1. Presentation to NORA 2016 Annual Summit Creative Financing Strategies
Clueless (No More):
Presentation to NORA 2016 Annual Summit Creative Financing Strategies
Cheryl Vinall Denney
McAfee & Taft, Practice Group Leader
(405)

2. The content of this presentation has been prepared by McAfee & Taft for information purposes only and should not be relied upon as legal advice.  Specific legal action should be taken only after consulting a qualified attorney.

3. Overview: General Tax Incentives
Federal Tax Incentives:
New Markets Tax Credit
Federal Historic Rehabilitation Tax Credit
State & Local Tax Incentives
Tax Increment Financing (TIF)
Quality Jobs Program & Progeny
State Historic Rehabilitation Tax Credit

4. Overview of NMTC Program
Created in 2002
Administered by Community Development Financial Institutions Fund (CDFI Fund)
Low-Income Housing Tax Credits (LIHTCs) incentivize taxpayers to invest in affordable housing
NMTCs incentivizes taxpayers to invest in businesses located in “Low-Income Communities”

5. Taxpayer must make equity investment or loan through a “Community Development Entity” (CDE) that has received an allocation of New Markets Tax Credits from the federal government
Current Oklahoma CDEs that have received allocations (present or past):
New Markets Redevelopment / Chuck Wiggin
Rural Enterprises of Oklahoma, Inc.
Chickasaw Nation
MetaMarkets
Cherokee Nation

6. Community Development Entity
Investor
$$$
Community Development Entity
(CDE)
Operating Company

7. Investor Leverage Lender Investment Fund Comm Dev Entity (CDE)
$$$
Investment Fund
Comm Dev Entity
(CDE)
Operating
Company

8. Calculation of Benefit to Project
(Allocation Amount * Tax Credit Percentage) * Tax Credit Equity Percentage
($10,000,000 * 39%) * 86% = $3,354,000
Less CDE fees and Transaction Costs means “net benefit” is usually 20-24% of allocation amount
Potential tax impacts at unwind

9. “Low-Income Communities” in Northeast Oklahoma

10. Overview of Federal Historic Rehab Credit
Incentivizes taxpayers to rehabilitate historical properties
Two Types of Credit
20% Credit -- Properties must either be (A) listed on the National Register or (B) part of a neighborhood that is listed on the National Register and contribute to history of such neighborhood
10% Credit – Properties just have to be constructed prior to 1936

11. Overview of Federal Historic Rehab Credit (cont’d)
Credit accrues to owner of property but can be passed-thru to lessee under certain circumstances
Must own property for five years following “placed in service” date
Rehabilitation governed by National Park System and administered by State Historical Preservation Office
Tax credit governed by IRS – part of Tax Code
Historic Boardwalk Hall case and status of industry

12. Investor
Property
Owner
Master Tenant Entity
Tenants
Historical
Bldg

13. Calculation of Benefit to Project
(Amount of “Qualified Rehab Expenditures” * Tax Credit Percentage) * Tax Credit Equity Percentage
($10,000,000 * 20%) * 90% = $1,800,000
Plus “piggy-back” state tax credit (see below)
Less Return to Investor and Transaction Costs

14. Overview: General Tax Incentives
Federal Tax Incentives:
New Markets Tax Credit
Federal Historic Rehabilitation Tax Credit
State & Local Tax Incentives
Tax Increment Financing (TIF)
Quality Jobs Program & Progeny
State Historic Rehabilitation Tax Credit

15. Tax Increment Financing (TIFs)
State statute allows local governments to capture incremental taxes within a specified area and dedicate such funds to a specific use
Incremental tax can be ad valorem (real and personal) and/or sales taxes
Specific uses include, among other things:
infrastructure improvements required for a specific project
“assistance in development financing” – e.g., low-interest loans to private developers for project costs

16. Tax Increment Financing (cont’d)
Public process requiring local government support
Local government passes resolution creating TIF Review Committee
TIF Review Committee prepares Project Plan
usually with input from developer
TIF Review Committee meetings are subject to Open Meetings Act and at least two meetings require public notice
TIF Review Committee makes recommendation to local government
Local government takes action on TIF Review Committee’s recommendation

17. Original Quality Jobs Program
Provides cash rebate to employer up to 5% of new payroll for up to 10 years
Up to 6% in certain instances (e.g., if at least 10% of new payroll are qualified military veterans)
General Criteria:
Qualifying industry (NAIC)
Pay lower of average county wage or state threshold wage
Achieve $2.5M new annual payroll within 3 years
Offer basic health insurance to employees with employee not paying more than 50% of the premium
State benefit limit

18. Small Employer Quality Jobs Program
Provides cash rebates for qualifying small businesses up to a 5% of new payroll for up to 7 years
Criteria
90 employees or less at time of application and average of 90 employees or less over the past four (4) quarters at the time of application
Pay 110% of the average county wage
Have 75% out-of-state sales
Offer basic health insurance to employees with employee not paying more than 50% of the premium
State Benefit Limit

19. Overview of State Historic Rehab Credit
Piggy-backs on Federal Historic Rehab Credit and matches credit amount (20% / 10%)
Freely transferable
Required filings with Oklahoma Tax Commission
Potential income tax on sale price reduces overall benefit