Pub. 8 2020 Issue 1

www.uba.org 14 O n Jan. 29, 2020, members of the Emerging Bank Leaders community had the opportu- nity to get together at the bankers' meet-up at Blue Lemon Café in Salt Lake City. Bankers from all different banks enjoyed having lunch together while having a lively discussion about 2020 being an election year, and how it will be inter- esting to be part of the dialogue on public policy in the finance industry. Banker meet-ups are great ways to network and meet others in the banking industry. If you have not had the opportunity to attend, we encourage you to visit the Emerging Bank Leaders community online and find out when the next meet-up will take place. We look forward to seeing you all there! n I n Utah, there are 276,710 renter house- holds. Of these renter households, 117,590 have a household income of less than 50% of the state area median income and are considered very low-in- come households. A single income-earner would earn less than $11 per hour at a full- time job. More than half of those house- holds pay over 50% of their income for housing expenses (e.g., rent and utilities), straining their ability to afford food, cloth- ing, transportation and other basic needs. These families, veterans, and seniors are considered extremely cost-burdened. Multifamily rental projects that take ad- vantage of the Low-Income Housing Tax Credit (LIHTC) help in creating affordable homes for these households. LIHTC is the primary production pro- gram for affordable housing across the country. In Utah, the program produces over 2,000 units each year. Utah is one of the few states that has a state housing cred- it, which runs in parallel with the federal credit. The state housing credit program contributes in a significant way to the an- nual production of affordable rental units. The equity of the sale of state tax credits can be used to reduce rents to levels as low as 30% of area median income (AMI) or can be used to fill financing gaps. In addition to helping Utah families acquire affordable housing, the state tax credit program is a great way for investors to offset state tax liability. The ownership structures of housing credit projects typically involve several layers. Investors in the federal housing credit assume a majority ownership interest in the limited liability company that owns the project. The managing member of the company is generally the housing developer and owns only 0.01% of the company. State housing credit investors must carry a small ownership of the LIHTC project, and this is achieved by having a fractional interest in the 0.01% stake. State housing credit investors also do not have to do any of the heavy lifting of underwriting and asset management because they enter into the partnership with a highly experienced seasoned investor who has purchased the federal credits. LIHTC projects are a high-per- formance asset class and are regarded as sound investments. Utah Housing Cor- poration regularly performs compliance audits on all developments to further protect the owners and investors. State tax credits provide a 10-year tax benefit to the investor. One dollar of state tax liability can be offset with a tax credit purchased at a deeply discounted rate. Credits are sold in allocations ranging from $15,000 per year for 10 years to siz- able allocations of $300,000 per year for 10 years. The discount achieved on the purchase of the credit results in a signifi- cant yield to the investor. Along with the economic benefits, this will also help investors meet their requirements under the Community Reinvestment Act (CRA) by meeting the needs of low- and moderate-income neighborhoods. Banks can receive favorable CRA consideration for community development activities, including those related to state tax credits. Utah Housing Corporation (UHC), the state’s leader in financing affordable housing, is a public corporation created by Utah legislation in 1975. Working with the private sector, Utah Housing provides mortgages for first-time homebuyers, finances rental properties and develops special needs housing. Receiving no ap- propriations from the State, Utah Housing Corporation has raised more than $16 billion in the capital markets for more than 97,000 home purchases and financed the debt and equity of 29,000 apartments since 1977. Utahns can visit Utah Housing’s website at www.utahhousingcorp.org for more information about Utah Housing Corporation’s impact on affordable hous- ing in their communities. n If you have an appetite for learn- ing more about state tax credits, please contact Claudia O’Grady at cogrady@uthc.org Author: Claudia O’Grady, VP of multifamily finance BANKER MEET-UP STATE TAX CREDITS AND INVESTORS By Claudia O’Grady