Novogradac Report on Tax Credits Transcript: May 11, 2010

Transcription

1 Total Word Count: 2843 (Intro music) Novogradac Report on Tax Credits Hello! I m Michael Novogradac and this is Tax Credit Tuesday. I m in New Orleans this week at the Novogradac tax credit conference. Today is Tuesday, May 11th, This week I will discuss the extenders bill that is being negotiated in Congress. In its current incarnation, the package includes a one-year extension of both the housing tax credit exchange program and the New Markets Tax Credit. proposals. Then, I will review renewable energy legislation and related First, I will describe bipartisan legislation that would create a 30 percent investment tax credit for bio-refineries. I will also discuss a bill that would provide additional tax credit allocation authority under the Section 48 cap C tax credit for energy manufacturing facilities. Then, I will briefly summarize a set of energy policy recommendations that include a number of renewable energy tax credit improvements. And finally, I ll share news from Fannie Mae about its 2009 multifamily debt business. But first, I have breaking news about the new markets tax credit program. 1

2 Yesterday the Community Development Financial Institutions Fund released the online allocation application and instructions for the 2010 new markets tax credit allocation round. The CDFI Fund opened the 2010 new markets tax credit application round on April 7, Electronic applications are due by 5 p.m. Eastern Time on Wednesday, June 2nd. The online application is available through an applicant s mycdfifund account. Links to the application instructions and application Q&A are available online at The CDFI Fund also announced that they are conducting two separate conference calls for potential applicants to the new markets tax credit program. These calls will serve as a forum for potential applicants to ask questions of CDFI Fund staff about the current round of the NMTC program. The first call is this Thursday, May 13th, 2010, from 2 3:30 p.m. Eastern Time. The second call is next week, Wednesday, May 19th, 2010, similarly 2 3:30 p.m. Eastern Time. To access these conference calls, call1 (888) and enter the pin number Prior registration is not necessary. Novogradac & Company will be participating in these calls. If you are planning to file an application and will miss one or both of 2

3 these calls, I encourage you to contact a Novogradac NMTC professional. He or she can share with you what we learned from the calls, and how that information may affect your allocation application. For a detailed review of the 2010 NMTC allocation application process, and some of the key changes to the 2010 NMTC allocation application, you can also download a recording of Novogradac & Company s NMTC Application Webinar that was recorded on April 27th. To download the webinar, simply go to slash events. And following the 2010 application deadline, I invite you to join Novogradac & Company and your industry colleagues at the 9th Annual New Markets Tax Credit Spring Conference on June 10th and 11th in Washington, D.C. The conference is the week after the NMTC allocation applications are due. Now, let s get started with an update on the status of tax extender legislation. The Housing Advisory Group reports that the House and Senate have shifted into high gear to complete work on legislation to extend expiring tax provisions, commonly referred to as the extenders bill. Efforts also are under way to complete work on a small business jobs tax package also before the Memorial Day recess period. Some members of Congress have also started to call the extenders bill as a 3

4 jobs bill, given the close connection between so many of the provisions in the extenders bill and job creation and retention. As most listeners will recall, the tax credit community has been watching the extenders bill closely because, among other things, it includes a one-year extension of the new markets tax credit. The bill also includes a one-year extension of the Section 1602 low-income housing tax credit cash grant exchange program. This extension is in both the Senate- and House-passed extenders bills. The House-passed bill, H.R. 4213, includes a one-year extension of the current exchange program. The Senate-passed bill however, which carries the same bill number, also contains that extension but also goes farther. It expands the program to allow the exchange of disaster and GO Zone tax credits. The Housing Advisory Group reported last week that leadership of both houses and the chairs of the tax writing committees in both houses have been discussing how the two bills can be reconciled. Reports suggest that initial discussions are leaning toward including items that were identical or substantially identical in both bills. That agreement would give the extension of both the new markets tax credit and the LIHTC cash grant exchange program a good chance to be included in the final bill. In addition to reconciliation, finding revenue offsets for the extenders bill that are acceptable to both the House and the Senate continues to be a challenge for lawmakers and their staffs. On its blog last week, the National Council of State Housing Agencies reported that although there is broad support within the committees for the 4

5 exchange program extension, and there is general comfort on the part of Ways and Means Committee leaders with the disaster credit exchange expansion provision, their success in identifying acceptable revenue offsets will drive the final bill s overall size and what provisions can be included. Right now the revenue offsets that are being discussed include a change to the taxation of carried interest - a proposal that has drawn opposition from many in the housing industry. The National Multi Housing Council and National Apartment Association announced last week that they were mounting an all-out lobbying campaign against a carried interest tax increase. This proposal has passed the House three times most recently as an offset for this extenders package. As most listeners are aware, carried interest refers to a general partner s disproportionate share of residual profit when a property is sold. Under the proposal being considered, profits from carried interests would no longer be eligible to be taxed as capital gains at a lower 15 percent tax rate. Rather, such income would be taxed as regular income at a higher 35 percent tax rate. Opponents of the proposal say that the tax increase would impede the financing of future multifamily developments and undermine the underwriting of established transactions. If agreement on offsets is reached soon, the extenders bill would go directly to the House floor for a final vote this week and to the Senate next week. Because of this tight schedule, it is likely that there will be no opportunity for amendments to the tax extenders bill. 5

6 As such, the LIHTC consensus group believes that the best chance for supporting the remaining campaign proposals is to have them included as an amendment to the Senate small business jobs bill. The Housing Advisory Group reports that the Senate Finance Committee hopes to mark up its version of a small business jobs bill as soon as this week. Which brings us to a bit of particularly good news. On May 6 th, Senator Maria Cantwell introduced Senate Bill 3326, the Job Creation and Affordable Housing Act. The bill would extend for one-year the Section 1602 low-income housing tax credit cash grant exchange program, however it would also expand the program to include 4 percent tax credits, those associated with tax-exempt bonds. The measure would also allow a 5-year carryback of the low-income housing tax credit. Senators John Kerry and Barbara Boxer joined Senator Cantwell as original co-sponsors and the bill has been referred to the Senate Finance Committee. The A.C.T.I.O.N campaign is encouraging members of the LIHTC consensus group to use the introduction of Senator Cantwell s bill as an opportunity to follow up with their respective senators and to thank their staff for any previous support, and then ask them to also co-sponsor Senator Cantwell's bill. These proposals and other news from the Hill will be discussed in detail this week at our affordable housing conference in New Orleans. I hope to see you there! Let s switch gears now and turn to our renewable energy discussion. 6

7 On April 26 th Representatives Allyson Schwartz, Mark Schauer and Brian Bilbray introduced bipartisan legislation that will encourage the next generation of biofuels or fuels made from living things such as plants and algae. The bill is called the Grow Renewable Energy Economy Now, Jumpstart Other Biofuels Act, which can be shortened to the acronym GREEN JOB Act. I have noted before that naming a bill is often a congressional parlor game, where you try to develop the most clever acronym for the subject matter of a given bill. You have to wonder what other acronyms were considered or other names were dreamed up before they landed on GREEN JOB as an acronym for this bill. With GREEN JOB being the acronym for Grow Renewable Energy Economy Now, Jumpstart Other Biofuels. I think it would be fun to see the list of other acronyms that were considered but discarded. But I digress, let s get back to the subject matter of the bill. Supporters say the GREEN JOB Act would provide a level playing field between algae-based fuels and cellulosic- or plant-based fuels. The bill provides incentives for investment in both types of fuels by creating a 30 percent investment tax credit for bio-refineries of these fuels. This change would give the biofuel industry treatment under the tax code equal to that for other renewable energy sectors such as wind and solar. The bill would also extend the production tax credit until the year In a statement about the bill s introduction, Congresswoman Schwartz said the proposals could help create thousands of clean energy jobs. Echoing that sentiment Congressman Bilbray said 7

8 quote: Green job creation depends upon strong American enterprise. The GREEN JOB Act provides for greater incentives and investment in the production of sustainable, renewable and green energy... close quote Also on the renewable energy front, on May 6 th Senators Sherrod Brown, Charles Schumer, Jeff Merkley, Robert Casey, and Kay Hagan introduced legislation to expand and improve the Advanced Energy Manufacturing Tax Credit program, also called the Section 48 cap C program. The 48 cap C program was authorized by the Recovery Act and it provides a 30 percent credit for domestic companies for investments in new, expanded or reequipped clean energy manufacturing projects. The program is aimed at expanding America s renewable energy manufacturing capacity. Senator Sherrod s bill is S. 3324, the Security in Energy and Manufacturing Act, or SEAM Act. This is the companion bill to H.R. 5041, which was introduced in the House by Congressman Phil Hare on April 15th. The SEAM Act would provide an additional $5 billion for the Advanced Energy Manufacturing Tax Credit program that provides a 30 percent tax credit for the creation of new manufacturing facilities. The bill would also amend the original program to prioritize facilities that manufacture rather than just assemble clean energy components. Senator Brown said quote: Expanding this tax credit would create new manufacturing jobs in a future clean energy economy and 8

9 help make Ohio the Silicon Valley of clean energy manufacturing." close quote The SEAM Act as I mentioned would extend the program, however it would also provide for grants in lieu of tax credits. Supporters say this would enable the program to reach additional companies that would otherwise be unable to use the program - new companies that do not yet have tax liabilities or companies that struggle to find credit and tax credit investors in today's tight financial market. Both the tax credit and grant would remain at 30 percent of the cost of the project. Copies of these bills can be downloaded from Before we leave the topic of energy tax credits, I d like to briefly share a few provisions proposed recently by the Coalition for Green Capital. The Coalition for Green Capital is a consortium of leaders in energy development enterprises including renewable resource developers, equipment manufacturers, investors, financial advisers and consultants. As a group they advocate for tax and finance policies that would support investment in energy efficiency and clean energy at the national, state and even international level. Recently the coalition recommended a set of tax provisions to further accelerate and expand the deployment of clean efficient energy. The recommendations include proposals to enhance and implement technical fixes of current tax provisions as well as to extend expiring tax provisions. 9

10 For example, the group recommends that the Internal Revenue Code be changed to allow master limited partnership structures to be used for renewable power generation. The coalition reports that the master limited partnership market currently represents more than $100 billion of capital and is a highly liquid market. The group says that amending section 7704(d) to expand the definition of qualifying income to include revenues arising from the generation and sale of electricity produced from renewable resources, would not only increase the capital available for renewable projects, but also permit more favorable capital structures to be employed and allow such projects to obtain cheaper equity financing. All of this could substantially reduce the overall cost of capital for renewable energy projects. Master limited partnerships have traditionally been a significant source of financing for the fossil fuel industry. As such, the coalition says this amendment would help to level the playing field between renewable energy and fossil fuels. In addition, the coalition recommends extending the grant in lieu of tax credit program that was created by the Recovery Act. The group says that because the economic circumstances that led Congress to establish the grant program continue to persist, extending the grant for two years, through the end of 2012, would enable developers to obtain the requisite capital to build renewable energy projects which otherwise may not be able to proceed because they are not uet ready to begin construction or won t be by the end of

11 These are just two of the group s recommendations - I am currently reviewing the proposals in detail and I will address them in my column in the June issue of the Journal of Tax Credits, so stay tuned. One final topic for today is a quick announcement from Fannie Mae. On May 3rd Fannie Mae announced its top loan originators of multifamily debt financing for Fannie Mae works with lender partners to provide multifamily debt solutions for all segments of the multifamily market, including small and large multifamily loans, seasoned pool purchases and structured loan transactions. Fannie Mae reports that Delegated and Underwriting and Servicing, or DUS, lenders were responsible for more than 90 percent of the Fannie Mae multifamily debt business in Fannie Mae's DUS lenders and affiliates delivered $18.6 billion of the company's total investment in multifamily housing in The following 10 DUS lenders produced the highest volume by contributing at least $700 million each through the DUS platform in They are: 1. PNC Financial Services; 2. Deutsche Bank Berkshire Mortgage; 3. Prudential Multifamily Mortgage; 4. Wells Fargo Bank; 5. Walker & Dunlop; 6. Greystone Servicing Corporation; 7. Grandbridge Real Estate Capital; 11

12 8. Arbor Commercial Funding; 9. AmeriSphere Multifamily Finance; and 10. CB Richard Ellis. We have contact information for each of these Fannie Mae DUS lenders at Just go to the affordable housing lenders listing in the industry resources tab. Novogradac & Company provides a variety of services to developers that seek financing from Fannie Mae. For more information, I invite you to contact Blair Kincer in our Metro D.C. office or Mike Morrision in our San Francisco Office. Blair can be reached at (240) Mike Morrison can be reached at (415) Or simply send an to cpas@novoco.com and we will get back to you. Before I wrap up today s podcast, I d like to review what s coming up on the Tax Credit Calendar. As I mentioned at the start of the podcast, this week I am in New Orleans for our affordable housing conference. Looking ahead to next month, the Housing Advisory Group s Annual Affordable Housing Congressional Forum will take place on Wednesday, June 9th in Washington, D.C. This meeting will immediately precede our annual spring new markets tax credit conference, also in Washington D.C., on Thursday, June 10 th and Friday, June 11 th. Our conference is just one week after the application date for 2010 allocation applications. That makes this new markets tax credit event a perfect opportunity to re-group, network and touch base with your tax credit industry colleagues. 12

13 Tuesday. Novogradac Report on Tax Credits Well, that brings me to the end of this week s report. Please join me again next week for another Tax Credit Among other topics, next week I will discuss a proposed study of the Low-Income Housing Tax Credit program and how developers are responding at the end of the 15 year compliance period. In today s Federal Register HUD announced it s going to conduct a survey on this topic by surveying low-income housing tax credit property owners. This is Michael Novogradac and I ll be back next Tuesday. Thanks for listening. (outro music) Editorial material in this transcript is for informational purposes only and should not be construed otherwise. Advice and interpretation regarding tax credits or any other material covered in this transcript can only be obtained from your tax advisor. Novogradac & Company LLP, 2010 All rights reserved. Reproduction of this publication in whole or in part in any form without written permission from the publisher is prohibited by law. For reprint information, please send an to cpas@novoco.com. 13