Central Los Angeles Learning Center #1 Availability of Tax Credits For Historic Preservation ABT Presentation Office of the General Counsel/Facilities October 5, 2004

2 INTRODUCTION Can the Ambassador Hotel Project be financed in part with: a.historic tax credits, b.rehabilitation tax credits, and/or c.new market tax credits?

3 How Would Tax Credits Provide Financing? Tax Credits are a dollar for dollar reduction of a taxpayer’s federal tax liability Corporate investors “purchase” tax credits through ownership of projects with tax credits Therefore, to use tax credits as financing, the Ambassador Hotel Project would have to be owned by corporate investors and leased to LAUSD

4 Historic Tax Credits 20% of certified rehabilitation costs of historic building Rehabilitation must be certified by Secretary of Interior as meeting Secretary of Interior’s standards Proposed rehabilitation of Ambassador Hotel Project will not meet Secretary of Interior’s standards

5 Rehabilitation Tax Credits 10% of rehabilitation costs of pre-1936 building Rehabilitation must preserve 50% of external walls as external walls, 75% of external walls as internal or external walls and 75% of internal structural framework Proposed rehabilitation of Ambassador Hotel Project, as whole, will not meet rehabilitation test

6 Limitations on Historic Tax Credits and Rehabilitation Tax Credits No tax credits for properties leased to governmental entities, such as LAUSD, if –Governmental entity previously used more than 35% of property, and/or –Property financed with tax-exempt bond financing provided through governmental entity participation

7 Application of Prior Use to Ambassador Hotel Project LAUSD previously used Ambassador Hotel site Can avoid prior use issue by making new construction greater than 65% of entire Ambassador Hotel Project LAUSD numbers show new construction less than 65% of Ambassador Hotel Project

8 Application of Financing Test to Ambassador Hotel Project Ambassador Hotel Project financed with LAUSD tax-exempt Certificates of Participation (COPs), LAUSD tax-exempt bonds, and state funds Would have to change financing source to eliminate COPs and LAUSD tax-exempt bonds for financing of Ambassador Hotel Project

9 New Market Tax Credits New tax credit program to encourage investment in low- income community businesses Not tied to historic rehabilitation Question whether public schools should qualify for program National competition for credits Credits allocated to community development corporations and “purchased” by investors Many difficult structuring issues

10 Conclusion 1.The Ambassador Hotel Project cannot qualify for historic tax credits or rehabilitation tax credits because of the following: a.The scope of the proposed rehabilitation; b.LAUSD’s prior use of the site; and c.LAUSD’s use of COPs and tax-exempt bond financing. 2.The new market tax credits may be available but would raise a number of difficult structuring issues