COMBINING SOLAR TAX CREDITS AND LOW-INCOME HOUSING TAX CREDITS

1
COMBINING SOLAR TAX CREDITS AND LOW-INCOME
HOUSING TAX CREDITS

• IPED May 22, 2009
• Jeffrey S. Lesk
• Nixon Peabody LLP

2
Affordable Housing
New Markets
Tax Credits
Historic
Renewable Energy
3
Affordable Housing
New Markets
Tax Credits
Historic
Renewable Energy
4
Affordable Housing
Tax Credits

Renewable Energy
5
(No Transcript)
6
(No Transcript)
7
(No Transcript)
8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
Why Solar for Affordable Housing?

• Escalating energy costs
• Uncontrollable costs
• Unpredictable costs
• Caps on rental income

16
Sizing and SelectingSolar Array

• Consult with Engineer
• Building Footprint/Configuration
• Electrical Demand Load
• Cost (consider tax credits, rebates, net
  metering)
• Who pays utilities?
• Amount of available LIHTCs

17
Designing for Sola r

• Building Footprint/Configuration
• Lot Size
• Land Use Restrictions
• Battery Back-up/Inversion Equipment (design and
  location)
• Integrated Design
• Only part of the energy reduction puzzle

18
How the Solar Credit Works

• SOLAR ENERGY INVESTMENT TAX CREDITS (Section 48
  of IRC)
• INVESTMENT 30 of cost of facility
• All in year placed in service
• Investment in qualifying equipment
• TCs to owner of equipment

19

• Recapture potential 5 years (20 vesting/year)
• Reduced by grants (if dont take into income)
• Reduces depreciable basis by 50 of the credit
  (result depreciate 85 of equipment)
• Depreciate over 5 years (50bonus for 2009)
• Favorable AMT treatment (can be used to reduce
  AMT)

20

• Placed in service by 1/1/17 (or revert to 10)
• Cost Certification by third-party accountant
• Submission to IRS on Forms 3468 and 3800 (General
  Business Credits)
• Can be exchanged for grants for 2009/2010
  projects (commenced or completed)

21
Structures

• DEVELOPER/OWNER OWNS
• Owner gets free energy
• Owner qualifies for tax credits/depreciation/other
  benefits
• Owner syndicates
• Owner maintains/repairs (and gets warranties)

• SOLAR COMPANY OWNS
• Owner purchases cheap energy hedge
• Solar Company qualifies for tax credits/other
  benefits
• Solar company syndicates
• Power purchase agt./possible buy-out

22
COMBINING PTCs and LIHTCs - OWNERSHIP MODEL
9 LIHTC 4 LIHTC
Solar Panel Cost 1,000,000 1,000,000
Solar Credit (30) 300,000 300,000 (NEW no offset for tax-exempt debt)
Housing Credit Basis (reduce by ½ solar credit) 850,000 850,000
Times Credit Percentage .90 x 10 90 3.25 x 10 32.5
Housing Credit 765,000 276,250
Total Credits 1,065,000 576,250
23
Combination of Solar Credits LIHTC 9 Credits
Non-DDA/QCT DDA/QCT
Cost of Solar Installation I,000,000 1,000,000
(Reduced per TE Bond ) 0 - -
Solar Tax Credits (30 x 1,000,000) 30 300,000 300,000
Reduction to LIHTC Basis (50 of Solar Credits) 50 (150,000) (150,000)
Remaining Basis for LIHTC 85 850,000 850,000
If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30 130 850,000 1,105,000
Times LIHTC Credit Rate (times 10 years) 9.00 765,000 994,500
Equity Raised from LIHTC (assume .85/credit) 0.85 650,000 845,325
Equity Raised from Solar Credits (assume .90/credit) 0.90 270,000 270,000
Total Equity Raise due to adding Solar 920,000 1,115,325
Net Cash (Cost) Benefit of Solar Install (80,000) 115,325
Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar
24
Combination of Solar Credits LIHTC 9 Credits
Non-DDA/QCT DDA/QCT
Cost of Solar Installation I,000,000 1,000,000
(Reduced per TE Bond ) 0 - -
Solar Tax Credits (30 x 1,000,000) 30 300,000 300,000
Reduction to LIHTC Basis (50 of Solar Credits) 50 (150,000) (150,000)
Remaining Basis for LIHTC 85 850,000 850,000
If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30 130 850,000 1,105,000
Times LIHTC Credit Rate (times 10 years) 9.00 765,000 994,500
Equity Raised from LIHTC (assume .80/credit) 0.80 612,000 795,600
Equity Raised from Solar Credits (assume .90/credit) 0.90 270,000 270,000
Total Equity Raise due to adding Solar 882,000 1,065,600
Net Cash (Cost) Benefit of Solar Install (118,000) 65,600
Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar
25
Combination of Solar Credits LIHTC 9 Credits
Non-DDA/QCT DDA/QCT
Cost of Solar Installation I,000,000 1,000,000
(Reduced per TE Bond ) 0 - -
Solar Tax Credits (30 x 1,000,000) 30 300,000 300,000
Reduction to LIHTC Basis (50 of Solar Credits) 50 (150,000) (150,000)
Remaining Basis for LIHTC 85 850,000 850,000
If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30 130 850,000 1,105,000
Times LIHTC Credit Rate (times 10 years) 9.00 765,000 994,500
Equity Raised from LIHTC (assume .75/credit) 0.75 573,750 745,875
Equity Raised from Solar Credits (assume .90/credit) 0.90 270,000 270,000
Total Equity Raise due to adding Solar 843,750 1,015,875
Net Cash (Cost) Benefit of Solar Install (156,250) 15,875
Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar
26
Combination of Solar Credits LIHTC 9 Credits
Non-DDA/QCT DDA/QCT
Cost of Solar Installation I,000,000 1,000,000
(Reduced per TE Bond ) 0 - -
Solar Tax Credits (30 x 1,000,000) 30 300,000 300,000
Reduction to LIHTC Basis (50 of Solar Credits) 50 (150,000) (150,000)
Remaining Basis for LIHTC 85 850,000 850,000
If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30 130 850,000 1,105,000
Times LIHTC Credit Rate (times 10 years) 9.00 765,000 994,500
Equity Raised from LIHTC (assume .75/credit) 0.75 573,750 745,875
Equity Raised from Solar Credits (assume .85/credit) 0.85 255,000 255,000
Total Equity Raise due to adding Solar 828,750 1,000,875
Net Cash (Cost) Benefit of Solar Install (171,250) 875
Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar Prices subject to project specifics negotiation Not including any State Rebates, utility incentives, or energy savings no developer fee taken on solar
27
Issues with Combining

• Viewed as double dipping?
• Per-unit cost and subsidy caps in QAPs
• QAPs encourage --- but how much is too much?
• Is it commercial property (excluded from basis)
  sale of energy, RECs?
• Includable in development cost from which
  Development Fee is based?
• Utility allowance issue
• Coordination with other project documents
• Is there a market for the credits?

28
Investor Reaction

• First year boost
• 5-year ACRS/50 for 2009 (not all value)
• Utility savings
• More predictable energy costs
• Low recapture potential
• Qualified selection, installation, maintenance
• Adequate Insurance
• Carriage turns back into a pumpkin 12/31/17
• Green is good

29
But Wait Theres More..
30
(No Transcript)
31
(No Transcript)
32
Nearly every state incorporates some green
incentives into its LIHTC program. Threshold
Requirements. Points Non-Numeric Preference
33
2008 (HERA) ACT - QUALIFIED ALLOCATION PLANS

• QAPs must take into account
• energy efficiency
• historic nature of projects

34
State Green Incentives and Policies

• 43 states have additional green building
  initiatives.
• Net-metering 42 States
• Income tax credits/deductions 16 States
• Special property tax assessments 22 States
• Sales tax exemptions 15 States
• Green grants 16 States
• Favorable loans for green developments 14 States
• Renewable energy production incentives 12
  States
• Green rebates 14 States
• Preference for green building permits 4 States
• Utility rebates (All states have at least one
  participating utility)

35
Local Green Incentives and Policies

• Expedited Permitting
• Property Tax Abatement
• Green grants
• Favorable loans for green developments
• Green rebates
• Preference for green building permits
• Green Building Centers

36
(No Transcript)
37
(No Transcript)
38
Want to learn more?Green Homes and
Sustainable Communities

• The changing landscape for financing, developing,
  and managing green affordable housing
• August 6 7, 2009
• Boston, MA
• www.ipedinc.net

39
Thank you!

• Jeffrey S. Lesk
• jlesk_at_nixonpeabody.com