Low-Income Housing Tax Credit Utilization and Syndication

Published by the Government Accountability Office on 1990-04-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                United States General Accounting Office
G.0                ,       -,   Testimony

For Release on                  Ixrw-Incane Housing Tax Credit Utilization   and Syndication
9:30 a.m. EDT
April 27, 1990

                                Statement of
                                John M. Ols, Jr., Director
                                Housing and Conmunity Developkent Issues
                                Resources, Cd     ty and Econanic Development Division
                                Before the
                                Suharmittee on HUD/Moderate Rehabilitation   Investigations
                                Cam-Lit&e on Banking, Housing, and Urban Affairs
                                United States Senate

                                                                                GAO Form 160 (121’87)
Mr.    Chairman anq Members of the Subcommittee:
        We appreciate‘the         opportunity      to assist     the Subcommittee         in
analyzing      the ut,ilization        of the low-income        housing tax credit
program.       Today, I would like to discuss              three issues.       First,       the
amount of low-income            housing tax credits        allocated    to states      and
awaxded to projects           for calendar      years 1987 through        1989 and the
number of low-income           housing units       developed     in connection      with
these awards.        Second, the syndication            process used to assist           in
raising     capital    to finance       low-income    housing projects       that have
been awarded tax credits.               And, third,     the net amount of equity
capital     raised   through      the syndication       of projects     awarded tax
credits     relative     to the amount of the credit             award.

       Tax credits      are intended    to induce investors        to supply equity
for low income housing.           Since the low-income       housing tax credit
program began in 1987, award and use of the credits                   has steadily
increased     from about 20 percent        of the total     amount allocated       to
states    in 1987 to about 98 percent          of the allocation        in 1989.     By
the end of 1989, about $565 million              worth of initial-year       credits
had been awarded in connection            with the development        of
approximately       236,000 low-income       housing units.      The credit
program now represents         the federal     government's    primary     subsidy    for
encouraging      low-income    housing production.

        Syndication     is the process of structuring            financial
arrangements        to secure cash from outside        investors.          Most tax
credit     syndications      have been conducted     as public       offerings      with
limited     partnership      interests in tax-credit-eligible              projects    being
sold to individual         investors.    A number of syndications,               however,
are being conducted          as direct placements,       usually     to corporate

     When tax credits    are used, as with any federal    assistance
mechanism,  costs are incurred    that are necessary   to attract    and
manage funds.    When the federal    government issues tax credits,      it
incurs    a ,tax expenditure         equal to the tax revenues foregone.             For
low-income      housing,development,           some of the tax expenditures        are
used to attract        equity     capital     so that investors     can realize    a
competitive      rate'of     return.      The capital     raised  in this manner,
however,     is not completely          available    to directly    invest   in low-
income properties.           Expenses incurred         to sell the partnership
interests      and certain      fees for acquiring        the properties     are paid
for out of investors'           equity    which reduces the amount available           to
fund the projects.

TAX CREDIT UTILIZATION.           1987-89

        As you know, the Low-Income Housing Tax Credit                      Program was
created     in the Tax Reform Act of 1986 and was intended                        to increase
the supply of rental            units     for low-income    families      by using tax
benefits      to induce equity          investment    to buy, build,        or rehabilitate
such housing.          Projects      that were awarded credits          prior       to 1989 had
to be used as low-income               housing   for a 15-year period           or they were
subject    to recapture         of a portion       of the credit      award.        However,
because of uncertainties               about how the program worked and
reservations       about the usefulness            of the program,      initially       few
developers      participated.           With increased    familiarity,          tax credit
usage has steadily          grown, and now represents            the federal
government's       primary      low-income     housing production         subsidy.

        Recently,       Section    7108 of the Omnibus Budget Reconciliation
Act of 1989 (P.L. 101-239)              extended the program through           calendar
year 1990.          This legislation       permits   the Treasury     Department      to
redistribute         unallocated     credits    to states      that need them.      It also
extended       from 15 to 30 years the maximum length               of time that a
credit-eligible          project    would have to be used for low-income
housing.         It also placed greater         responsibility      on state credit
allocation         agencies    by requiring     them to develop allocation          plans
for awarding         credits.      These plans are to set forth          project
selection      criteria, .    and selection         preferences       and priorities.        The
legislation        did not, however,          Clearly     place responsibility          on
either     HUD or state agencies            for monitoring         credit   recipients'
compliance      with program requirements.                 Officials      of the Treasury
Department      told us that their           compliance       monitoring     efforts     would
address normal tax audit procedures,                    but not focus on housing
issues such as tenant           eligibility        or whether projects           that received
credits     conformed      to housing standards.

       The amount of credits         awarded by state agencies           to projects  is
partly     determined    by calculating       a percentage    of the project's
acquisition       and rehabilitation       costs.    The credit    award can vary
depending      on whether subsidized,        or below-market     rate financing      or
tax-exempt      bonds are used for project          development.       In addition,
numerous other considerations,             such as the availability         of unused
credit    allocation,     determine     the amount of credit       ultimately
awarded to a given project.

        In 1987, the first         full    year of the tax credit          program,       states
were authorized,          on the basis of $1.25 of credit            per capita,          to
allocate       about $313 million        in tax credits      to eligible        projects.
However, only about $63 million                in credits,     or about 20 percent            of
the authorized          amount, was awarded to about 34,000 housing units.
In 1988, the use of credits             had increased      to about $202 million               for
assistance       to about 78,000 units.           By 1989, of a total
authorization         of $314 million,       $307 million,      or about 98 percent,
was allocated         to about 125,000 low-income          housing units.            For 1990
only,     the per capita       rate of credit      for each state        is 93.75 cents.
Attachment       1 provides      a summary of the use of credits              for years
1987-89.        Attachments      2 through     4 show the use of credits,             by
state,      for the same period.

       Also shown in the attachments     are the types of projects
assisted   using tax credits.     For the entire   period from 1987 to
1989, nearly    half of the credits   awarded were used in connection
with newly constructed         low-income      housing;   about one-fourth    for
substantial     rehabilitation       projects:     and the remainder    for either
the acquisition      or acquisition        and minor rehabilitation       of existing
low-income    projects.

     * According     to information       for calendar        years 1987 and 1988, the
only years for which this           information       is available,       about 82
percent    of the projects       that received        credits     were small projects
consisting     of 50 or fewer units.            In addition,       about 62 percent   of
the projects      that received       credits     also received       other federal
subsidies     such as HUD Section         8 rental      subsidies.


        Reportedly      over the past 20 years,          most private       investment      in
low-income      housing has been through           limited   partnerships.          In many
instances,      large investment        houses accumulate       a pool of funds from
prospective       investors    and then look for projects            to invest      in.     In
other cases, a developer           already    has located     a project        and is
looking     for permanent      financing.      In either     case, most financing
generally      comes from a bank or other lending             institution         in the
form of a mortgage.          The remainder       of the private        financing      often
comes from the sale of ownership              shares to limited          partners     to whom
tax benefits        of the project      are passed.

         Often,     large investment         houses accumulate           a pool of funds from
prospective         investors      and look for projects            to invest       in.    The
process of creating             and marketing        limited     partnerships         to acquire,
develop,       or operate       real estate       investment      property      is called
syndication.           Limited     partnership       interests       in tax-credit-
eligible       projects      are usually       sold to outside         investors        who, in the
hope of realizing            tax or other project            benefits,     invest       in the
project      syndications.

         Another way the market operates             is that syndicators          prepare a
plan for the project(s)           projecting      cash requirements,         development
costs,      cash income flows,       projected      deductible      losses and
depreciation        (if any), and tax credits           available      to investors.        The
price     of a share is then fixed at a level               that provides       investors
with a projected        return    sufficient      to induce them to participate
given the risk associated            with the deal.         The shares are then
marketed by making them publicly               available      through    an underwriter
or broker,       or they are privately         placed by the syndicator.               In this
manner, tax credits          awarded to a project          can be used to raise
capital      that the project      developer      can use to help finance            the
project.        As we reported     last August,       these individual        partnership
sales can increase         the developer's        gains from the project.

        An essential     feature    of any limited   partnership        is that the
limited    partner     or partners     have no role in day to day operations.
This makes every limited           partnership   a passive   activity      for the
purposes    of the Internal        Revenue Code.    Special    restrictive      rules
apply to the tax treatment            of losses and credits      produced by
passive    activities.

       Under general     principles       of partnership        law, limited       partners
may share,    proportionately        to their      investment,      in any profit         or
loss the partnership         business     produces.       Accordingly,      limited
partners    can deduct partnership           losses and offset         tax liabilities
with any tax credit        on their     individual       income tax returns.            This
led to the creation        of many limited         partnerships       as tax shelters.
The Tax Reform Act 1986 eliminated               many tax shelters         by prohibiting
individuals    from deducting        losses derived         from a passive       activity.

      However, the Congress created    exceptions,      including    one for
low income housing tax credits.     Limited    partners      are allowed   to
deduct up to $25,000 in losses from residential           rental  property    on

the basis of a lesser         participation      reguirement.l        Under a special
rule, .investors   'in‘low     income housing tax credit           partnerships   are
allowed   to take the equivalent            of a $25,000 deduction        in tax
credits   derived   from the same passive           activity.      A $25,000
deduction    for a taxpayer        at the 33% marginal        rate would yield   a
reduction    in tax liability         of $8,250.     Accordingly,      the maximum low
income housing tax credit           that any individual        can use, or is likely
to seek in one year is $8,250.

        The passive    activity      rules just described       apply to individual
taxpayers,      but do not apply to most corporations.                A corporate
investor      can make a larger        investment   because a corporation         can
receive      and use passive      losses without     the limitations       that apply
to individuals.        They can also use other passive             tax benefits     such
as depreciation       allowances      and interest     deductions     not available     to
individuals.       This is a reason most direct            placements     (large
amounts of investment           and related     tax benefits    offered    to one or a
few investors)      are made to corporations.

     . tion
Svndlca          Structures
Varv Widelv

       Low-income housing tax credit             syndications      can be structured
in many different       ways.     The simplest        form consists     of a developer
who owns and develops         a project      and who creates       a limited
partnership      in which he will       participate       as a general     partner.
With the assistance       of a syndicator,          the developer/general          partner
finds   investors     and offers    them interests         as limited     partners.        In
a more complex and more typical              arrangement,     a two-tiered
partnership      is formed.      The pool of investors          brought    together      by

1 Originally,    the entitlement     to a deduction and to a low-income
housing tax credit    equivalent     was phased out for taxpayers with
incomes over $200,000 and reached 0 for taxpayers         with incomes over
$250,000.     The 1989 amendments to the Code, however,       lifted the
phase out for low-income       housing tax credits.
the syndicator     is organized            as a limited     partnership,       and that
limited  partnership     in turn           invests   as a limited      partner    in one or
more developer/project       level           limited  partnerships.

         Depending on the terms of the partnership                        arrangement,
various       costs,      benefits,
                          w               and obligations         can be structured       to meet
the'reguirements             of the various          parties    to the partnership.          For
example,       some syndications             may be structured         so that all partners
fully     share in and distribute                 realized     appreciation,       or increase      in
value,      (if any) of acquired               properties     at the end of the
syndication          period.        Other syndications          may limit     the amount of
appreciation          limited       partners      may share in.        On the other hand,
some syndications             may be structured            to provide     for a return      of the
limited      partners'        original       investment      at the end of the syndication
period.        Still     other syndications             may provide      only for the
distribution          of annual benefits             to the limited       partners    with no
lump-sum repayment             of investment           at the end of the syndication
period.        In addition         to these variations,            many syndications        are
structured        to allow for reduced payments of investment                        proceeds    if
specified        project      operating       goals or targets         are not met.


        Because of the myriad possible             variations        in the way
individual       syndications      are structured,       no two syndications          are
exactly     alike,      and it is difficult      to characterize          the "typicaltt
syndication,          In addition,    precise    cost data for low-income             housing
tax credit       syndications      is not available         because the partnerships
are usually        formed for a 15-year period            including     the lo-year
period     over which awarded tax credits             are used by eligible
projects.        Because the tax credit         program has been in existence              for
only 3 years,         no partnership     formed to invest          in credit   projects
has reached the end of its partnership                 term.       Therefore,    precise,

actual     data on investor          yields      and some of the         syndication       costs
cannot     be known'at.this          point.

         However, two basic elements are associated                     with syndicating
 tax credits.         First,     equity   must be raised         by attracting       investors
who contribute         _capital,     a portion      of which is used as the
downpayment on the projects'                mortgages,       in the expectation         of
receiving       a return     on their     investment.          To provide     investors     this
expected      return     for incurring       certain     risks,    the amount of equity
 invested     will   be less than the amount paid out in the form of tax
credits,      net operating        cash proceeds,        and any residual         value of the
property.         Second, syndication          transaction,       or front      end costs,
such as selling          commissions,       offering,      and organizational          expenses
must be paid.          These commissions           and expenses are for services              such
as advertising,          legal    advice,    printing,      accounting,      and appraisals;
and for other costs associated                 with acquiring        real estate       such as
title     insurance      and mortgage loan fees.

Tax menditure            Used to
Attract  Private         Investor      Caoital

        Private      investors      are willing       to invest        in a syndicated
limited      partnership        because of their         expectations         about earning        a
return      on their      investment.       This expected          return     is typically
expressed       as an estimate         of an annual percentage              rate of return,          or
yield     for a specified          amount of invested           capital     into the fund.
For low-income          project     syndications,        this rate of return             is often
 (though,     not always)        assumed to come primarily               from the tax
benefits      of the credits         awarded to the project.                The projects        are
usually      heavily     leveraged      and often do not generate                 other
significant        sources of potential            return     on investment          such as net
positive      cash flows from operations.                  In addition,         some syndicators
we talked       to told us that they often assume a zero residual                            value
at the end of the syndication                 period,      particularly         since the
maximum compliance            period    has been extended to 30 years.                     Under

these ass'um ptioqs    virtually        all   the   investors'    return   m ust com e
from the projectsl‘tax          benefits.

       Under this type of syndication         deal,    for a paym ent into the
fund, an investor    expects    to receive     annual allocations     of credits
 (over the lo-year   term of the project's          credit  award schedule)    that
reduces the investor's      tax liability      in an amount that represents
the value of his capital       contribution      plus an extra amount that
represents   the investors'     expected    return.

         As an over-sim plified            exam ple,      let's discuss     a hypothetical
project       that has been awarded $100 in tax credits                     to be paid each
year over the next ten years.                    This award will       m ake $1,000 worth of
tax credits         available      over the next ten years.              As previously
noted,       syndication      funds are often           large pools of funds that are
amassed to purchase             interests      in m any projects       that individually
conform to the yield              expectations        of the syndicators.         However, to
clearly       dem onstrate     the concepts         involved,    we are using an
illustration          that consists       of one hypothetical          project.

        For our exam ple, we will          assum e that the project          is a new
construction       project,     has no residual       value,    has no other      federal
subsidy,      and the tax credits        are the only source of return              on
investm ent.        In order for the hypothetical            project    to have been
awarded $1,000 worth of tax credits,                about $1,111 would have to be
spent on the project's           developm ent,     not including      land costs.         At
the federal       governm ent's    current     cost of borrowing         (about 8.5
percent      average annual rate for lo-year             Treasury    Notes),    the $1,000
in tax credits        have a present       value of $712.

      W ith  no other project  benefits     involved     except the tax
credits,   in this exam ple,  an individual       investor    could realize    a
13-percent    rate of return  (after-tax)      by m aking a one-tim e     payment
of $613 in order to receive      $100 worth of tax credits          for each year
for 10 consecutive    years.   Therefore,      an immediate     cost of raising
capital   in this.way   is $99, which represents      the difference between
the present    value of the credits     and the price paid for them and is
compensation    for-the   investor  for risk incurred.

        On the basis      of our preliminary         work, we found that for public
offerings,      current     yields    to investors     in low-income      projects      are
projected     to range from about 10 to 22 percent,                 depending     on many
factors     such as the type of low-income             housing    involved,     investor
perceptions       about projects'        risk,  and project     financing     structures.
The higher      the required       projected    yield,    the less capital        that will
be raised     from investors        for the same amount of tax credits               unless
other project       benefits,      such as positive       cash flows,     contribute       to
the yield.

Transaction       Costs    for   Public    Offerinas

        Front end costs for syndications                  are paid from the amount of
equity     raised      from investors.         In a July 1989 report,2               we found
that the maximum allowable               proportion       of raised      capital     used to pay
syndication        fees and expenses varied             considerably.          Depending on
the syndicator           and complexity      of the deal,        the maximum allowable
fees specified           in partnership      prospectuses        varied     from about 17
percent     of the capital         raised    to about 34 percent            for the 19
publicly-available           partnerships       we examined that marketed               low-
income housing tax credits.                 On average,       the front       end costs of
syndications         for low-income       housing are projected             to account       for a
maximum of about 26.5 percent                of the capital         raised.       Actual     costs
are expected        to be somewhat less than the maximum allowances.                            In
addition,      some syndicators          also require        a working      capital    reserve
of 3 to 5 percent           of the capital        raised.      According       to industry
analysts,      the proportion         of fees and expenses spent by publicly
offered     low-income       housing tax credit           partnerships        are generally

2TAX POLICY:   Costs Associated              With      Low Income    Housing     Tax Credit
Partnership  (GAO/GGD-89-100FS).


within    guidelines     prom ulgated    by the         North     A m erican   Securities
Administrators       Association,     Inc.

        Using our exam ple above, and assum ing a 3-percent                     working
capital      reserve      requirem ent,       about $182, or 29.5 percent           of the
 $613 raised,         wobld be required          to cover the transaction         costs
associated        with the syndication.              For purposes     of this exam ple,
these front        end costs are assum ed to be non-qualified                  credit
expenses.         Accordingly,        out of an original         $1,000 in tax credits
with a present          value of $712, $99 is the risk prem ium to attract
capital      from private         investors;       and $182 is the estim ated         front   end
cost.      In this exam ple,          then,    $431, or about 60.5 percent            of the
present      value of the tax credits               would be left     and potentially
available        as equity      financing      for the project.         (See flow chart on
attachm ent       5).    While this amount is significantly                less than the
present      value of the project's              credits,     it can be viewed as
leveraging        $680 ($l,lll-$431)           of associated      debt financing        in order
to bring       the total      capital      investm ent    into the project      up to

        The amount of capital                raised     and potentially        available      for
project       developm ent,        however,       is highly       dependent    on such factors
as investor         yield     requirem ents,        and assum ptions         about whether
investors'        initial      capital       contributions          are returned      to them at
the end of the syndication.                     Using the sam e exam ple above, let's
now assum e that investors                  would accept a lo-percent             yield    instead
of 13, and that their               initial       capital      contribution      was returned      to
them at the end of the syndication                        period.       Under these
assum ptions,         the amount of capital               raised     would be $795, and with
the sam e percentage             of front       end costs,        the amount of capital
raised      that would be potentially                 available        for the project       would be
$559.       If investors         required       a 15-percent         yield,   capital    raised    and
potentially         available       for the project           would be $444.


Direct       Cornorate    Placements
         .                  \

        As in the case of public                 offerings,        some portion       of the value
of the credits         would be used to attract                   corporate      investments      in
low-income       housing syndications.                  However, for direct           corporate
placements,        expected      investor        yields     typically        consist    of at least
two components.           First,      because the corporate                investor     is usually
exempt from passive            activity        restrictions,          any purchases       of low-
income housing tax credits                 are fully        usable by the corporation              to
reduce its corporate             income tax liability.                 Second, unlike
individual       investors,        corporate        investors        can also fully       use any
project      operating      benefits,        such as depreciation              and interest
deductions,        as a reduction          of any corporate             income.      Therefore,
unlike     individual       investors,         corporate        investors      in low-income
housing can benefit            from two separate              tax subsidies--the          tax
credits      and the passive          activity        deductions.

       We were told that,        because they have more investment                    options
and opportunities       than individual         investors,       corporate      investors
generally    seek higher      yields     from their      investments       than
individuals.        When investing       in tax credit        projects,      corporate
investors    can typically       realize     higher    yields      for the same
investment     because they can also use other project                   benefits        such as
depreciation      in addition      to the yield      attributable        to the credits.
Corporate    investors     we contacted       told us that required             total     yields
are projected       to range from 15 to 20 percent.

       Officials        of organizations        that usually      syndicate   projects
using direct        placements      told us that the transaction            costs for
these deals were generally              projected      to be considerably       less than
for public       offerings.       They said that the transaction             costs,    as a
percentage       of the capital        raised,     ranged from about 8 to 15
percent,      including      a typical     working     capital    reserve   of 3 to 5
percent.        Direct    placement      syndicators      told us that their
transaction        costs were generally           smaller    than those of public
offering.'syndicqtors.          They said that while         certain  costs, such as
legal'and      accounting    fees were comparable      to     the costs associated
with public       offerings,    other costs,  such as        offering  and selling
expenses were considerably           less when selling        to a single  investor.

      . We have pet-formed limited          work regarding       the front   end costs
of direct     placements      to corporate      investors     for six partnership
offerings.       Four of these partnerships             appeared to have fees and
expenses as a proportion            of equity     that were similar       to those of
the publicly      offered     partnerships.         Two of the six offerings       had
costs and fees lower than the other offerings.                      However, there was
not sufficient       information      to account      for the differences       among
fees and expenses.


        Use of the low-income        housing tax credit       program has steadily
grown since the program began, and the program now represents                      the
nation's    primary    effort    to encourage      low-income    housing production.
The increased       importance     of the program requires         that it be used as
efficiently     and effectively        as possible.       Recent legislative
program changes,       extending     the program through        calendar     year 1990,
also could enhance the program's            effectiveness.

       However, it is not possible             to know in advance the amount of
new housing construction            or rehabilitation        that will      be generated
by a given amount of tax credits               made available.          Each syndication
will   provide     equity    to support     a single     property     or a pool of
properties     that will       have widely     varying    yield    structures.      While
tax credits      will    generate    equity    investments,       and one can estimate
the value of taxes foregone             to attract     the investments,         and precise
data on actual        yields    can only be known after           syndications     have
been liquidated.           Further,   it is not known how many credit              projects
have an economic viability            that would have generated             equity
investments      in the absence of the tax credits.
        Many issues associated
                                 with the use of the program will
require    further  study to ensure that maximum program efficiencies
are achieved.      For example, at this point,  many questions   remain

     .   -- Can transaction        costs be reduced so that more of the
         investors'   equity     is potentially   available     for project
         development?     Can this be done without         lessening
         syndicators'    willingness     to package deals?

         -- What would be the implications           of limiting      tax losses
         by excluding    corporate    investors     who receive      more tax
         benefits   than individuals?

         -- How do the costs and benefits      of other financing
         approaches    for low-income housing,   such as direct    grants,
         compare with a program such as tax credits       administered
         through   the U.S. tax code?

       Answers     to these and many other         related     questions       should be
known before       any major housing policy          financing     initiatives       are

        In any event,        if the existing       tax credit     program is to be
continued      on either       a temporary     or permanent basis,         it is
important      that adequate controls           are developed       to ensure that
projects     that receive         credits   are maintained       and operated       in
accordance       with program requirements.             Projects      that have been
awarded credits          should be carefully         monitored    to ensure that they
continue     to qualify        for the annual credits          by serving     low-income
families.        Effective      monitoring     procedures,      coupled with clearly
defined    responsibilities           for compliance      reviews     and appropriate
sanctions      for non compliance,          should be established          to discourage
program abuses.
                                     W-B e-w --- --- W-B

      I&. Chairman,.this  concludes     my statement.   I would be pleased
to respond to any questions    that    you or members of the Subcommittee
may have.

-1                                        .                                         -1

                   .                  .
                                                       1987               1988              1989      Total
     Taxcreditauthority                        $313,113,750   $303,887,310       $314,230,800      $931,231,860
     Tax credit allocation        *              62,885,954    202,227,453        307,320,726       572,434,113
     Fercentofauthorityused                           20.08           66.55                97.80          61.47
     Total/units                                     38,164          91,062              133,887        263,113
       llaw-irwxme credit     units                  34,491          77,825              l24,518        236,834
     ErwJwutoflaw-incane          cxedit units
       New Con&n&ion                                 14,455          33,947               62,590        110,992
       SubsbntialMhab                                10,895          20,038               26,533         57,466
                                                      2,595          13,073               21,962         37,630
                                                      6,546          10,767               13,433         30,746

      crdit    units                                 100.00          100.00               100.00         100.00
       Newcbmtmctian                                  41.91           43.62                50.26         46.86
                                                      31.59           25.75                21.31         24.26
                                                       7.52           16.80                17.64         15.89
                                                      18.98           13.83                10.79         12.98


ATTACHMENT II               .                                                    ATTACHMENT II
           .                        \
                        STATE SUMMARYOF TAX CREDITS USAGE IN CY 1989
Agency                                  Authority       Percent     Credit
                                                         used        units
Alabama                     w $ 5,158,750                   99.93    2,676
Alaska                                  641,250             71.06       375
Arizona                             4,561,250               91.01    1,414
Arkansas                            3,027,500               78.78       224
California                        35,210,OOO                99.57    7,960
Colorado                             4,112,OOO           99.67       1,514
Connecticut                          4,017,500          100.00          587
Delaware                                825,000         100.00          212
District         of Col.                782,500         100.00          202
Florida                             15,471,250          100.00       5,600
Georgia                                 8,001,250       100.00       3,179
Hawaii                                  1,366,OOO       100.00          268
Idaho                                   1,248,750       100.00          490
Illinois                                9,372,842        99.52       3,407
Illinois-Chicago                        5,021,900       100.00       1,866
Indiana                                 6,968,750        99.69       3,188
Iowa                                    3,500,000       100.00       2,099
Kansas                                  3,108,750       100.00               0
Kentucky                                4,651,250       100.00       2,973
Louisiana                               5,525,OOO        99.89       3,493
Maine                                1,507,500          100.00          718
Maryland.                            5,805,OOO          100.00       1,880
MA. I EOCD                           7,391,250          100.00       1,534
Michigan                            11,625,OOO          100.00       5,248
Minnesota                            5,382,500          100.00       2,039
Mississippi                             3,283,750       100.00       2,144
Missouri                                6,424,OOO        99.85       3,260
Montana                                 1,005,944        38.56          135
Nebraska                                2,001,250       100.00          966
Nevada                                  1,325,OOO       100.00          697
New    Hampshire                     1,371,250           80.58          424
New    Jersey                        9,650,OOO          100.00       1,889
New    Mexico                        1,887,500          100.00          886
New    York HDC                      1,300,000          100.00           89
New    York DHCR                    22,372,500           99.77       4,553


ATTACHMENT II                         -                                                       ATTACHMENT II
Agency                                        'Authority             Percent    Credit
                                                                      used       units

New York MLEAC                                 1,628,489             100.00      1,164
North Carolina                                 8,109,OOO              99.83      3,469
North Dakota   -                                  828,750             94.67         358
Ohio                                          13,590,000              99.01      9,414
Oklahoma                                       3,670,875              78.75      2,374
Oregon                                         3,426,250             100.00      1,506
Pennsylvania                                  15,033,750             100.00      5,227
Puerto Rico                                    4,115,ooo              88.74      1,076
Rhode Island                                   1,243,750             100.00         355 -7
South Carolina                                 4,366,250             100.00      2,089
South Dakota                                      893,750         100.00            553
Tennessee                                      6,148,750           99.96         3,004
Texas                                         20,975,ooo           93.94        16,425
Utah                                           2,100,000           90.00            490
Vermont                                           6(bCS,OOQ.      100.00        m&4.6& .z.*_ -,: .=
Virgin   Islands                                   140,000         90.23             48
Virginia                                        7,518,875         100.00         2,363
Washington                                      5,825,875          98.90         2,418
West Virginia                                   2,355,OOO          60.69            710
Wisconsin                                       6,072,500.:       100.00         2,800
Wyoming                                            590,000          4.67             25
Total                         $314,230,800                            97.80    124,518

Source            : National                  Council      of State Housing Agencies      /
                    Urban m                                    ncome Housing TBK'-~           Sutiey.

ATTACHMENT III                                                                   ATTACHMENT III
           .                      .
                        STATE SUMMARYOF TAX CREDITS USAGE IN CY 1988
Agency                                 Authority            Percent   Credit
                                                             used      units
Alabama                             $5,103,750               23.14%       877
Alaska                                    656,250             0.00%          0
Arizona                               4,232,500              76.89%    1,091
Arkansas                              2,985,OOO              26.73%       559
California                          34,578,750               54.63%    5,657
Colorado                               4,120,OOO             85.01%       828
Connecticut                            4,013,750             99.97%    1,032
Delaware                                  777,500           100.64%       819
District    of Col.                       805,000            45.42%       171
Florida                               15,028,750             77.44%    4,716
Georgia                                7,777,500             99.93%    3,658
Hawaii                                 1,353,750              3.40%        18
Idaho                                  1,247,500            101.60%       600
Illinois        *                     11,980,410             50.72%    1,957
Indiana                                6,913,750             28.69%       478
Iowa                                   3,542,500             12.51%       414
Kansas                                 3,095,ooo            100.00%    1,054
Kentucky                               4,658,750             52.41%       462
Louisiana                              5,576,250             57.17%    2,543
Maine                                  1,483,750             90.00%       618
Maryland                               5,668,750            100.00%    2,323
Massachusetts                          7,318,750            100.00%    1,730
Michigan                              11,500,000             88.78%    3,940
Minnesota                              5,307,500             75.50%    1,700
Mississippi                            3,281,250             36.39%       906
Missouri                               6,378,750             95.41%    2,747
Montana                                1,011,250             20.42%       102
Nebraska                               1,992,500             85.66%       685
Nevada                                 1,258,750             57.51%       397
New Hampshire                          1,321,250             68.12%       223
New Jersey                             9,590,ooo             67.26%    1,552
New Mexico                             1,875,OOO            100.00%       802
New York HDC                                                              940
New York SDHCR *                      21,281,250            100.00%    3,862
North Carolina                         8,016,250             66.79%    2,635



ATTACHMENT III                -                                                           ATTACHMENTIII
Agency                                  ' Authority                   Percent    Credit
                                                                       used      units

North Dakota                                 840,000                    5.27%        47
Ohio                                     13,480,OOO                    54.09%    4,294
Oklahom a                                 4,090,000                    42.06%    1,273
Oregon                                    3,405,ooo                    99.90%       874
Pennsylvania                             14,920,000                    30.16%    1,519
Puerto Rico                               3,995,650                    92.18%    1,179
Rhode Island                              1,232,500                   100.00%       361
South Carolina                            4,281,250                    67.52%    1,759
South Dakota                                 886,250                   29.31%       227
Tennessee                                 5,068,750                    57.06%    1,455
Texas                                    20,986,250                    50.31%    5,127
Utah                                      2,100,000                    10.05%        99
Vermont                                      685,000                  100.00%       274
Virgin        Islands                        140,000                   96.34%        44
Virginia                                  7,380,OOO                    82.09%    1,925
Washington                              5,672,500                      68.21%    2,032
West Virginia                           2,371,250                      76.52%       716
W isconsin                 .            6,008,750                      90.15%    2,334
Wyoming                                     612,500                    83.53%       190
Total                                  $303,887,310                    66.55%   77,825

* Ill-Chicago               DOH $7,600,000                       and New York MLEAC $7,600,000
  not included               in state  total                    authority
Source        : National   Council                  of State Housing Agencies /
                Urban Institute                    Low-Incom e Housing Tax Credit           Survey


ATTACHMENT IV               -                                                 ATTACHMENT IV
           .                        \
                         STATE SUT4KARY
                                      OF TAX CREgITS USAGE IN Cy 1987
Agency                                  Authority      Percent     Credit
                                                        used        units
Alaqama                     w $5,000,000                   23.94       443
Alaska                                  670,000             9.30        22
Arizona                             4,150,000              14.23       249
Arkansas                            2,970,ooo              10.89       219
California                        33,730,ooo               15.09    2,497
Colorado                             4,080,OOO             95.75    1,581
Connecticut                          3,990,ooo             11.92       191
Delaware                                790,000            14.42       144
District    of Col.                     780,000            89.10       356
Florida                             14,590,000              9.15    1,251
Georgia                              7,630,OOO             19.93    1,342
Hawaii                               1,330,000              0.00         0
Idaho                                1,250,OOO              2.56        32
Illinois         *                  14,477,500              4.11       755
Indiana                              6,880,OOO             11.67       413
Iowa                                    3,560,OOO           4.95          0
Kansas                                  3,080,OOO          67.37    1,263
Kentucky                                4,660,OOO          41.55    1,899
Louisiana                               5,630,OOO          25.68    1,041
Maine                                   1,470,000          14.31        96
Maryland                             5,580,OOO             21.29       594
Massachusetts                        7,290,000             58.87    1,361
Michigan                            11,430,000              8.95       731
Minnesota                            5,241,250             34.42       921
Mississippi                          3,280,OOO             20.11       512
Missouri                                6,330,OOO          29.38    1,065
Montana                                 1,020,000          61.11       170
Nebraska                                2,000,000          15.99       176
Nevada                                  1,200,000          94.48       445
New Hampshire                           1,280,OOO           3.10        31
New Jersey                           9,525,ooo          14.43          378
New Mexico                           1,850,OOO          43.46          323
New York HDC                         7,600,OOO         100.00          917
New York SDHCR                      22,220,ooo           5.42       1,059
North Carolina                       7,910,000          17.02          741


                  T                    *                                              A T T A C H M E N IV
Agency                .          'Authority                     Percent     Credit
                                                                 used        units
North Dakota                                        850,000          0.20         9
Ohio                                            13,440,000          16.95    2,146
Oklqhoma                               -         4,130,000          54.88    1,033
Oregon                                           3,370,ooo           9.90       310
Pennsylvania                                    14,860,OOO           8.90    1,145
Puerto Rico                                       4,090,000          0.00         0
Rhode Island                                      1,220,000          0.00         0
South Carolina                                    4,220,OOO         16.38       477
South Dakota                                         890,000        20.81       144
Tennessee                                         6,000,OOO         15.25       758
Texas                                           20,850,OOO          14.25    2,575
Utah                                             2,080,OOO          25.09       400
Vermont                                             680,000         15.13        97
Virgin Islands                                      140,000          0.00         0
Virginia                                         7,230,OOO           9.80       712
Washington                                        5,580,OOO         14.59       365
West Virginia                                     2,400,OOO         26.77       436
W isconsin                                        5,980,OOO         21.09       592
Wyoming                                              630,000         2.24        74
Total                         $313,113,750                          20.08   34,491
* Ill-Chicago  DCH $7,600,000 not
included in state total authority
Source : National Council of State Housing Agencies /
         Urban Institute  Low-Income Housing Tax Credit                                Survey


        V                                                                                         ATTACHMENT

                  Tax Credit    &olect    Synd~catm       Funds    Flow Chart

                    Tax Credits Issued From
                     U.S. Treasury = $1,000

                                                          Dilferenca Between
                                                          Government’s Cost
                                                              of Capital and
                                                             Investor’s Yield
                      Present    Value    = $71 2                               b       $99 Risk Premium

                                                            29 5% 01 Capital              $182 Used for
                    Attracts    Equity Capital   =
                                                                                b       Transaction Costs

                  [LeftforPro~=*431                   I--------;

                                                                                    r   $680    in Leveraged

                         $1 ,111 in Qualified