State of Georgia Commercial Revitalization Deduction Program Qualified Allocation Plan for Calendar Year 2006

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1 State of Georgia Commercial Revitalization Deduction Program Qualified Allocation Plan for Calendar Year 2006 Officially adopted by the Board of Directors of The Georgia Department of Community Affairs by resolution dated / /05 (A) Background Federal law established a Community Reinvestment Program in the Community Renewal Tax Relief Act of 2000 as codified under Title 26, Subtitle A, Chapter 1, Subchapter X, Section 1400I, et seq. of the Internal Revenue Code of 1986, as amended ( the Internal Revenue Code ). The Internal Revenue Code, among other things, authorizes certain community revitalization federal tax deductions for businesses in federally designated Renewal Communities, provided that these deductions are allocated by the Commercial Revitalization Agency of the state where the Renewal Community is located and further provided that the deductions are allocated pursuant to a Qualified Allocation Plan (the Plan ). As outlined in the DCA Board s Resolution of,, 2005, this plan will become effective upon the Governor s designation of the Georgia Department of Community Affairs as the State s Commercial Revitalization Agency. Upon designation, DCA will work with the City of Atlanta and its agents to implement the Commercial Revitalization Deductions Program (CRD Program) as authorized under applicable provisions of Section 1400I(d)(3) of the Internal Revenue Code (B) The Atlanta Renewal Community The U.S. Department of Housing and Urban Development (HUD) designated the City of Atlanta as a Renewal Community on January 1, 2002, pursuant to The Omnibus Consolidation & Emergency Supplemental Appropriations Act (CESA) for FY 2001 (P.L ), which was signed into law on December 21, The CESA enacted the provisions of a number of bills of the 106th Congress including the Community Renewal Tax Relief Act referenced above which also authorized HUD s designation of the Atlanta Renewal Community from January 1, 2002 through December 31, HUD s regulation at 24 CFR Part to 513 contains the applicable requirements of the designation. The Renewal Community s operating area is described on HUD s website (as of 10/1/2004) under the link: and in Section O of this Plan. 1

2 (C) Contents of the Qualified Allocation Plan DRAFT This Plan is developed in accordance with Section 1400I(e)(2) of the Internal Revenue Code for purposes of developing a Commercial Revitalization Deduction Program and Qualified Allocation Plan and sets forth the following: (1) Selection criteria to be used to determine the priorities of the Qualified Allocation Plan in allocating the deductions and the competitiveness of particular applications; (2) Procedures that DCA will use to implement the program and to monitor compliance with the Act; (3) Fee schedules for applicants and recipients of commercial revitalization deductions; (4) Notification that DCA reserves the right to enact implementing regulations and/or guidelines in accordance with applicable state statues and requirements. (D) General Objectives of the Qualified Allocation Plan Georgia s Commercial Revitalization Deduction Program will involve a coordinated effort between the City of Atlanta and DCA which seeks to further the statutory provisions of the Community Renewal Tax Relief Act of 2000 through progress towards the following objectives: (1) The creation and maximization of permanent, full-time jobs and employment opportunities for residents of the Atlanta Renewal Community; (2) The allocation of commercial revitalization tax deductions to those entities that provide the greatest overall employment opportunities for Renewal Community residents (3) An increase in private investment within the Renewal Community that enhances the local tax base and creates the greatest public benefit for the City and citizens; (4) The development and rehabilitation of appropriate commercial properties; (5) An expansion of the economy and commercial services within the Renewal Community; and (6) The growth of win/win partnerships that involves residents and strengthens both for-profit and non-profit corporate investment and activity within the Renewal Community. (E) City/State Coordination This Plan describes a relationship between DCA and the City of Atlanta that will create and implement a commercial revitalization deduction program within the Atlanta Renewal Community. The City will through a resolution designate a city agent to coordinate the implementation of the program and work with DCA. The City s agent will have primary responsibility for the marketing of the Plan s tax incentives and act as a clearinghouse for Renewal Community tax programs and incentives. The agent will also provide technical assistance to interested applicants, assist applicants to prepare applications and recommend projects to DCA for consideration of an allocation. The DCA, through its board resolution dated / /2005, agrees that it will fulfill its responsibilities as the Commercial Revitalization Agency in accordance with Section 1400I et seq. of the Act and as further outlined below in section I. 2

3 The DCA and the City may enter into a Memorandum of Understanding to more fully describe each party s role and outline the procedures for implementation of the Commercial Revitalization Deduction Program. Should an MOU be so created, it is incorporated into this Plan by reference. (F) Amount of Annual Deductions Allocated Federal law establishes an annual ceiling of $12,000,000 in commercial revitalization federal tax deductions for each designated Renewal Community. Further, a single project may receive up to a maximum of $10,000,000 in commercial revitalization deductions, or such lesser limit as is determined by DCA. Allocations will be made to qualifying projects based upon eligibility standards and the selection criteria set forth in this Plan. DCA may, in accordance with applicable requirements and in its sole discretion, allocate deductions subsequent to its determination that the proposed project has and will continue to meet the objectives of the program. DCA may decline to allocate any requested deduction to a project if it determines, in its sole discretion, that the project does not meet the requirements or priorities of the program. (G) Threshold and Selection Criteria The selection criteria to be used by DCA when evaluating applications for allocation of tax deductions, includes the following: ( 1) as an application threshold, verification that the project s location is within the boundaries of the Atlanta Renewal Community and the proposed project s activities and proposed undertakings meet applicable federal requirements within law, regulation and procedure and are otherwise eligible for consideration under this Plan (Threshold requirement for all applications); ( 2) the recommendation of the City and/or its agent with respect to the project (10 points); ( 3) the organizational status of the applicant business indicates a properly organized business with a clean credit history for the business and all related entities with no outstanding litigation or government findings and/or sanctions as it relates to state or federal tax obligations or issues (up to 15 points); ( 4) the applicant business operating history in regards to capital investment, debt service capacity, management ability, market value, and competitiveness within its market (up to 15 points); ( 5) the proposed applicant s record of accomplishment including (as applicable) the history and track record of the developer, contractor, architect, leasing agent, property manager, syndicator, construction managers and interim and permanent lenders (up to 14 points); ( 6) verification that all applicable financing is arranged or will be arranged and contingent upon allocation of the deduction, the project will move forward to construction and implementation (up to 15 points); ( 7) the increase in permanent, full-time employment to be created by the project both within the Renewal Community and for Renewal Community residents (up to 12 points); ( 8) the enhancement the local tax base (up to 12 points); 3

4 ( 9) the degree to which the project will contribute to the implementation of the Renewal Community s strategic and tax incentives utilization plans devised through local citizen participation processes (up to 12 points); and (10) the demonstrated and ongoing participation of local non-profit organizations and residents of the Renewal Community (up to 5 points); (H) Application Process and Procedures DCA will publish a Notice of Availability for Commercial Revitalization Deductions and cooperate with the City of Atlanta and the City s Agent to promote the CRD Program and application process. For calendar year 2006 allocations, the application must be physically received by DCA by 5:00 o clock p.m. September 30th. Each application must include an original and two (2) copies with all required DCA forms and documentation. The application must be accompanied by the application fee mentioned below and a recommendation letter from either the City or the City s Agent. DCA will review each application for completeness, adherence to threshold criteria, and for competitiveness against review criteria outlined under Section G of this Plan. The maximum points available under the established rating system are 110 points. Only those applications that score above 70 points on the selection criteria will be considered for an allocation. Applications that score above the 70 point threshold, will be awarded reservations, allocations and carry-forward allocations based on the date that DCA formally submits allocation documents to the Recipient and/or the IRS that meet the applicable requirements of the Section 1400I, et seq. of the Internal Revenue Code of 1986, as amended, any implementing regulations and any IRS approved procedures. DCA will review the applications for each set-aside using the selection criteria outlined above. Should more than one application be received and be in review at any one time, DCA staff will prioritize the applications according to the selection criteria and score. If one or more applications have the same score under the selection criteria, the application with the greatest job creation will receive allocation priority. (I) Responsibilities of the Parties The following responsibilities are established under this Plan: (1) The City of Atlanta or City s Agent shall be responsible for obtaining appropriate federal approval of the City s Tax Incentives Utilization Plan as required by 24 CFR and documenting said Plan s approval; (2) The City of Atlanta or City s Agent shall be responsible for marketing of the commercial revitalization tax deduction and providing limited assistance to existing and new businesses interested in taking advantage of the deduction; (3) The City of Atlanta or City s Agent will be responsible for the initial intake and review of an applicant s application and submission of the application to DCA and making a recommendation to DCA in regards to the City s support of a particular application; (4) The City of Atlanta or City s Agent shall provide a certification to DCA that the tangible property that is the subject of an awarded allocation is or will be located within the boundaries of the Renewal Community; 4

5 (5) The City of Atlanta or City s Agent shall monitor the progress of allocated projects in meeting applicable requirements, investment thresholds, employment objectives, renewal community goals and report each project s performance to DCA in accordance with applicable schedules that DCA will develop; (6) The Applicant and/or Recipient of an allocation shall provide to DCA an accounting or tax professional s certification with respect to the eligible costs expended. For projects receiving $500,000 or more in deductions, this certification must be attested by a licensed Certified Public Accountant or tax attorney. For projects requesting less than $500,000 in deduction allocation, the certification may be attested by the taxpayer. (7) DCA shall perform the following: (a) review and analyze the application for completeness, accuracy, and adherence to the program requirements; (b) assess the proposal and the recommendation of the City s agent to determine if the proposed project meets the goals of the program and the selection criteria of this Plan; (c) establish the maximum qualified revitalization deduction amount for the project; (d) allocate the deductions in accordance with the provisions of this Plan; (e) issue reservations, binding commitments, and allocations of commercial revitalization deductions; (f) obtain reports from the City or City s Agent on the progress of allocated projects in meeting their performance goals, objectives and obligations, (g) revoke, rescind, or remove tax deductions obtained by nonperformance, errors, fraud, collusion, or any criminal or negligent act on the part of the recipient; (h) at the time the project is placed in service and prior to making the final deduction award to the applicant, DCA will review the tax professional s certification of costs and may reduce the initial amount of the award should the costs actually expended so warrant. (J) Timing of Allocations Allocations of the federal tax deduction must be made no later than 60 calendar days following the close of the calendar year in which the allocation is made. This may include allocations made to projects that have been placed in service during that calendar year, or may be carryover allocations as defined in Section 42(h) of the Internal Revenue Code of 1986, as amended. To the extent practicable, preference will be given to those projects that have been or will be placed in service in the year of allocation. Additionally, DCA may, in its sole discretion, make forward binding commitments to allocate a future year s deductions if it so chooses. To the extent that a carryover allocation is made, the project will have until the end of the second year following the year of the carryover allocation to be placed in service, provided, however, that more than 10% of the reasonably expected basis in such project is incurred as of the date no later than 6 months subsequent to the making of the carryover allocation. Such term does not include any existing building unless a credit is allowable for rehabilitation expenditures paid or incurred. (K) Monitoring DCA will coordinate the monitoring of all projects that a Commercial Revitalization Deduction allocation has been made to assure that the project remains in compliance with the objectives stated in the application. In the case of a carryover allocation, DCA may require periodic status 5

6 reports on the progress of the business in meeting its proposed timelines. Should an allocation be made that is not used, or should monitoring reveal that representations made by the applicant have not occurred, DCA may take appropriate action including revocation or reduction of the allocation or decline to make another award to the same applicant. (L) Applicant and Recipient Fees The following fees are applicable for each separate Commercial Revitalization Deduction application. The fees are non-refundable and must be submitted in the form of a cashier s check made payable to DCA. Failure to submit the appropriate fees will result in DCA revoking the Commercial Revitalization Deduction award and providing notice to the appropriate federal and state agencies. All Commercial Revitalization Deduction applications must be accompanied by the $500 Application Fee [see (L) 1.] If a Commercial Revitalization Deduction award is granted, the applicant must submit, within 30 days of the award date, the Allocation/Monitoring Fee [see (L) 2.] Additionally, if a Commercial Revitalization Deduction award is granted and the project will not be placed into service in the same calendar year of the award, then a Carryover Allocation fee is due when the project is placed into service [see (L) 3.] 1. $500 Application Fee. A $500 Application Fee is required for each separate Commercial Revitalization Deduction application. The Application Fee is due upon submission of the Commercial Revitalization Deduction application and applications submitted without the Application Fee will not be considered for the Commercial Revitalization Deduction award. 2. Allocation/Monitoring Fee For all projects receiving a Commercial Revitalization Deduction award, a one time Allocation/Monitoring Fee will be assessed. The Allocation/Monitoring Fee is due within 30 days of the Commercial Revitalization Deduction award date. The Allocation/Monitoring Fee is one quarter of one percent (.0025) of the total Commercial Revitalization Deduction award. The formula for computing the Allocation/Monitoring Fee is as follows: Total Commercial Revitalization Deduction award (x) Carryover Allocation Fee For those projects that will not be placed into service within the same calendar year as the Commercial Revitalization Deduction award, a Carryover Allocation Fee is due within 30 days of the project being placed into service. The placed into service date is the same date as the project s Certificate of Occupancy date. 6

7 The Carryover Allocation Fee is one tenth of one percent (.0010) of the total Commercial Revitalization Deduction award. The formula for computing the Carryover Allocation Fee is as follows: (M) Regulations Total Commercial Revitalization Deduction award (x).0010 DCA may adopt regulations as needed to implement the commercial revitalization deduction program. Any regulations, once adopted pursuant to statutory requirements, are incorporated by reference as part of this Qualified Allocation Plan. (N) Amendments To the Plan This Plan may be modified by DCA from time to time to correct minor errors and omissions without Board approval. Major amendments may be made following consideration of comments received at a properly noticed public hearing. After such hearing, this Plan may be amended by DCA at an advertised DCA Board meeting. Any such major amendments approved will take effect immediately upon adoption by DCA or such later time as may be specified in a Board resolution. (O) Definitions Act means the Community Renewal Tax Relief Act of 2000, as it may be amended (Section 1400E) and following of Title 26 of the United States Code. Agent of the City of Atlanta means the Atlanta Coordinating Responsible Authority (ACoRA). Applicant (or Recipient ) means the private entity that makes application for (or receives) and will utilize the requested tax deduction in accordance with applicable federal and state requirements. Commercial Revitalization Agency means the Georgia Department of Community Affairs (DCA). Commercial Revitalization Expenditure means a capital expenditure for depreciable property that is nonresidential real property or depreciable property subject to the recapture provisions of Section 1250 of the Internal Revenue Code of 1986, as amended, that is related to nonresidential property, for example a commercial or industrial building and its components. Qualifying expenditures may include building acquisition costs made in connection with a substantial renovation only to the extent that the acquisition cost does not exceed 30 percent of the total qualified revitalization expenses for the building (determined without regard to the acquisition cost). Qualified Renewal Community Project means any commercial or industrial building within the boundaries of the Atlanta Renewal Community that is the subject of an application for Community Renewal Community Deduction that has been properly submitted to DCA and has been constructed or substantially rehabilitated and placed in service after December 31, 2001, 7

8 and before January 1, 2010 that receives a Commercial Revitalization Deduction allocation from DCA. Qualified Revitalization Expenditure means any amount properly chargeable to a capital account for property from which depreciation is allowable under Internal Revenue Code section 168 and which is nonresidential real property (as defined in section 168(e)) or section 1250 (as defined in section 1250(c)) which is functionally related and excludes acquisition costs in excess of 30 percent of the aggregate qualified revitalization expenditures (determined without regard to such cost) with respect to such building and which costs can be certified by a certified public accountant or tax attorney. Renewal Community means those areas that have been so designated by the Secretary of Housing and Urban Development in accordance with applicable law. In Georgia, applicable poverty census tracts within the City of Atlanta include the following 1990 census tract numbers within Fulton County: 17; 22; 23; 24; 25; 26; 29; 31; 32; 33; 36; 37; 38; 39; 40; 41; 42.95; 43; 44; 46.95; 48; 49.95; 52; 53; 55.01; 55.02; 56; 57; 58; 60; 62; 63; 64; 66.01; 66.02; 67; 68.02; 69; 70; 71; 72; 74; 76.01; 77.01; 78.04; 81.02; 82.02; 83.01; 83.02; 84; 85; 86.01; 86.02; 87.01; 87.02; 88; and the following 1990 census tract numbers from Dekalb County: 205; 206; 207; and 208. Substantial Improvement means tangible property meeting the requirements of Section1400(b)(4)(B) of the Internal Revenue Code of 1986, as amended, except that December 31, 2001 shall be substituted for December 31, Tax Deduction option means the option made by the applicant as to how much and when to claim the Commercial Revitalization Deduction allocated to it. Provided that it has received a deduction allocation, an applicant may choose either to claim 50% of the qualifying expenditures in the year in which the building is placed in service and to capitalize remaining expenses under applicable tax law, or it may choose to claim the entire expenditures at the rate of ten percent per year for ten years, beginning in the year the project is placed in service. 8