1. COMBINING SOLAR TAX CREDITS AND LOW-INCOME HOUSING TAX CREDITS IPED May 22, 2009 Jeffrey S. Lesk Nixon Peabody LLP

2. Affordable HousingNew Markets HistoricRenewable Energy Tax Credits

3. Affordable HousingNew Markets HistoricRenewable Energy Tax Credits

4. Affordable Housing Renewable Energy Tax Credits

15. Why Solar for Affordable Housing? Escalating energy costs Uncontrollable costs Unpredictable costs Caps on rental income

16. Sizing and Selecting Solar 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 Solar 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 (50%bonus 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% LIHTC4% LIHTC Solar Panel Cost$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 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/QCTDDA/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 Reduction to LIHTC Basis (50% of Solar Credits) 50% (150,000) Remaining Basis for LIHTC 85% 850,000 If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30% 130% 850,0001,105,000 Times LIHTC Credit Rate (times 10 years) 9.00% 765,000994,500 Equity Raised from LIHTC (assume.85/credit) * $0.85 650,000845,325 Equity Raised from Solar Credits (assume.90/credit)* $ 0.90 270,000 Total Equity Raise due to adding Solar 920,0001,115,325 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

24. Combination of Solar Credits & LIHTC 9% Credits Non-DDA/QCTDDA/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 Reduction to LIHTC Basis (50% of Solar Credits) 50% (150,000) Remaining Basis for LIHTC 85% 850,000 If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30% 130% 850,0001,105,000 Times LIHTC Credit Rate (times 10 years) 9.00% 765,000994,500 Equity Raised from LIHTC (assume.80/credit) * $0.80 612,000795,600 Equity Raised from Solar Credits (assume.90/credit) * $ 0.90 270,000 Total Equity Raise due to adding Solar 882,0001,065,600 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

25. Combination of Solar Credits & LIHTC 9% Credits Non-DDA/QCTDDA/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 Reduction to LIHTC Basis (50% of Solar Credits) 50% (150,000) Remaining Basis for LIHTC 85% 850,000 If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30% 130% 850,0001,105,000 Times LIHTC Credit Rate (times 10 years) 9.00% 765,000994,500 Equity Raised from LIHTC (assume.75/credit) * $0.75 573,750745,875 Equity Raised from Solar Credits (assume.90/credit)* $ 0.90 270,000 Total Equity Raise due to adding Solar 843,7501,015,875 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

26. Combination of Solar Credits & LIHTC 9% Credits Non-DDA/QCTDDA/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 Reduction to LIHTC Basis (50% of Solar Credits) 50% (150,000) Remaining Basis for LIHTC 85% 850,000 If DDA/QCT /AGENCY DESIGNATED AREA ---Basis Boost, then boost by 30% 130% 850,0001,105,000 Times LIHTC Credit Rate (times 10 years) 9.00% 765,000994,500 Equity Raised from LIHTC (assume.75/credit) * $0.75 573,750745,875 Equity Raised from Solar Credits (assume.85/credit)* $ 0.85 255,000 Total Equity Raise due to adding Solar 828,7501,000,875 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

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…..

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 assessments22 States – Sales tax exemptions 15 States – Green grants 16 States – Favorable loans for green developments14 States – Renewable energy production incentives 12 States – Green rebates 14 States – Preference for green building permits4 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

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. Jeffrey S. Lesk jlesk@nixonpeabody.com Thank you!