Utah Housing Corporation Low-Income Housing Tax Credit Program Presentation By W. Robin Kemker LIHTC Technical Specialist Utah Housing Corporation

The Spectrum of Housing Affordability

Spectrum of Housing Affordability What is Median Income? No IncomeVery High Income Median Income An equal number of families are above and below “Median Income.” “Median Income” does not mean “Average Income.” This number is estimated by HUD for all counties annually. Homeless Estate Housing Programs

Spectrum of Housing Affordability  Income Definitions  No Income ( 0% ) Median Income (100%) 50% AMI 30% AMI 80% AMI Poor Very low-income Low-income Moderate-income

Spectrum of Housing Affordability  UHC Programs  Poor Very low-income Low-income Moderate-income No Income ( 0% ) Median Income (100%) 50% AMI 30% AMI 9% LIHTC and Other 80% AMI 4% LIHTC & Bonds Bonds and Mixed Income LIHTC First-Time Homebuyer 60% AMI Preservation LIHTC & Bonds and Other

Public — Private Partnership United States Treasury Local Community Olene Walker Housing Trust Fund Local HOME and CDBG Financing Local HOME and CDBG Financing Private Lender Construction Lender Investor Developer General Contractor Architect Management Company

Types of Housing Credits Federal Credit Allocated at $1.75 per capita Available through the 9% & 4% Competitive Process. Approximately $40 million in total credits. Federal Credit Allocated to Private Activity Bond projects. This 4% credit comes directly From the Federal Treasury. Non-competitive credit. State of Utah Credit Allocated at $0.125 per capita Available to reduce rents, special needs amenities, feasibility, etc. $2.8 million in total credits.

Initial Credit Period 1986: 15 Year Initial Compliance Period 10 Year Credit Period 1990: Federal Extended Use Period of 15 Years 1996: Utah Extended Use Period of 84 Years / 84 Yr. Extended Use 15 Yr. Compliance 10 Yr. Credits 30

Utah Affordability Period The 9%/4% competitive credit has an affordability requirement of 99 years. The 4% non-competitive credit used with tax-exempt bonds has an affordability requirement of 51 years.

How Do LIHTC Create Affordable Housing? Market Rate Project 25% - 30% Equity Debt 9% Tax Credit Project 45% - 55% Equity Debt Lower debt service  Lower rents

Building Total Cost $1,000,000 Less Land/Soft Costs (200,000) Eligible Basis $ 800,000 Multiplied by LIHTC rate 9% Annual Tax Credits $ 72,000 Total over 10 years 720,000 Purchased by Investor $ 648,000 (90% purchase rate) How are LIHTC Calculated? New Construction

Rehabilitation Acquisition Building Total Cost $1,800,000 $1,200,000 Less Land/Soft Costs (360,000) (160,000) Eligible Basis $1,440,000 $1,040,000 Multiplied by LIHTC rate 8% 3.5% Annual Tax Credits $ 115,000 $ 36,400 Total over 10 years $1,150,000 $ 364,000 Purchased by Investor $ 1,035,000 $ 327,600 (90% purchase rate) Total Credits: $1,362,600 Total Credits in 130% area: $1,771,400 Acquisition & Rehabilitation Project LIHTC Calculation

Underwriting a Project Use Standard Secondary Market Criteria Use Standard Secondary Market Criteria Tighter on DCR 1.15:1 minimum Tighter on DCR 1.15:1 minimum Minimum cash flow per unit: $300/yr. Minimum cash flow per unit: $300/yr. Greater of 7% or market study vacancy. Greater of 7% or market study vacancy. Safe Harbor guidelines for operating expenses, capital replacement reserves, etc. Safe Harbor guidelines for operating expenses, capital replacement reserves, etc. Competition is pushing rents lower. Competition is pushing rents lower. Result: Investor interest is high for Utah projects. Result: Investor interest is high for Utah projects.

Subsidized vs. LIHTC SubsidizedLIHTC Rent SubsidyYesNo Rent  IncomeYesInitially Mixes IncomeNoYes Warehouse PoorYesNo MonitoredYesYes

Do LIHTC Projects Make a Difference? Average Income Served* Contracted Actual Urban$30,550$24,660 Rural$22,704$16,866 * Family of four in competitive 9%/4% projects

LIHTC Unit Production

LIHTC Units by County Statewide: 7.7% of Rental Units

Compliance  All tenants must be income eligible.  Must be pre-qualified before occupancy.  Cannot be a dormitory.  Projects must report annually to the Utah Housing Corporation.  Project must be properly maintained.