Began with Tax Reform Act of 1986; tax credits are now the primary vehicle for low-income rental housing construction and rehabilitation in the U.S. Federal tax incentive to encourage the production of low-income housing (Section 42 of the Internal Revenue Code) Dollar for dollar reduction in federal tax liability for ten years Through partnerships, investors receive tax credits in return for equity investments WSHFCWSHFCWSHFCWSHFC What is the Low-Income Housing Tax Credit?

WSHFCWSHFCWSHFCWSHFC New Life Villa I – Mabton

WSHFCWSHFCWSHFCWSHFC New Century Village – Everett

Text WSHFCWSHFCWSHFCWSHFC 1811 Eastlake - Seattle

WSHFCWSHFCWSHFCWSHFC Why the Tax Credit Program Works Investors realize return on equity investment Creates affordable housing Supports housing industry professionals Spurs economic development

Credits provide a dollar for dollar reduction in federal tax liability Investors give $$’s to a development in exchange for tax credits The credits are allocated over a 10 year period to investors in the development WSHFCWSHFCWSHFCWSHFC How are the Credits Turned Into Equity for the Project?

How Do Tax Credits Work? WSHFCWSHFCWSHFCWSHFC

Tax Credits Limited Partnership/ LLC General Partner/Managing Member/Developer Limited Partner/Member Equity $$ for Project Tax Credits & Other Real Estate Benefits Credit to Equity WSHFC

Amount of credit is based on the Type of project Development costs % qualified low-income units Nature and amount of financing WSHFCWSHFCWSHFCWSHFC Calculating the Credit

WSHFCWSHFCWSHFCWSHFC Two Credit Allocation Processes Competitive Credit 9% credit – new construction 4% / 9% acquisition/rehab 130 points minimum One round annually Tax-Exempt Bond Credit 4% credit only 50% test 50 points minimum Open application

WSHFCWSHFCWSHFCWSHFC Why 4% Tax Credits? Federal Subsidies: A project is federally subsidized if it is financed with tax-exempt bonds or a federal loan with an interest rate below market Acquisition Federal Subsidies

WSHFCWSHFCWSHFCWSHFC Two Credit Calculations Qualified Basis Equity Gap Credit amount is based on the lesser of these two calculations

WSHFCWSHFCWSHFCWSHFC Calculating the Credit The project’s Qualified Basis = Eligible Basis X Applicable Fraction The project’s Equity Gap = Total Project Costs – Sources of Funds ( other than the equity from the credit)

WSHFCWSHFCWSHFCWSHFC With a.92 Tax Credit Factor, $520,000 in credit = $4,784,000 in equity to build project

WSHFCWSHFCWSHFCWSHFC Roles and Responsibilities

WSHFCWSHFCWSHFCWSHFC

IRS requires that preference be given to projects serving the lowest income tenants for the longest period of time Projects are ranked based on an objective point system Points are awarded in 20 categories which reflect housing and policy priorities statewide Commission considers staff recommendations and makes final decision WSHFCWSHFCWSHFCWSHFC Project Selection

Additional Low-Income Housing Set-Aside (the “lowest”) % of units beyond the income limits required by the IRS Code Worth a maximum 50 points

WSHFCWSHFCWSHFCWSHFC Sample Allocation Criteria (cont’d) Additional Low-Income Housing Use Period (the “longest”) Add up to 22 years to the minimum 15 year requirement 2 points for every year = up to 44 points 100% of our competitive applications select the maximum totaling 40 years

WSHFCWSHFCWSHFCWSHFC Sample Allocation Criteria (cont’d) Special Needs Housing Set-Asides For:  Farmworkers pts.  Large Households 5-10 pts.  Persons who are Elderly 10 pts.  Persons with Disabilities 5-10 pts.  Housing for the Homeless 5-20 pts.

WSHFCWSHFCWSHFCWSHFC

WSHFCWSHFCWSHFCWSHFC Outcomes

WSHFCWSHFCWSHFCWSHFC WSHFC Tax Credit Program Accomplishments Approximately 37,000 low-income units were completed from 1987 through 2007 In 2007, awarded over $12.4 million in competitive 9% tax credits to 26 projects, which will result in approximately 1,160 low-income housing units In 2006, awarded over $13 million in 4% tax credits to 23 bond-financed projects, which will result in over 3,300 low-income housing units

Competitive (9%) Low-Income Tax Credit Units WSHFCWSHFCWSHFCWSHFC Allocated 1987 through 2007

WSHFCWSHFCWSHFCWSHFC Bond –Financed LIHTC Units

WSHFCWSHFCWSHFCWSHFC Pantages Apartments – Seattle

WSHFCWSHFCWSHFCWSHFC Nooksack Tribe Nooksack Homes I - Everson

WSHFCWSHFCWSHFCWSHFC The Borning Building – Spokane

WSHFCWSHFCWSHFCWSHFC

WSHFCWSHFCWSHFCWSHFC Rose Hill at Talus - Issaquah

Development Process Pre-Development Year One Year Two Year Three Beyond Placed-In-Service WSHFCWSHFCWSHFCWSHFC