TAX CREDITS 101
SEPTEMBER 5, 2013
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Tax Credit Team Members
JIM CHANDLER
Director of LIHTC Programs
(804) 343-5786
CARA WALLO
JAYNELL PITTMAN-SHAW
J. D. Bondurant
Hope Rutter
Asst. Director of LIHTC Programs Sr. Tax Credit Allocation Officer
(804) 343-5733
(804) 343-5714
Strategic Planner
(804) 343-5725
Alena Henderson
LIHTC Business Analyst
(804) 343-5908
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Tax Credit Allocation Coordinator
(804) 343-5518
How does the LIHTC
program work?
Established by Congress with the
Tax Reform Act of 1986
Significant Amendments in
1990, 1993, 2002 and 2008
Section 42 of the Internal Revenue Code
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Credit Flowchart
Equity
TC
Syndicator
Developer
Tax Credits
Tax Credits
State Allocating
Agency
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Illustration by Lancaster Pollard
Debt
Lender
Income Levels Served
• 20% of units at 50% of median income
or
• 40% of units at 60% of median income
• More restrictive limits elected during
Application process
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9% vs. 4%
• 9% New construction or Rehabilitation
credits
• 4% Acquisition credits
• 4% Tax-exempt bond credits
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Tax Credit & Equity Calculation
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Equity Calculation
• Pricing based on total credits available, timing of
pay-ins and market conditions
• Equity is paid in several installments based on
negotiated benchmarks (ex: land transfer,
substantial completion of construction,
stabilization, receipt of 8609’s)
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Investors
INCREASED EQUITY FOR
DEVELOPMENT RESULTS
IN:
•Lower Debt
•Lower Rents
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Illustration from Nixon Peabody
TAX BENEFITS:
•Tax Credits (10 yrs)
•Tax Losses (15 yrs)
(Depreciation & Interest
Expense)
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Yield and Credit Price Trends
12%
$1.2
8%
0.81 0.82 0.8
Credit Price (right axis)
0.92 0.94 0.91
0.83 0.86
0.8
0.79
$1.0
0.82
0.88
$0.8
Yield
0.71
6%
4%
$0.6
Yield (left axis)
2%
$0.2
0%
$0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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$0.4
Credit Price
10%
How many credits are allocated
to Virginia each year?
• Per Capita Credits
$2.25 per person*
•
•
•
•
•
•
Previous Allocations:
National Pool:
5 % of 2015 Credits:
Non-competitive pool:
New Construction Pool
Estimated 2014 Credits:
$18,414,992
($6,463,491)
$75,000
$920,750
($ 500,000)
$2,762,249
+ $15,209,500
2013 Population Estimate: 8,184,441
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Credit Pools
• Non-Profit
• Local Housing Authority
• Regional
– New Construction
– N.VA Planning District
8/Inner Washington MSA
– Northwest/North Central
Virginia
– Richmond MSA
– Tidewater MSA
– Balance of State
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• At Large
• Non-Competitive
– Developments
for Persons
with Disabilities
What are the responsibilities of
housing credit agencies?
• Qualified Allocation Plan (QAP)
• Notify local CEO of proposed
development & allow time for comment
• Obtain market study
• Provide a written explanation, when
requested, if an allocation is not made
according to established priorities
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Qualified Allocation Plan
• Sets forth selection criteria to allocate
appropriate to local conditions
• Gives preference to properties
– Serving lowest income households
– Remaining affordable for the longest
periods
– Located in QCT’s (and the development
contributes to a concerted community
revitalization plan)
• Provides procedure for monitoring
compliance
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QAP: Sec 42 Selection Criteria
1. Project location
2. Housing needs characteristics
3. Project characteristics, including existing housing as
part of community revitalization plan
4. Sponsor characteristics
5. Tenant populations with special housing needs
6. Public housing waiting lists
7. Tenant populations of individuals with children
8. Intended for eventual tenant ownership
9. Energy efficiency
10. Historic nature of the project
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QAP: VHDA’s Selection Criteria
1.
2.
3.
4.
5.
6.
7.
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Readiness
Housing Needs Characteristics
Development Characteristics
Tenant Population Characteristics
Sponsor Characteristics
Efficient Use of Resources
Bonus Points
– Rents < 40% AMI
– Rents and Incomes < 50% AMI
– Extended Compliance
– Sale to Nonprofit or Local Housing Authority
– Tenant Ownership Option
Market Studies
• Provide a plethora of information to help us assess
the housing needs and demands of low-income
individuals and communities
• Help us determine if there’s a market for the
proposed project
• Help us understand the impact on existing LIHTC
communities (VHDA owned/financed - lower rents,
competing amenities, etc.)
• VHDA is able to review this data objectively because
of its own market data; to minimize negative impact
on its existing VHDA owned/ financed properties
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Market Study Components
• PROJECT OVERVIEW – address, # units, construction type
• PRIMARY MARKET AREA – where will tenants come from
• ECONOMIC OUTLOOK – employment trends
• DEMOGRAPHICS – population, age of population, household
status, incomes, etc.
• SUPPLY/RENT ANALYSES – existing & pipeline projects that
will compete with the subject
• DEMAND ANALYSIS – absorption, capture rate – is there
sufficient demand for additional units? For the type of
construction proposed?
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Market Studies – VHDA Guidelines
• No study over 12 months old will be accepted
• VHDA at its sole discretion may commission an
additional market study or supplementary market
data
• The market study must be submitted in electronic
format to VHDA directly from the applicant
• Studies deemed inadequate by VHDA will cause the
application, and perhaps the analyst, to be rejected
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Market Studies – Industry Guidelines
National Council of Affordable Housing Market
Analysts (NCAHMA)
• Standard terminology, e.g. primary market area,
market demand, comparable property
• Standard methodology, e.g. absorption rate, capture
rate
• Standard report format
• Membership/Best Practices
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Market Studies
A Requirement Under IRC Section 42
• Before the credit allocation is made
• At the developer's expense
• Completed by a disinterested party
• Analyst approved by the Housing Credit Agency
(VHDA)
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2014 Allocation Cycle
Jul 2013
Aug 2013
Sep 2013
Sep 2013
Oct 2013
Jan 2014
Jan 2014
Mar 2014
May 2014
May 2014
Jun 2014
Jun 2014
Nov 2014
Dec 2014
Dec 2016
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2014 QAP Forum
Release 2014 QAP changes for public comment
2014 QAP Focus Group
*2014 QAP Public Hearing/close public comments
VHDA Bd of Commissioners Approve 2014 QAP
How-to-Apply Workshops (4)
*CEO notification letter info deadline
Application for Reservation deadline
Preliminary Rankings/ begin comment period
Comment & Rebuttal period
Review final rankings with VHDA Board
Announce final rankings
Application for Allocation deadline
Finalize Allocations
Dev. Place in Service, then issue 8609s
Submitting the Application
• Excel workbook having a self-score
component
• Extensive documentation required but is a
by-product of an objective, point based
award system
• Transparent process
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Alignment With VHDA Strategic
Goals and Housing Policy
• Alignment in five areas:
– Green building
– Accessibility
– Homelessness
– Sustainability
– Transit-oriented development
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Alignment With VHDA Strategic
Goals and Housing Policy
Significant incentives for:




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LEED or EarthCraft green building standards
Universal Design Standards
Developments serving homeless populations
Proximity to public transportation
VHDA’s Multifamily Loan
Program and LIHTC Program
• VHDA cannot require a VHDA loan as a condition of
receiving a tax credit award
• We do have a unique opportunity to facilitate
financing
– Relationship established between developer and VHDA
– Minimum Design & Construction Requirements apply to both
VHDA loans and tax credit deals
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Production Summary
– Program Inception to Date (includes 9%
and Tax-Exempt Bonds)
• 907 Developments
• 84,921 Units
– 60% TC deals with VHDA financing
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What sets VHDA apart?
• Open, objective process
• Provide timely assistance
• We listen to stakeholder concerns and incorporate
their input/suggestions into the program
• We provide program learning opportunities
• Manual and application are user friendly
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