The American Taxpayer Relief Act of 2012 passed by Congress yesterday extends several Federal tax credit benefits critical to the development of affordable housing, low-income community development, and renewable energy. The Act authorizes the extension of the Federal New Markets Tax Credit Program for two additional years at $3.5 billion dollars of New Markets Tax Credit authority for each year. The American Taxpayer Relief Act of 2012 also extends the minimum credit rate for the Federal low-income housing tax credit of not less than 9% for non-federally subsidized new buildings for allocations made prior to January 1, 2014, the Wind production tax credit for facilities placed in service before January 1, 2014, and bonus depreciation for an additional year.
Senate to Vote on Hurricane Sandy Bill
Voting 91 to 1, Senate Democrats and Republicans joined to move for a vote this week on the Hurricane Sandy and National Relief Act of 2012. This $60.4 billion Bill would fund recovery efforts in states affected by Hurricane Sandy. If passed by the Senate, the Bill would still need passage by the Republican controlled House. Although the Bill is less than the $82 billion requested by the governors of New York, New Jersey and Connecticut, the Bill would provide much needed funds for affected states to clean up storm damage and undertake long-term projects to protect against the effects of future storms. The Bill would authorize an increase of allocation of Federal low-income housing tax credits, Historic Tax Credits, and New Markets Tax Credits as well as Recovery Zone Bonds in those areas affected by Hurricane Sandy.
Senate Proposes Hurricane Sandy and National Relief Act of 2012
The Senate introduced a summary of the proposed Hurricane Sandy and National Relief Act of 2012. The major provisions of the Act include special allocations of Federal New Markets Tax Credit authority, Federal Low-Income Housing tax credit allocation; and Recovery Zone Bond authority. The proposed Act provides for an allocation of Federal New Markets Tax Credit authority of $500 million a year for three years to be used in federally declared major disaster areas. For the years 2013, 2014, and 2015, the Act permits States affected by Hurricane Sandy to allocate additional amounts of Federal Low-Income Housing tax credits for use in the disaster area of up to $8.00 multiplied by the State’s disaster area population. The Act will also permit affected States to issue tax-exempt Sandy bonds to finance qualified activities including residential rental projects, nonresidential real property and public utility property located in the disaster area.
Duane Morris Forms Hurricane Sandy Sub-Practice Group
In anticipation of the Federal programs which will be enacted to assist in the redevelopment of areas affecting by Hurricane Sandy, Duane Morris has formed the Hurricane Sandy Housing and Community Development Sub-Practice Group. In the aftermath of Hurricane Katrina Congress passed legislation which provided Federal low-income housing tax credit allocation, Federal New Markets Tax Credit Authority and special tax subsidized bond financing designated for effected areas. The Hurricane Sandy Housing and Community Development Sub-Practice Group is an interdisciplinary group including attorneys with the following specialties: Art Momjian, Federal tax credit programs, Harvey Johnson (NJ) and Jon Popin (NY), affordable housing; Bob Archie, Nat Abramowitz, and Bruce Jurist tax exempt bond finance; Marty Monaco (NJ), tax-exempt entities; and Chester Lee (NY) and Chris Winter, real estate and commercial financing. Members of the Hurricane Sandy Housing and Community Development Sub-Practice Group will provide a unique value to clients as a result of their experience with the Katrina programs, and their extensive knowledge and experience with state and local affordable housing and community development programs in New Jersey and New York. Members of the group can assist clients combine state and local programs with the Federal Hurricane Sandy relief legislation.
The Creating American Prosperity through Preservation Act of 2012
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.
Third Circuit Denies Historic Boardwalk Petition for Rehearing
The petition for rehearing filed by taxpayer in the Historic Boardwalk case was reviewed the Third Circuit Court of Appeals judges who participated in the Historic Boardwalk case and the other available circuit judges of the Third Circuit Court of Appeals. The Third Circuit Court of Appeals noting that no judge who concurred in the Historic Boardwalk decision asked for a rehearing, and a majority of the circuit judges of the circuit in regular service did not vote for rehearing, denied the petition for rehearing by the panel and the Third Circuit Court of Appeals en banc. The only appeal left to the taxpayer in the Historic Boardwalk case is to the United States Supreme Court.