American Reinvestment

1
American Reinvestment Recovery ActIPEDs
Annual Affordable Housing Development
UpdateJune 4, 2009

• Richard S. GoldsteinRonne Thielen
• David Reznick

2
Low Income Housing Tax Credit Provisions

• Prior to passage, Congress considered a number of
  alternatives.
• Four principal proposals were included at various
  stages of the legislationtwo passed, the others
  were dropped.
• Provisions droppedthe acceleratorallowing
  taxpayers to take 200 of the regular Housing
  Credit amount for 1st 3 years-and 5 year credit
  carryback.
• Provisions included are HOME gap financingnow
  known as the Tax Credit Assistance Program and
  the exchange programnow known as the Section
  1602 program.
• HUD administers TCAPissued guidance on May 4.
• Treasury administers Exchangealso issued
  guidance on May 4.

3
TCAP Financing

• Appropriation of 2.25 billion under the heading
  HOME INVESTMENT PARTNERSHIPS PROGRAM.
• Funds being administered under new programTax
  Credit Assistance Program.
• Funds made available to State housing credit
  agencies.
• Apportioned among the States based on 2008 HOME
  funding formula (including local participating
  jurisdictions).

4
TCAP Financing

• HUD has announced apportionment to StatesStates
  must apply to HUD for fundingapplications due
  June 3.
• Funds to be distributed competitively AND
  pursuant to State QAPs to owners with Housing
  Credit awards.
• States must describe the TCAP selection criteria
  and any weightings it assigns-- priority must be
  given to projects which can be completed within 3
  years.
• States do not have to amend QAPs.

5
TCAP Financing

• Housing Credit awards in FISCAL YEARS 2007, 2008
  or 2009 are eligibleincludes tax-exempt bond
  deals. Note that awards must be given by
  September 30, 2009.
• States may define award of LIHTCscan be as
  early as the date of public notice of an LIHTC
  funding decision.
• Funds must be expended quickly
• --75 must be committed by one year from
  enactment,
• --Owners must expend 75 of funds within 2 years
  and 100 within 3 years.

6
TCAP Financing

• Failure of owner to meet deadlines can result in
  redistribution of funds by housing credit agency
  to other projects.
• Any funds not expended within 3 years revert to
  HUD for redistribution to other States.

7
TCAP Financing

• Funding is subject to Housing Credit rules,
  including rent, income and use restrictions
  instead of corresponding HOME requirements.
• All projects subject to Davis Bacon wage rates
  and limitations on certain facilities, including
  swimming pools.
• Projects also subject to Fair Housing,
  non-discrimination, Section 504, NEPA, Lead Paint
  rules, Anti-Lobbying, Drug Free Workplace, other
  OMB regulations.
• HUD Secretary has broad waiver authority but not
  labor standards, environment, fair housing and
  non-discrimination.

8
TCAP Financing

• Statute states that funds are for capital
  investments.
• Guidance states that capital investment means
  costs that are includible in eligible basis.
• Guidance creates a problem for projects needing
  funding to take down land or for other costs not
  includible in eligible basis.

9
TCAP Financing

• Housing credit agencies responsible for asset
  management to ensure compliance, at owners
  expense.
• May contract out asset managementpotential
  opportunity.
• Eligible basis not reduced by receipt of award.
• Expectation is that gap financing will generally
  be made available as soft loans, but guidance
  permits disbursement as grants.

10
TCAP Financing

• HUD given access to information on awards and
  must establish an internet site that identifies
  all projects selected for funding an a link to
  State QAPs.
• States must execute TCAP Written Agreements with
  project owners which set forth all requirements,
  including cross-cutting Federal requirements.
• Restrictions are enforceable through recordation
  of regulatory agreements, which cannot be
  executed until environmental clearance completed.
• Cannot escrow funds.

11
Exchange Program

• Permits housing credit agencies to exchange a
  portion of their Housing Credits for cash grants
  from the Treasury Department that would be
  provided as grants to project owners.
• Exchangeable credits equal
• --100 of credits returned in 2009 and
  unallocated credits from 2008, plus
• --40 of the States 2009 population based
  credits and any national pool credits awarded in
  2009.

12
Exchange Program

• Grants equal the amount of Housing Credits
  exchanged times 10 times 85.
• After exchanging Housing Credits, housing credit
  agency makes a subaward to finance construction
  or acquisition/rehabilitation of qualified
  low-income buildings.
• Eligible and depreciable basis is not reduced by
  the amount of the grant (should say subaward).
• Statute not clear on income recognition, but
  informal guidance from IRS indicates that funds
  are not taxable.

13
Exchange Program

• Subawards may be made with or without an
  allocation under Section 42, but if subaward made
  without an allocation, only if the housing credit
  agency determines that such use will increase
  the total funds available to the State for
  affordable housing.
• Guidance states that projects must be qualified
  low-income buildings under Section 42.
• Housing credit agency must establish a process in
  which Housing Credit award recipients are
  required to demonstrate good faith efforts to
  obtain investment commitments for such credits
  before the agency makes such subawards.

14
Exchange Program

• Any subawards made are subject to the same rent,
  income and use restrictions as apply under
  Section 42.
• Grant may not exceed amount needed for
  feasibility.
• States may use subawards either as gap filler
  or in lieu of tax credit equity if none is
  available.

15
Exchange Program

• Guidance states that funds must be disbursed as a
  grant.
• Housing credit agency must perform asset
  management to ensure compliance with Section 42
  agencies may collect reasonable fees from owners.
• Housing credit agencies may contract out asset
  management dutiesanother opportunity.

16
Exchange Program

• Grants not used by 1/1/2011 to make subawards
  must be returned to Treasury.
• All disbursements must be made by 12/31/2010.
• Subawards returned to the housing credit agency
  after 1/1/2011 go back to Treasury.

17
Exchange Program

• State housing agencies must impose restrictions,
  including a requirement for recapture of funds,
  to ensure compliance (to be repaid to Treasury).
• Recapture provisions not well understood.
• Restrictions may be enforced by liens or other
  methods approved by Treasury.
• Subawards must be evidenced by written agreements
  between State and owner.

18
Exchange Program

• Only guidance issued thus far is proceduralhow
  to apply for grants. IRS may issue additional
  guidancenot clear on timing
• Applications can now be submitted and can be
  submitted through 2010 (but disbursements must be
  made by end of 2010).
• States must enter into Grant Agreements with
  Treasury.
• Extensive reporting requirements imposed on
  States.

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Thank you.
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