The Creating American Prosperity through Preservation Act of 2012 is a proposed bill which would expand the rehabilitation tax credit. The Act would increase the Historic Tax Credit from 20 percent to 30 percent of qualified rehabilitation expenditures for smaller projects that cost less than $7.5 million. The Act would also provide additional tax credits for including energy efficiencies in redevelopment projects and would allow for any state historic tax proceeds to be exempt from federal tax. Energy-efficiency is promoted by increasing the amount of the credit by 2 percentage points for every project that increases the building’s energy efficiency by 30 percent. And while historically the historic tax credit’s tax exempt leasing rules make it difficult for nonprofits to access the historic tax credit, the Act would permit nonprofits greater access to the rehabilitation credit.
A New Look at the 4% Federal Low-Income Housing Tax Credit
During the past several years as a result of reduced federal and state subsidies, the 4% Federal low-income housing tax credit has been an infrequently used Federal subsidy. However, with the competitiveness and unclear future of the Federal New Markets Tax Credit Program and the conservative underwriting of conventional debt, the 4% Federal low-income housing tax credit may have a new role for a wide range of projects. The advantages of the 4% Federal low-income housing tax credit are that it is virtually automatically available for residential rental projects with at least 20% of the units set aside for low to moderate income tenants and whose project costs are at least 50% financed with volume cap tax-exempt bonds. Accordingly market rate projects with a desire or requirement to set aside affordable units can both access tax-exempt financing and generate additional equity through the use of the 4% Federal low-income housing tax credit. In addition, the amount of the tax credit is only limited by eligible costs and may be increased if the project is located in a qualified census tract or difficult to develop area. Further in certain instances a percentage of the cost basis of community service facilities may be included in eligible basis and generate additional equity. In any apartment or mixed use development consideration should be given to the potential equity to be generated by the 4% Federal low-income housing tax credit.
Legislation Introduced in Pennsylvania to Support SREC Market
Legislation has been introduced in the Pennsylvania State Senate to help the State’s declining solar renewable energy credit (“SREC”) market. Pennsylvania’s SREC market has been in decline as a result of oversupply. To increase the demand for SRECs Senate Solar Bill (SB 1350) proposes to: (1) increase Pennsylvania’s alternate energy portfolio standard solar carve out requirements starting with compliance years 2015 to 2015: (2) change the alternate compliance payment to $285 per SREC starting with compliance years 2013 to 2015; and (3) allow for solar thermal facilities to qualify. While previous versions of the Senate Bill included language to close the market to out of state systems such language was not included in the current version of the Bill. If passed this Bill would spur Pennsylvania’s declining SREC market.
IRS Provides Relief for LIHTC Projects Affected by Hurricane Sandy
The Internal Revenue Service has issued Notice 2012-68 in which it suspends certain requirements under § 42 of the Internal Revenue Code for low-income housing credit projects to provide emergency housing relief needed as a result of the devastation caused by Hurricane Sandy. The Services has provided that low-income housing outside the disaster area may be made available for any displaced household, regardless of income, on a temporary basis. Owners of low-income housing tax credit project must obtain approval from the applicable Housing Agency for the relief described in Notice 2012-69. The applicable Housing Agency will determine the appropriate period of temporary housing for each project, not to extend beyond November 30, 2013.
New Financing Models for Energy Retrofits
The energy retrofit of a building is the analysis and implementation of energy efficiency measures such as energy efficient equipment, air sealing, moisture management, controlled ventilation, insulation, and solar control so that dramatic energy savings are achieved alongside optimal building performance. One of the greatest barriers to improving energy efficiency in buildings is the high capital cost of projects. However, new financing techniques for energy retrofits have developed which include anchor tenant financing, shared saving agreements, capital leases, power purchase agreements, property assessed clean energy bonds, green leases, and on bill financing. These innovative financing methods now make it easier to complete retrofits which result in cost savings as well as an increase in the value of the property.