San Diego Housing Commission Workshop & Discussion: Low-Income Housing Tax Credits June 16, 2017

Transcription

1 Workshop & Discussion: Low-Income Housing Tax Credits June 16, 2017 Deborah N. Ruane Executive Vice President & Chief Strategy Officer Michael Pavco Senior Vice President Real Estate Division

2 Introduction 1) Brief history/overview 2) How do tax credits work? 3) Types of tax credits 4) Who are the participants? 5) What is a tax credit? 6) How is a tax credit calculated? 7) Other sources of financing 8) Examples of tax credit Projects Slide #2

3 1) Brief history/overview of the tax credit program Slide #3

4 History of the Program The tax credit program was created by the IRS in 1986 to fund affordable housing with public-private partnerships. The program provides affordable developers with federal tax credits that are sold to private investors who contribute equity to the project in exchange for the tax benefits. Developers use the equity provided by the investors to acquire, construct and rehabilitate low-income projects. Slide #4

5 Statistics The Low-Income Housing Tax Credit program finances approximately 100,000 affordable homes for low-income households each year. Since it was created in 1986, it has financed nearly 3 million affordable apartments, providing homes to approximately 6.5 million low-income households. According to the National Association of Home Builders, in a typical year, the Low-Income Housing Tax Credit supports nearly 96,000 jobs. Slide #5

6 Residents of Tax Credit-Financed Housing Low-income Families, Seniors, Individuals, and Residents with Special Needs Affordability Limit Maximum 60% of Area Median Income Rents and utilities limited to 30% of household income. Slide #6

7 What Do Tax Credits Finance? New Construction Acquisition/Rehabilitation Developments in Urban, Rural and Suburban Locations Slide #7

8 2) How do tax credits work? Slide #8

9 How Do Tax Credits Work? Each state receives a per capita amount of tax credits annually to allocate to projects. Developers submit applications for proposed developments to the State Agency (California Tax Credit Allocation Committee) for an award of credits. The tax credits are sold (or syndicated) to a corporate investor to offset their federal tax liability. Slide #9

10 Slide #10 SDHC Low-Income Housing Tax Credits How Do Tax Credits Work? (Continued)

11 3) Types of Tax Credits Slide #11

12 Two Types 9% Credits 4% Credits Slide #12

13 9% Credits Competitive allocations issued through an application process from the California Tax Credit Allocation Committee (CTCAC) Two competitive CTCAC rounds each year. Slide #13

14 4% Credits Non-competitive and financed through the sale of tax-exempt bonds Bonds are allocated by the California Debt Limit Allocation Committee (CDLAC) and issued by the San Diego Housing Commission. Slide #14

15 4) Who are the Participants? Slide #15

16 Financing Partners Local Government City of San Diego County of San Diego Civic San Diego State Government California Tax Credit Allocation Committee (TCAC) California Debt Limit Allocation Committee (CDLAC) California Department of Housing and Community Development (HCD) California Housing Finance Agency (CalHFA) Federal Government IRS U.S. Department of Housing and Urban Development (HUD) U.S. Department of Veterans Affairs (VA) U.S. Department of Agriculture Private Lender/Investors Construction lender Permanent lenders Tax Credit Syndicator Tax Credit Investors Slide #16

17 Tax Credit Investors Tax Credit Syndicators National Equity Fund, Boston Capital, Richman, WNC Banks Citibank, US Bank, Wells Fargo, Bank of America Corporations Exxon, Google, Microsoft Insurance companies Nationwide Insurance Slide #17

18 Slide #18 SDHC Low-Income Housing Tax Credits Development Team & Financing Partners

19 5) What is a tax credit? Slide #19

20 Definition A tax credit is a dollar-for-dollar reduction in tax liability. Slide #20

21 Example Gross Taxable Income $1,300,000 Tax Deductions (Depreciation, Interest, etc.) ($300,000) Taxable Income $1,000,000 Tax 35% Tax Rate $350,000 Low-Income Housing Tax Credits (Purchased) ($250,000) Net Tax Liability $100,000 Slide #21

22 6) How are tax credits calculated? Slide #22

23 Determining Tax Credit Basis Eligible Costs (Acquisition, Hard Costs, Design, etc.) X Applicable Fraction (Based on # of Tax Credit Units) X Basis Boost (130% for Qualified Locations) = Tax Credit Qualified Basis Slide #23

24 Determining Tax Credit Basis (Continued) ITEM 4% Credits 9% Credits Total Development Costs $39,809,217 $39,809,217 Eligible Acquisition Basis $16,606,813 $16,606,813 Applicable Credit Rate (Acquisition) X 3.24% X 3.24% Eligible Rehab Basis $20,345,241 $20,345,241 Applicable Credit Rate (Rehab Basis) X 3.24% X 9% Total Annual Credits (Acquisition + Rehab) $1,197,247 $2,369,132 Total 10-Year Credits (Annual Credits x 10) $11,972,465 $23,691,324 Tax Credit Equity Price $1.035 $1.035 Total Investor Equity (10-Year Credits x $1.035) $12,391,497 $24,520,511 Slide #24

25 7) Other sources of financing in a tax credit transaction Slide #25

26 Other Financing Sources Tax-Exempt Bonds (SDHC) Section 8 Rental Assistance (SDHC) Soft Loans/Grants (SDHC) Private Loans/Mortgage Funding for Supportive Services Slide #26

27 Gap Financing Gap financing fills the void between total development cost and the funds the developer can obtain from the primary bank loan and tax credit equity. Slide #27

28 Types of Gap Financing HOME Investment Partnerships Program (HOME) City of San Diego Housing Trust Fund City of San Diego Inclusionary/In-lieu fees (Local) Community Development Block Grant (CDBG) Federal Home Loan Bank Affordable Housing Program (AHP) State Mental Health Services Act Funding (MHSA) Slide #28

29 8) Examples of tax credit projects Slide #29

30 San Diego Square Senior Apartments 154 affordable units and 2 managers units Downtown San Diego Slide #30

31 Knox Glen Townhomes 53 affordable units and 1 manager s unit Lincoln Park Slide #31

32 Casa Colina Del Sol 74 affordable units and 1 manager s unit City Heights Slide #32

33 Studio 15 Apartments 273 affordable units and 2 manager s unit East Village Slide #33

34 Courtyard Terraces 87 affordable units and 1 manager s unit City Heights Slide #34

35 Island Village Apartments 280 affordable units and 1 manager s unit East Village Slide #35

36 Independence Point 31 affordable units and 1 manager s unit Lincoln Park Slide #36

37 Questions & Comments Slide #37