternative Minimum Tax (AMT) Limits on Tax Exempt Bonds Issued in 2009 and 2010
Provision(s):
The Recovery Act stipulates that tax-exempt interest on private activity bonds issued after Dec. 31, 2008 and before Jan. 1, 2011 is not an item of tax preference for purposes of the alternative minimum tax (AMT). Additionally, interest on tax exempt bonds issued after Dec. 31, 2008 and before Jan. 1, 2011 is not included in the corporate adjustment based on current earnings (ACE).
Impact:
This provision could indirectly benefit for-profit affordable housing developers using 4% tax credits by expanding the potential set of investors interested in tax-exempt bonds. If potential investors do not have to be concerned with the AMT limits, they may be willing to accept a lower return on their investment, thereby lowering the rates the developers would pay for their bonds.
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Substantial Rural Funding
Provision(s):
The stimulus provides substantial funding for rural single family housing, facilities and businesses, and utilities and technology. Specifically, it authorizes:
$2.5 billion for broadband programs
$1.38 billion for rural water and waste disposal facilities
$200 million in budget authority for direct and guaranteed single family loans
$150 million in budget authority for rural business grants and loans
$130 million for rural hospitals, health clinics, community and related facilities
Impact:
These funds have the potential to improve the infrastructure, services and businesses of rural communities, providing the impetus for growth.
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LIHTC Exchange
Provision(s):
The act permits states to exchange Low Income Housing Tax Credits (LIHTC’s) for grant funds at a rate of $.85 per dollar of tax credit. States may exchange 40% of 2009 tax credits and 100% of prior year tax credits. The amount of tax credits exchanged by a state will reduce the amount of credit available to allocate.
“Subawards” may be made for construction or acquisition/rehab of qualified low-income buildings, with or without an allocation of tax credits. However, the subawards may only be made to qualified low income buildings without tax credit allocations if the credit agency determines that “such use will increase the total funds available to the state to build and rehabilitate affordable housing.” State credit agencies must impose conditions on the subawards, including a requirement for recapture if the buildings are not in compliance during the compliance period. Any recapture is payable to the Secretary of the Treasury.
All existing state LIHTC program requirements apply to grant recipients, who must demonstrate good faith efforts to obtain investment commitments. The grants will not reduce a project’s eligible basis nor will they be counted as taxable income to recipients. Funding for any awards not made by January 1, 2011 will be returned to the Treasury.
Impact:
The exchange is a method to provide equity for qualified low-income buildings with or without an allocation of housing tax credits in 2009 (it is only available in 2009) and presumes that a dollar of LIHTC’s will fetch less than $.85. Some practical questions regarding implementation will need to be resolved, such as:
• How will states determine “good faith efforts to obtain investment dollars” in order to obtain exchange funds without LIHTC’s?
• Will states fund the exchanges as grants or loans?
• What criteria will be established to fairly award exchange funds?
• How will “gap financing” and “exchange” funds be combined?
• Given the funding deadline of January 1, 2011, how quickly can the states implement this program?
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