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Enhancing Private Activity Bonds for Housing

Aug 9, 2024

Annual Presentation on Private Activity Bond Caps Enhancement

Introduction

  • Speakers: Wayne McCleary (Housing Development Specialist), Shannon Friedel (Tax Credit Officer, CHFA), Karen Harkin (Community Relations Manager, CHFA), Fred Marin Thal (Attorney, COO Tech Rock)
  • Wayne McCleary had a family emergency; Shannon Friedel covered his portion.
  • Allison O'Kelly from the State Division of Housing available for questions.

Private Activity Bonds (PABs)

  • Definition: Tax-exempt bonds issued for privately developed projects, not money or cash.
  • Differences: Unlike municipal bonds issued for public purposes.
  • IRS Cap: Limits the amount of PABs available to a state.

Structure of a Typical Deal

  • Investors: Buy the bonds.
  • Underwriters: Use bond proceeds to make a loan to the project.
  • Project: Pays back the loan; no obligation for the city or county to repay.
  • Investors: Are repaid with interest.

Low-Income Housing Tax Credits (LIHTC)

  • 4% Tax Credit: Required for rental developments; valuable resource for affordable housing.
  • Annual Allocation: Colorado receives volume cap based on population multiplied by $105 per person.
  • Distribution: 50% to statewide authorities (CHFA, AG Development Authority), 50% to local governments.

Allocation and Management of PABs

  • Deadlines: Local issuers must act by September 15th.
    • Issue and close on an eligible project by December 23rd.
    • Carry forward bond cap for another eligible purpose within three years.
    • Assign it to another issuer.
  • Post-September 15th Allocation: Reallocated among CHFA, local issuers, and the state.

Assembling Required Bond Cap for Projects

  • Identify Issuer: Where the project is built.
  • Check Availability: Current year cap, any carry-forward cap, and speak with CHFA.
  • Limitations: Cap limited to 55% of the aggregate basis to efficiently deploy resources.

State Deadlines and Application Process

  • State Allocation: By January 15th, relinquished bond cap by September 15th.
  • Application Period: March through November, $750 fee, eight-week process.
  • Requirements: All allocated cap must be used, projects need to close by December 23rd.

Criteria for Statewide Balance Application

  • Local Need and Support: Inducement resolution from the local issuer.
  • Local Financial Subsidies: Projects should show demand and be viable.
  • Affordability: Deeper affordability preferred.
  • Readiness and Viability: Site control, zoning, planning, and financial soundness.
  • Development Team Experience: Experienced developers with capacity.

CHFA's Role and Processes

  • Focus: Private activity bonds for multifamily rental housing.
  • CHFA Background: Quasi-governmental agency, created in 1973 for affordable housing.
  • Programs: 4% non-competitive and state competitive projects.
  • Annual Issuance: Increased demand for PABs since 2015.

Challenges and Strategies

  • Challenges: Limited availability of PABs, technical expertise required, high transaction costs.
  • Strategies: Recycling PABs, managing cap effectively, hosting annual issuer luncheons.

Single-Family Housing

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  • Eligible Uses: Mortgage loans for first-time homebuyers, mortgage credit certificates, energy improvements.
  • Restrictions: First-time homebuyer or qualified veterans, income and purchase price limits, recapture tax.
  • MCC Programs: Active in Denver and El Paso County, provides tax credit against federal tax liability.

Industrial Development Bonds (IDBs)

  • Uses: Acquiring land/buildings, construction/renovation, machinery/equipment, limited use for existing buildings.
  • Eligibility: Manufacturing projects, value-added agriculture.
  • Limits: $10 million per company, $20 million with taxable bonds, $40 million aggregate limit.
  • Challenges: Expensive, complex, compliance requirements.

Legal Perspective (Fred Marin Thal)

  • Tax-Exempt Bond Market: Large market, $300-$350 billion annually.
  • Interest Rates: Historically low rates, favorable for tax-exempt bonds.
  • Requirements for Multifamily Projects: Compliance with tax code, public hearing (TeFRA), inducement resolution.
  • Ongoing Compliance: 95% of proceeds to project, 2% for issuance costs, 3% for non-qualifying costs.
  • Senior Housing: Eligible if units are complete living units.

Closing Remarks

  • Contact Information: Available for further questions or clarifications.
  • Evaluation: Online evaluation to be sent to participants.

Note: This is a high-level summary of the key points discussed during the presentation. Please refer to specific sections for detailed information.

Full transcript