Low Income Housing Tax Credit Program 2011 Qualified Allocation Plan Contact Information: Ruby Dhillon – Rental Programs Administrator Arizona Department of Housing 1110 W. Washington, Suite 310 Phoenix, Arizona 85007 Tel: (602) 771-1000 – Direct: (602) 771-1031 Email: ruby.dhillon@azhousing.gov Qualified Allocation Plan 2011 TABLE OF CONTENTS 1. INTRODUCTION 1.1 Background 1.2 General and Specific Goals 11 11 APPLICATION FOR TAX CREDITS 2.1 Amount and Allocation of State’s Annual Credit Authority 2.2 Tax Credit Reservation 2.3 Application Deadlines, Timetable and Application Submission Location 2.4 Application Format 2.5 Eligibility Requirements 2.6 2011 Set‐Asides 2.7 Project Scoring 2.8 Tie Breaker 2.9 Threshold 2.10 Carryover Allocation 2.11 10% Cost Requirements 14 14 15 15 16 17 17 23 23 38 38 3. 4% TAX CREDITS WITH TAX EXEMPT BOND FINANCING 41 4. GENERAL REGULATIONS 4.1 False Filing 4.2 Satisfactory Progress 4.3 Return of Credits 4.4 Extended Use Period 4.5 Material Changes 4.6 Disclaimer and Limitation of Liability 44 44 44 45 46 47 FINAL TAX CREDIT ALLOCATION 5.1 Requirements for Issuance of Final Allocation (IRS Form 8609) 5.2 Final Allocation Underwriting 48 50 FEES 6.1 6.2 6.3 6.4 6.5 6.6 6.7 51 51 51 51 51 51 52 2. 5. 6. 7. 8. Tax Credit Application Fee Gap Financing Review Fee Reservation Fee, Determination Fee and Final Allocation Fee Tenant Ownership Fees Carryover Allocation and 10% Late Fees Administration Fees Compliance Monitoring Fees UNDERWRITING 7.1 Calculation of Tax Credits 7.2 Underwriting Requirements 53 53 PROJECT COMPLIANCE MONITORING 8.1 Project Compliance Monitoring 8.2 Compliance Monitoring Requirements 59 59 1 Qualified Allocation Plan 2011 EXHIBITS The following Exhibits and Forms are included with the LIHTC application. Exhibits D & L are available on ADOH’s website as individual Exhibits. Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E Exhibit F Exhibit F‐1 Exhibit G Exhibit H Exhibit L Exhibit N Form 2 Form 2‐1 Form 3 Form 7 Form 8 Form 8‐1 Form 8‐2 Form 8‐3 Form 8‐4 Form 10 Form 16 Form 17 Form 20 Form 22 Form 26 Form 28 Form 30 Form 8609‐1 Form 8609‐2 Acknowledgement and Consent from Local Government Sample CPA Opinion Sample Legal Opinion Year 2011 Mandatory Design Guidelines Year 2011 DDA and QCT Sample 10% Cost Test Letter Project Cost Form Sample Final Cost Certification Letter Imputed Incomes/Allowable Rents Market Demand Study Guide Supportive Services Plan Self‐Score Sheet Set‐Aside Election Form LIHTC Application Certification of Qualified Non‐Profit Participation Development Team Experience Development Experience Authorization for Release of Information of Developer Management Company Experience Authorization for Release of Information of Management Company Planning and Zoning Verification Architect’s Certificate Sustainable Development Checklist Occupancy Preferences/Commitment to Service Provider Targeting Low Income Levels Community Revitalization Efficient Use of Tax Credits Project Schedule Contractor’s Certificate Operational Risk Management Practices 2 Qualified Allocation Plan 2011 DEFINITIONS The following definitions shall apply to both the QAP and LIHTC Application for the year 2011: “10% Cost Test” means the requirement of I.R.C. Section 42(h)(1)(E)(ii) that 10% of the reasonably expected basis in the project have been incurred within one (1) year from the date of Allocation. “10‐Year Rule” means the following: (A) In order for an existing building to qualify as part of a tax credit project, the Applicant must acquire the building from an unrelated person who: (1) Has held the building for at least ten years at time of the Application, and (2) Did not make substantial improvements during that period that are subject to 60‐month amortization under I.R.C. Section 197(k) or the Tax Reform Act of 1986. (B) The 10‐Year Rule may be waived by the United States Secretary of the Treasury in the case of distressed sales of certain federally‐assisted projects, prepayment of mortgages that result in buildings being converted to market use, buildings acquired from failed depository institutions, and single family residences used for no other purpose than a principal residence by the Owner. (C) The legal opinion provided by counsel for the Applicant must provide a detailed analysis of the Placed in Service dates and acquisition dates for Projects submitting an application in conjunction with the 10‐Year Acquisition Credits. (D) An appraisal that separates the appraised value of the land from the appraised value of the building must be submitted with the application when 10‐year acquisition credits will be claimed. “Abandoned Property” A property is abandoned when mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 120 days and the property has been vacant for at least 120 days. “Acquisition Credits” means the 4% Credits (as announced monthly by the IRS) awarded by ADOH in connection with the acquisition costs of an existing building. “Administration Fee” means $1,500.00 fee due from the Applicant in the event the Applicant requests an interim underwriting or ADOH requires an additional underwriting due to, among other things, a Material Change. See Section 6.6. ”ADOH” means the Arizona Department of Housing, which is the housing credit agency authorized to allocate federal low‐income housing Tax Credits in the State of Arizona pursuant to A.R.S. Section 35‐728(B). “Affiliate” means any Person or entity, which directly or indirectly, owns or controls another Person by having any family relationship, Ownership interest or a Controlling Interest in that Person. “Affordable Housing” means a multifamily residential rental development using one or any combination of the following funding sources: Low Income Housing Tax Credits; HUD HOME Investment Partnerships Sections 202, 207, 220, 223, 231, 811, and HOPE VI programs; Native American Housing Assistance and Self Determination Act; USDA RD Sections 514 and 515 programs; or the Arizona Housing Trust Fund. 3 Qualified Allocation Plan 2011 “Allocation” means the award of Tax Credits by ADOH to an Applicant or an Owner of a LIHTC Project. The Allocation is set forth in a binding agreement between ADOH and the Owner. “Allocation Year” means the calendar year for the current annual allocation authority for which LIHTC Applications are submitted. “Applicant” means an existing legal entity or an individual submitting an Application for LIHTC for a Project pursuant to the Allocation Plan. “Applicable Fraction” means as provided by I.R.C. § 42(c)(1)(B). “Applicable Percentage” means as provided by I.R.C. § 42(b) as currently amended by the Housing and Economic Recovery Act of 2009, (Pub.L. 110‐289, 122 Stat. 2654). “Application” means the Low Income Housing Tax Credit Application described in Section 2.4 hereof. “Appraisal” means an estimate of the value of Project real property based on market information, including comparable properties, that is current through the period ending no earlier than 6 months before the deadline for submittal of the application; and that is prepared in accordance with the Uniform Standards of Appraisal Practice by an analyst who is not associated with the Development Team, bond issuer or user of bond proceeds and who is authorized to render the Appraisal in Arizona. An Appraisal that deviates from the requirements of this Paragraph must provide a detailed explanation of why the deviation cannot be avoided. “Area Median Gross Income” or “AMGI” means the measure of household income, adjusted for family size, used by the IRS as a reference in establishing income levels for the LIHTC Program (e.g., “60% of AMGI,” “50% of AMGI”) and as the base in calculations that yield maximum rents by number of bedrooms. See the “Imputed Incomes/Allowable Rents” tables appended to this Plan at Exhibit H. “A.R.S.” means the Arizona Revised Statutes, as amended from time to time. “Award Letter” means a letter from a governmental or quasi‐governmental agency, e.g., the Federal Home Loan Bank, stating that funds in a specific amount are awarded or are to be awarded to the Project in a specific time frame. “Blight” means areas and neighborhoods with obsolete or inadequate infrastructure, unsanitary and unsafe conditions, as well as areas where a large number of Building structures are dilapidated or deteriorated as generally described, as defined by HUD. “Blighted Structure” means a structure that exhibits objectively determinable signs of deterioration sufficient to constitute a threat to human health, safety, and public welfare. “Builder” means the general contractor that is a member of the Project’s Development Team. “Capital Needs Assessment or (“CNA”) means the assessment as set forth in Section 2.10(AA)(2)(C). “Carryover Allocation” means an Allocation made to the project if the project will not be Placed in Service by close of the calendar year of the Allocation. “Carryover Allocation Late Fee” means an additional fee of $250.00 per day if the information required under Section 2.11 of this Plan is submitted after December 1 of the Allocation Year. 4 Qualified Allocation Plan 2011 “Census Designated Place (CDP)” means a statistical entity, defined for each decennial census according to Census Bureau guidelines, comprising a densely settled concentration of population that is not within an incorporated place, but is locally identified by a name. CDPs are delineated cooperatively by state and local officials and the Census Bureau, following Census Bureau guidelines. Beginning with Census 2000 there are no size limits. “Co‐Developer” means one of two or more Developers of the same project. “Code” and “I.R.C.” mean the Internal Revenue Code. ”Common Area Facilities” means on‐site laundry facilities, site office, maintenance and storage areas, community rooms, community service facilities as described in Exhibit D. “Commitment Letter” means a written commitment from a lender or other provider of funds, representing a commitment to provide financing and stating the amount, interest rate, fees, term of the loan, debt service coverage, security, and repayment terms, subject only to reasonable, commercially‐acceptable contingencies. “Community Facility” means community room, clubhouse, recreation center or the like. Lobbies and laundry facilities shall not be considered within the scope of this definition. “Community Services Facility” means a facilities Building as described in I.R.C. Section 42(d)(4)(C)(iii). “Community Revitalization” means the strategic process of transforming Blight, Blighted Structures and Severely Distressed Public Housing in neighborhoods and communities that are located within a geographic area or on a parcel of property for which a specific housing priority area has been established by the local, federal or state government, and is memorialized in a local Affordable Housing plan or a comparable document. “Compliance Manual” means the LIHTC Program Compliance Manual developed by ADOH. “Compliance Period” means the compliance period for a building begins with the first year of the building’s Credit period, the first taxable year in which the Owner claims Tax Credits for the Project of which the building is a part, and lasts for 15 consecutive taxable years. “Consultant” means an advisor to the Development Team or to any member of the Development Team. “Controlling Interest” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the means of Ownership, position, contract or otherwise. “Council of Governments Regions” means one of the four rural Councils of Governments in Arizona serving regional planning districts. The four rural councils and the districts they serve are: Northern Arizona Council of Governments (NACOG), serving the Region 3 Counties of Apache, Coconino, Navajo and Yavapai Counties; Western Arizona Council of Governments (WACOG), serving the Counties of LaPaz, Mohave and Yuma in Region 4; Central Arizona Association of Governments (CAAG), serving Region 5: the Counties of Gila and Pinal; and South Eastern Arizona Governments Organization (SEAGO), serving Region 6, the counties of Cochise, Graham, Greenlee and Santa Cruz. “Deadline Date” means on or before 4:00 p.m. Mountain Standard Time of the day designated by ADOH as the last day to submit an Application for a competitive Allocation round. 5 Qualified Allocation Plan 2011 “Deferred Developer Fee” means a certain sum of money owed to the Developer and evidenced by a promissory note, partnership agreement, or other written agreement acceptable to ADOH, such fee to be repaid from the Project’s cash flow after payment of operating expenses of the Project and after payment of debt service for all superior liens. “Defunct Property” means a property that is not operative, valid, or functional for period of twelve (12) months or longer. “Determination of Qualification” means a letter issued by ADOH in accordance with I.R.C. Section 42(m), that indicates that the Project, which has utilized tax‐exempt financing, qualifies for an amount of Tax Credits and is in compliance at the time of the letter with all rules established by this Plan. “Determination of Qualification Fee” means the fee payable after ADOH determination that an Application represents a feasible and viable Project with a likelihood of completion and it is payable prior to the issuance of a Determination of Qualification or Reservation pursuant to Section 42(m). (See Section 6) “Developer” means any legal entity or Person, which provides or arranges for design, financing, or construction services in connection with a Project. “Development Team” means the entities and professionals assembled to develop and manage the Project, typically comprising the Developer(s), general partner, contractor, property management company, tax attorney, certified public accountant, and all other Project Consultants. “Elderly Person” means a household composed of one or more persons at least one of whom is 62 years of age or more at the time of initial occupancy. “Extended Use Period” means the term of the LURA and shall be a minimum of 30 years. “Federal Subsidy” for the purposes of tax credits, Federal Subsidies include federal grants and below market rate federal loans through programs such as those administered by HUD (with some exceptions for CDBG and HOME) and Rural Development, tax‐exempt financing and other locally administered low‐interest loans or grants from federal sources. Use of these financing sources may require reductions in eligible basis or reductions in a Project’s maximum Applicable Credit Percentage (see I.R.C. Section 42(d)(5)(A) and 42 (i)). “Final Allocation Fee” means the fee payable upon the issuance of IRS Form 8609 equal to 2% of the Allocation or any additional outstanding fees owed to ADOH. “Financial Statements” means a complete and accurate income statement, cash‐flow statement, balance sheets and accompanying notes prepared according to Generally Accepted Accounting Principles. “Financial Beneficiary” means a Person who is to receive a financial benefit of: a) 3% or more of total estimated Project cost if total estimated Project cost is $5 million or less, and b) 3% of the first $5 million and 1% of any costs over $5 million if total estimated project cost is greater than $5 million. This definition does not include the Owner of the Tax Credit Project unless the Owner is also the Developer or the Builder and meets the above financial requirements. “Foreclosed Property” means a property “has been foreclosed upon” at the point that, under state or local law, the mortgage or tax foreclosure is complete. Foreclosure shall be deemed complete after the title of the property has been transferred from the former homeowner under some type of foreclosure proceeding or transfer in lieu of foreclosure, in accordance with state or local law. 6 Qualified Allocation Plan 2011 “Funding Gap” means the amount by which projected development costs exceed projected available funds. “Gap Analysis” means the second analysis for calculating credits to determine that the Project has not been overfunded with tax credits. See Section 7.1(B) for calculation. “Gap Financing” means funding through one or more programs administered by ADOH that may be available to a Project to fill the Funding Gap. “Horizontal Improvements” means grading, installation of utilities including, but not limited to, water, sewer, and power lines, and paving, curbs and gutters. “HUD” means the United States Department of Housing and Urban Development. “LIHTC” means the Low‐Income Housing Tax Credit program under I.R.C. Section 42. “Letter of Interest or Intent” means the documentation addressed to the Applicant/Developer of an interest or intent to provide funding, setting forth the writer’s intention to negotiate the financing and stating the amount, interest rate, security, repayment terms and including the minimum debt service coverage ratio and loan‐to‐value ratio used by the lender to size the financing, as applicable. If the sole Developer of the Project is a non‐profit organization, the Letter of Interest or Intent from the investment syndicator must state that the non‐profit holds the right of first refusal to acquire the Project following the fifteen‐year compliance period. Such letters or documents may be subject to reasonable, commercially acceptable contingencies, as determined by ADOH in its sole discretion. “Local Government” means the governing body of the city, town, county or tribal government having jurisdiction over the real property upon which the Project will be located. “Low‐Income Unit” means any Unit in a Project if the Unit is rent restricted (as defined in I.R.C. Section 42 (g)(2)) and the individuals occupying such Unit meet the income limitation applicable under I.R.C. Section 42 (g)(2) for the Project. “LURA” means the “Extended Low‐Income Housing Commitment” required by Code Section 42(H)(6) which shall be in the form of a Declaration of Affirmative Land Use and Restrictive Covenants Agreement (commonly referred as the “LURA”) that runs with the land on which the Project is developed, restricting the use of land by the Owner and its successors to the terms and conditions of the Project, as approved by ADOH. “Major Life Activities” for the purpose of the American Disabilities Act means “functions such as caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working.” See 45 CFR Section 84.3(j)(2)(ii). “Market Demand Study” means a third party report that outlines the overall market demand for a Project within a defined market area and identifies, with significant detail, the current supply of similar units, demographics, and economics contained within the market area. “Material Changes” are as described in Section 4.5. “Non‐Profit Project” means a project that meets the requirements of Section 2.9(G). “Obsolescence” means a loss in value due to factors outside the property lines of the subject property that adversely affect the usability and value of the subject property or its actual or potential income. 7 Qualified Allocation Plan 2011 “Operating Expenses” means the fixed and variable expenses of operating the Project, including, but not limited to taxes, insurance, utilities, management, and replacement reserves, but excluding debt service. “Owner” means the legal entity that ultimately owns the Project and to which tax credits will be allocated. “Permanent Financing” means the difference between total development costs and tax credit equity contributions. “Person” means an individual, partnership, corporation, trust or other entity. “Placed in Service” means: (i) for a new or existing building used as residential rental property, the date on which the building is ready and available for its specifically assigned function, i.e., the date on which the first Unit in the building is certified as being suitable for occupancy in accordance with state or local law; and (ii) rehabilitation expenditures that are treated as a separate new building are placed in service at the close of any 24‐month period over which the expenditures are aggregated. “Project” means any project for residential rental property if the Project meets the requirement of subparagraph (A) or (B) whichever is elected by the taxpayer: (A) 20‐50 Test ‐ The project meets the requirements of this subparagraph if 20 percent or more of the residential units in such project are both rent‐restricted and occupied by individuals whose income is 50 percent or less of area median gross income. (B) 40‐60 Test ‐ The project meets the requirements of this subparagraph if 40 percent or more of the residential units in such project are both rent‐restricted and occupied by individuals whose income is 60 percent or less of area median gross income. Any election under this paragraph, once made, is irrevocable. For purposes of this paragraph, any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes. Scattered Sites may be considered to be one project if the Scattered Sites meet the above definition and the requirements in the “Scattered Sites” definition in this Section. “Property Manager” or “Property Management Company” means the entity responsible for marketing, maintenance, and tenant relations for a building financed with tax credits under this Plan. “Reservation” means a written statement issued by ADOH to the Applicant after the application round indicating that ADOH has reserved for the Project a specific amount of tax credits. “Reservation Fee” the Reservation Fee is calculated as 10% of the annual credit allocation. (8% of the reservation fee is due and payable at Reservation with the remaining 2% due and payable at final allocation. “Residential Rental Unit” means an area legally licensed or permitted for use as a living space containing a sleeping area, bathing and sanitation facilities, and cooking facilities equipped with a cooking range, refrigerator, and sink, all of which are separate and distinct from other Residential Rental Units. Federal Tax Regulations (FTR) 1.103‐8(a) 8(i). “Rural Project” means a Project located outside of Maricopa and Pima Counties or in a “rural area” as defined in 7 C.F.R § 3550.10. 8 Qualified Allocation Plan 2011 “Satisfactory Progress” means that the Applicant, including any person with an ownership interest in the applicant or Development Team member, has presented evidence, satisfactory to ADOH, that each Project for which the Applicant has received a Determination of Qualification, Reservation, or Allocation in Arizona or any other state, has been Placed in Service on time or otherwise is progressing without unreasonable delay though the various phases of development, i.e., financing, permitting, construction, certificate of occupancy, and rehabilitation. “Scattered Sites” means a Project which is comprised of separate Buildings that are considered a single Project if the Buildings meet the following criteria: A. Consist of no more than six (6) non‐contiguous parcels within a 15‐mile radius of each other; B. All buildings in the Project must be under the ownership of one entity; C. All units in the scattered site application must be managed by one entity; D. All buildings in the Project must be developed under one common plan of financing and considered as a single Project by all funding sources; E. The scattered sites must be appraised as a single proposed development; and F. Otherwise meets the requirements of I.R.C. §42(g)(7) when it is placed in service. “Site Control” means Applicant’s evidence of ownership or control over the land required for the project in the form of: (i) a binding Commitment Letter from a governmental entity to transfer land to Applicant; (ii) a recorded deed with Applicant as grantee, (iii) a long term lease with Applicant as grantee or (iv) a lease option or fully executed purchase option agreement between Applicant and Owner of property as recorded in jurisdiction of property. “Special Needs Populations” means the homeless, the seriously mentally ill, the physically disabled, individuals infected with the human immune‐deficiency virus or other populations with specialized housing needs. Other populations with specialized housing needs may include:  Homeless Individual(s): a person(s) who has lived: a) in places not meant for human habitation such as cars, parks, sidewalks, abandoned buildings, etc.; b) in an emergency or shelter facility; c) in a transitional housing facility (not permanent housing).  Seriously Emotionally Disturbed, i.e., persons between birth and age 18 who currently or at any time during the past year have had a diagnosable mental, behavioral, or emotional disorder that resulted in a functional impairment which substantially interferes with or limits the person’s role or functioning in family, school, or community activities.  Developmentally Disabled Persons suffering from a severe, chronic condition attributable to a physical or mental impairment manifesting itself before the age of 22 and likely to continue indefinitely. Developmentally disabled persons are to be certified by a referral agency.  Victims of Domestic Violence as certified by a referral agency.  Individuals Suffering from Chronic Substance Abuse, as certified by a referral agency. 9 Qualified Allocation Plan 2011 “State Annual Credit Authority” means the total amount of tax credits allocated to the state by the IRS each year based on the population of the state and multiplied by a dollar amount per resident that is adjusted annually for inflation. “Supportive Housing” means affordable permanent independent rental housing for persons who are homeless or have disabilities. These populations are limited, however, to the following groups: Homeless Individuals; seriously mentally ill; Seriously Emotionally Disturbed; physically disabled; Developmentally Disabled Persons; victims of AIDS/HIV; Victims of Domestic Violence; and Individuals Suffering from Chronic Substance Abuse. See definition of “Special Needs Populations”, above for more complete definitions of these groups. Supportive services are provided to residents of supportive housing on an as‐ needed basis for as long as they are needed, with the purpose of helping residents achieve maximum possible self‐sufficiency and maintain their permanent housing. Supportive services may be provided directly by the Owner or through coordination with existing service agencies and may be delivered through a combination of both on‐ and off‐site service delivery mechanisms, with the provision that an on‐site service coordination capacity must be maintained. “Supportive Services” means services provided by the service provider to help residents enhance their way of living and achieve self‐sufficiency. “Syndication Rate” means a ratio that reflects the price to the Project for $1.00 of tax credits awarded. “Total Direct Construction Costs” means the costs to construct the Project which matches the Construction Contract and line 52 on Form 3 of the Development Budget. “Unit” means any accommodation containing separate and complete facilities for living, sleeping, eating, cooking, and sanitation (e.g. a residential dwelling, consisting of one apartment, one single family home, one half of a duplex, etc.). Such accommodations may be served by centrally located equipment such as air conditioning or heating. “Vertical Improvements” means permits have been issued and construction has commenced on vertical project improvements which include buildings, walls, swimming pools, etc. “Water Conservation” means the preservation and careful management of water resources. “Xeriscape Landscaping”, means landscaping designed specifically for areas that are susceptible to drought, or for properties where Water Conservation is practiced. 10 Qualified Allocation Plan 1. INTRODUCTION 1.1 Background 2011 (A) The federal Low‐Income Housing Tax Credit (“LIHTC” or “Tax Credit”) 1 program was established by the Tax Reform Act of 1986, codified in Section 42 of the Internal Revenue Code of 1986, as amended (“I.R.C. Section 42”) to encourage construction and rehabilitation of low‐income rental housing. The Arizona Department of Housing (“ADOH”) is the housing credit agency responsible for allocating Tax Credits to Owners of qualifying residential rental Projects. The Revenue Reconciliation Act of 1989 amended I.R.C. Section 42 by adding Section 42(m), which requires allocating agencies to allocate Low‐Income Housing Tax Credits pursuant to a Qualified Allocation Plan (“QAP,” “Plan,” or “Allocation Plan”). I.R.C. Section 42(m) describes the purposes and requirements for this Plan. (B) There are two methods for obtaining a Tax Credit Allocation pursuant to this Plan: (i) through a competitive application process and (ii) tax‐exempt bond financing. (C) Changes to the Plan. (1) Annual Plans. DISCLAIMER: ADOH may submit a new proposed plan with substantial changes for public review and comment from time to time. ADOH may add, delete, or substantially change eligibility requirements, set‐asides, scoring, threshold and underwriting requirements for a new plan. (2) Changes to Approved Plans. As provided by I.R.C. § 42(m)(1)(A)(iv) ADOH may in its discretion make changes to this Plan. Although ADOH will make every effort to avoid substantial changes to the Plan after a competitive round has been announced such changes may be necessary from time to time to respond to changing market conditions, address critical needs, and maximize the Allocation of Tax Credits. Should changes to this Plan or other tax credit programs occur, ADOH shall post a Public Notice on the ADOH website and email a notification of the same to all applicants. ADOH may modify this Plan, including its compliance and monitoring provisions, from time to time, or for any other reasons as determined by ADOH: (1) to reflect any changes, additions, deletions, interpretations, or other matters necessary to comply with I.R.C. Section 42 or regulations promulgated there‐under; (2) to respond to changes in the market for affordable housing; (3) to insert such provisions clarifying matters or questions arising under this Plan as are necessary or desirable and that are contrary or are inconsistent with this Plan or I.R.C. Section 42; or (4) to cure any ambiguity, supply any omission or correct any defect or inconsistent provision with this Plan or I.R.C. Section 42. 1.2 General and Specific Goals (A) General Goals. For projects that are not financed through tax‐exempt bonds the LIHTC program is a competitive program. See Section 3 for the process and requirements for Tax Credits to projects financed by tax‐exempt bonds. In furtherance of the statutory provisions affecting the program, ADOH has established the following general goals for allocating Tax Credits in Arizona: 1 The defined terms that are used in this Plan are in Section 2, Definitions. Terms that are defined in Section 2 are capitalized with the exception of the following commonly used terms: applicant, application and project. 11 Qualified Allocation Plan 2011 (1) To maximize the number of affordable rental housing units added to the existing housing stock; (2) To develop affordable rental housing units in areas with the highest market demand while avoiding concentration of affordable properties in distressed areas; (3) To develop affordable rental housing units necessary to satisfy a critical need in an area; (4) To allocate Tax Credits to projects that provide the greatest overall public benefits; (5) To encourage development and preservation of appropriate rental housing for people and families that need governmental assistance to find and maintain suitable, habitable, and affordable rental housing in the private marketplace; (6) To enable substantial rehabilitation of existing rental housing in order to prevent losses to the existing supply of affordable Units; (7) To prevent the loss from the existing stock of low‐income rental housing of those Units under expiring contracts with federal agencies or subject to prepayment which, without the Allocation of Tax Credits, would be converted to market rate Units; (8) To maximize the utilization of Tax Credits; (9) To provide an equitable distribution of Tax Credits across the State; (10) To provide opportunities for participation in the Tax Credit program to all qualified sponsors of low‐income rental housing; and (11) To provide Local Government entities with notice and opportunity to comment on Tax Credit development proposed within their jurisdictions. (B) Specific Goals. In allocating Tax Credits, ADOH seeks to achieve specific goals. These are: (1) To use Tax Credits in connection with rental housing ʺprojects serving the lowest income tenants,ʺ see I.R.C. §42(m)(1)(B)(ii)(I); (2) To use Tax Credits in connection with rental housing ʺprojects obligated to serve qualified tenants for the longest periods,ʺ see I.R.C. §42(m)(1)(B)(ii)(II); (3) To make Tax Credit funding available to projects serving low‐income populations ‐‐ including families with children, homeless Persons, veteran’s, and elderly citizens; (4) To hold competition to determine those projects considered sound investments of public funds; (5) To expend the minimum amount of public funds necessary to accomplish program goals; (6) To administer the LIHTC program in a manner that encourages timely Project completion and occupancy; (7) To encourage the highest available quality and design standards for Projects financed with Tax Credits; and 12 Qualified Allocation Plan 2011 (8) To develop and promote Sustainable Communities. 13 Qualified Allocation Plan 2011 2. APPLICATION FOR TAX CREDITS 2.1 Amount and Allocation of the State’s Annual Credit Authority Annual Tax Credit Ceiling. The federal government establishes the State Annual Credit Authority which limits the dollar amount of tax credits that ADOH may allocate to qualifying Projects, and detailed eligibility standards and priority uses for available tax credits. The State’s Annual Tax Credit Authority is typically insufficient to fund all applications. This Plan explains the competitive process that ADOH uses to allocate its annual authority for 9% tax credits in 2011. For calendar year 2011, the amount used under Section 42(h)(3)(C)(ii) to calculate any stateʹs LIHTC program credit ceiling amount is the greater of (i) $2.15 multiplied by the stateʹs population or (ii) $2,275,000. These figures are adjusted annually for inflation. Arizona’s LIHTC program credit ceiling amount for the calendar year 2011 is approximately $14,180,922.70. The amount of tax credits available through this Plan in any allocation round is the annual tax credit ceiling adjusted by the amount of tax credits already allocated, tax credits returned, tax credits carried over from the previous year, and any national pool tax credits that the State may receive. Changes to this Plan due to changes in applicable Federal Law shall be announced by ADOH through a public notice. 2.2 Tax Credit Reservation Maximum Reservation. The amount of Tax Credits awarded to any one Project shall be the lesser of the Eligible Basis Analysis or the Gap Analysis. No more than two Projects will be awarded to any one Owner/Developer. In the event of a competitive round under this Plan after the 2011 calendar year, ADOH may limit the maximum amount of Tax Credits available for a reservation in a separate notice. (A) Tax Credit Reservation. ADOH, based upon an evaluation of applications and in its sole discretion, shall reserve Tax Credits as follows: (1) First to Projects in each set‐aside category, preference being given to Projects with the highest competitive score that: 1) meets eligibility and threshold requirements; 2) demonstrate a strong market demand; and 3) meet underwriting requirements. (2) Second to Projects that have not designated or do not qualify for a set‐aside, preference being given to Projects with the highest competitive score that: a) meet threshold and eligibility requirements; b) demonstrate a strong market demand; and c) meet underwriting requirements. (3) ADOH reserves the right not to reserve or allocate Tax Credits for any Project regardless of ranking under the Project scoring criteria, if it determines, in its sole discretion, that an Allocation for such Project does not further the purpose and goals set forth in I.R.C. Section 42 or in the Plan, or otherwise attempts to circumvent the goals and requirements of the Plan or ADOH. (4) ADOH shall reserve Tax Credits to a Project through a letter notifying the Applicant of the Tax Credit Reservation. ADOH may condition the Reservation upon satisfaction of specific requirements which may include, without limitation, a request for payment of the Reservation Fee, requirements for meeting Carryover, and requirements for meeting the 10% Cost Test. Failure to satisfy the conditions explained in the letter may result in cancellation of the Reservation. 14 Qualified Allocation Plan 2011 (B) Reservation List. ADOH shall establish and make available to the public a Reservation List describing Projects receiving an allocation in the order described in this Section along with the name of the Project, Project location, Set‐Aside category, and annual Tax Credit amount. ADOH will publish a waiting list for the five highest scoring Projects that pass eligibility requirements, threshold criteria, and underwriting review that did not receive a Reservation of Credits. (C) Allocation of Returned Credits. ADOH may allocate Tax Credits that have been returned and those it has received from the National Pool to projects that were not fully funded or are on the waiting list. ADOH may carry forward remaining Tax Credits to the next calendar year as permitted under I.R.C. Section 42. Returned Tax Credits may be allocated to the next highest scoring Projects that meet eligibility requirements, threshold criteria and underwriting review. (D) Forward Commitments. ADOH may consider forward commitments of Tax Credits from the following year’s annual Tax Credit ceiling amount for Projects that received a partial allocation or in the event that ADOH determines that a material error prevented an otherwise qualifying Project from receiving a Reservation. The amount of Tax Credits reserved to Projects in the subsequent Allocation round may be no more than the amount needed to fully fund the Project based on review and underwriting at the time that the forward commitment credits are reserved. Forward commitments may be granted by ADOH in its sole discretion for the purpose of maximizing the Allocation of Tax Credit amounts available in the current Tax Credit year. (E) Unsuccessful Applicants. After ADOH announces the Reservation of Tax Credits, unsuccessful Applicant’s may request a meeting with program staff to discuss their Application. ADOH may also accept written questions concerning its scoring of items in an Applicant’s Application. Questions must be based solely on facts provided in the Applicant’s original Application. A final decision denying an Application for Tax Credits shall provide notice of the right to administrative appeal pursuant to A.R.S. §§ 41‐1092 through 1092.12. An unsuccessful application for reservation of tax credits shall expire on the date the governor approves a subsequent Plan or otherwise upon notice by ADOH. 2.3 Application Deadlines, Timetable, and Application Submission Location (A) Allocation Rounds. ADOH may hold one or more Tax Credit Application rounds pursuant to this Plan. (B) Application Deadline and Payment of Fee. A non‐refundable application fee of $5,000 for each Application is due on or before 4:00 P.M. March 1, 2011, or as may be otherwise announced by ADOH in an Information Bulletin published on the ADOH website. Bound, hard‐copy applications must be submitted to the reception desk of the Arizona Department of Housing located at 1110 West Washington Street, Suite 310, Phoenix, Arizona 85007. Online Applications will be submitted through the ADOH website. Facsimile and e‐ mail submissions shall not be accepted. 2.4 Application Format Applicant must submit one (1) hard copy; one (1) electronic submittal, and two (2) CD’s of the complete Application binder. Hard copy Application materials must be in 8‐1/2 x 11 format, placed in one adequate sized three ring binder, indexed and tabbed as described in this Plan. Exceptions: (1) all drawings/plans may be included unbound if they do not lend themselves to the 8‐1/2 x 11 formats. All such plans should be in the smallest practical (readable) format. The maximum acceptable drawing size is C‐size; and (2) items of significant volume (such as an Appraisal, Market Demand Study or Capital Needs Assessment) may be 15 Qualified Allocation Plan 2011 submitted as separate bound items. Each Application must comply with the format and content of this. ADOH may reject any Application that does not conform to the requirements of this Plan or is submitted after the Deadline Date. 2.5 Eligibility Requirements ADOH shall evaluate all Applications in a competitive review process except those financed with Tax Exempt Bonds. ADOH may deny an Application for Tax Credits that fails to meet Eligibility Requirements regardless of its score. Applications that meet the Eligibility Requirements shall be scored, and then reviewed for threshold requirements under their appropriate set‐aside category, if any. The following criteria must be met in order to meet the Eligibility Requirements: (A) Application Submittal and Fees. One original Application organized in the prescribed sequence and format, as required by this Plan, must be accompanied by a $5,000.00 Application fee. ADOH shall deem an Application ineligible if an Application fee payment does not clear to ADOH’s deposit account. (B) Proof of Online Application Submittal. Applicant must provide the e‐mail confirmation submittal provided by ADOH at the time the online Application is uploaded. (C) Application Workshop. Applicants (or Development Team designee) are required to submit Certificate of Attendance of the 2011 Tax Credit Application Workshop. (D) Developer Compliance Training. LIHTC Developers or ADOH approved Development Team designee shall attend compliance training at a minimum of every five years. Developer/Owner must provide a compliance training certificate as a part of the 2011 LIHTC Application. NOTE: Approved Compliance Training providers are: ADOH, Compliance Solutions, THEOPRO and Spectrum. (E) Authorized Signatures. All documents that require a signature must be signed by the Applicant’s authorized representative. Applicant must be an existing legal entity authorized to conduct business in Arizona and in good standing with the office of the Secretary of State of Arizona. ADOH shall not consider forms signed on behalf of an entity that is not duly formed or by a representative without authority. (F) Current Accounts. At the time the Application is submitted, no member of the Development Team may be in default on a low‐income housing financial obligation to ADOH, HUD, or to any Local Government or housing authority in Arizona. (G) Satisfactory Progress and Compliance. ADOH may reject Applications for Projects having Development Team members that do not meet the requirements of this Plan or have failed to comply with the Tax Credit requirements and conditions in previous Applications or developments including, but not limited to, payments due on ADOH loans, payment of any other fees as described in Section 6 of this Plan. (H) Acknowledgement and Consent from Local Government. ADOH shall notify the Local Government where the Project is located and request that the Local Government provide a letter of acknowledgement and consent to the Project in the form of Exhibit A. An Application shall be deemed ineligible in the event that the Local Government either fails to provide the letter or otherwise indicates that the proposed Project is unfavorable. 16 Qualified Allocation Plan 2011 (I) Disqualification. ADOH may reject an Application if the Applicant, including any Person with a Controlling Interest in the Applicant or other members of the Development Team have: (a) failed to make Satisfactory Progress in the construction or rehabilitation of any Project; (b) not corrected compliance problems in other Tax Credit Projects as provided in Section 8 ; (c) not paid, when due, ADOH’s compliance monitoring fees or any other fees required by ADOH; (d) filed with ADOH any materials containing false information, documents, or instruments, whether in the Allocation Year or prior program years; (e) failed to build a previously‐approved in conformity with the terms, provisions, and agreements contained in the Application submitted to ADOH, in the applicable year’s Allocation Plan, and in the LURA for the Project, including but not limited to, the terms, provisions and agreements to conform to the minimum design standards, install equipment, amenities, or design features to serve a specific target population, to provide a specific mix of Unit sizes, to serve Special Needs Populations, or to set aside a certain number of Units for persons at or below a specific percent AMGI; (f) developed or partially developed prior Projects that are poorly constructed, evidence substandard workmanship, or do not comply with ADOH’s minimum design standards; (g) been convicted, are currently under indictment or complaint, been found liable or is currently accused of fraud in this state or any other state, or misrepresentation relating to: (i) the issuance of securities, (ii) the development, construction, operation, or management of any Tax Credit or other government subsidized housing program, (iii) the conduct of the business of the applicable party, in any criminal, civil, administrative or other proceeding, or (iv) any filing with the Internal Revenue Service in any state; or (h) have been suspended or debarred by HUD. ADOH may reject an application if it concludes that a Development Team member does not have the expertise and the organizational and financial capacity to undertake the Project described in the Application. 2.6 2011 Set‐Asides. In the event that there is more than one qualified Application in a Set‐Aside category, ADOH shall allocate Tax Credits first to the highest‐scoring Applications meeting all eligibility, threshold, and underwriting requirements in the order of Set‐Aside categories below. SUPPORTIVE HOUSING RURAL TRIBAL NONPROFIT 2.7 One (1) Permanent Supportive Housing Project for Chronically Homeless with 20% of the Units set‐aside with a preference for Veteran’s ‐ See Tab 19 Requirement #5 for supporting documentation. Two (2) Projects located in rural areas; each Project located in a separate rural COG (NACOG, WACOG, SEAGO & CAAG). Two (2) Projects located on Tribal Lands. 15% of the State’s annual credit authority is Set‐Aside for “Non‐ Profit Projects”, as defined in this Plan. Only Non‐Profit Projects that meet all of the threshold requirements in Section 2.9(G) shall be eligible for an allocation of Non‐Profit Set‐Aside credits. The allocation of Non‐Profit Set‐Aside credits shall be based on the rankings of Non‐Profit Projects under the scoring system. Project Scoring Scoring means review of the Applicant self‐scores by verifying support for the points claimed, based on the criteria set forth in this Section. ADOH shall award and or deduct points based solely on the information submitted in the Application. An Applicant must provide documentary support for points claimed, as mandated in Section 2.9 of this Plan. ADOH may deny a claim for points if the correct forms or required information are not submitted, or are not submitted at the correct tab, or if information available to ADOH negates a claim for points. 17 Qualified Allocation Plan 2011 ADOH shall score Projects in the following sixteen (16) categories: 2.7(A) Developer Experience 10 points max One (1) completed Tax Credit Project that has been Placed in Service: Two (2) completed Tax Credit Projects that have been Placed in Service: Three (3) completed Tax Credit Projects that have been Placed in Service: Four (4) completed Tax Credit Projects that have been Placed in Service: Five (5) or more completed Tax Credit Projects that have been Placed in Service: Section 2.9(H)/Tab 8 2 points 4 points 6 points 8 points 10 points Ten points will be deducted from Applicant’s Self‐Score if within the last five (5) years, the Developer entity or Person with controlling interest of the Developer entity was removed from a project that was allocated Tax Credits. 2.7(B) Sustainable Development 30 points max Section 2.9(Q)/Tab 17 30 points are available to Projects that use the LEED for Homes Gold Certification path. Materials and Indoor Air Quality (up to 5 points) SYSTEM COMPONENT Construction Use Material Selection New and Rehab All adhesives and finishes applied on site utilize zero VOC products. All carpets are Green Label Plus certified by the Carpet and Rug Institute. 2 Flooring New and Rehab Hard surface flooring materials used throughout the dwelling units (excludes sheet vinyl). 2 Exhaust Fans Rehab Install power vented bath fans that exhaust to the exterior. 1 Exhaust Fans Rehab Install power vented range hoods that exhaust to the exterior. 1 Fresh Air New and Rehab Install an energy‐recovery ventilator (ERV) in the dwelling units. 2 Preoccupancy Flush New and Rehab Seal all registers and any open duct work during construction and perform an extended occupancy flush (run all ventilation fans with the windows open) for 48hours prior to occupancy (does not need to be 48 contiguous hours). 0.5 Smoke‐free Building New and Rehab Enforce a ʺno smokingʺ policy in all common and individual living areas in all buildings (as per Enterprise Sustainable Communities standard 7.17). 0.5 Construction Waste Management New and Rehab Develop and implement a construction waste management plan to reduce the amount of materials to less than three pounds per square foot of conditioned space sent to the landfill. 2011 SUSTAINABLE CRITERIA 18 Points Avail. 1 Qualified Allocation Plan 2011 Water Efficiency (up to 5 points) SYSTEM COMPONENT Toilets Showerheads Construction Use New and Rehab New and Rehab 2011 SUSTAINABLE CRITERIA Points Avail. Dual Flush Toilets throughout 1.0 Maximum flow rate of 1.6 GPM 1.0 Kitchen Faucets New and Rehab Maximum flow rate of 2.0 GPM 0.5 Bathroom Faucets New and Rehab Maximum flow rate of 0.5 GPM 0.5 Water Distribution New and Rehab Insulate all hot water pipes (R‐4 or greater) OR install a hot water recirculation system with the main recirculation loop insulated (R‐4 or greater). 1.0 Irrigation New and Rehab Install a recycled gray water, roof water, collected site run‐off or water from a municipal recycled water system for the irrigation system 3.0 Turf New and Rehab In landscaping areas, use no turf or artificial turf only. 1.0 Energy Efficiency (up to 20 points) ‐ 20 points are available to Projects that achieve a Home Energy Rate System (HERS) index beyond the baseline index of 85. This Section will be used only if the prescriptive based path is followed. If the performance based path is followed, indicate the HERS index or percentage improvement in energy efficiency for rehabilitation projects. SYSTEM COMPONENT Construction Use Thermal Performance ‐ Roof New and Rehab Improve the U Value of the Roof System by 15% over the current IECC requirements for climate zone. Thermal Performance Roof II New and Rehab Radiant Barrier on all residential roofs ‐ Emissivity rating of 0.35 or lower. Thermal Performance ‐ Wall New and Rehab Improve the U Value of the Wall System by 15% over the current IECC requirements for climate zone. New and Rehab* Reduced Heat Island Effect (*Applicable to warm climate locations only with less than 4,000 HDD per noaa.gov) New* New* 2011 SUSTAINABLE CRITERIA Roofing: Install Roofing materials with high reflectivity and high emittance ratings for a minimum of 75% of roof area. Low Slope roof (2:12 and less); minimum SRI (Solar Reflective Index) of 78. Steep slope roof (greater than 2:12), minimum SRI of 29. Paving: Use open grid pavement and/or light‐colored, high‐albedo materials with a minimum Solar Reflective Index of greater than or equal to 29 for at least 30 percent of the siteʹs hardscaped area. Plantings: Locate trees or other plantings to provide shading for at least 50 percent of sidewalks, patios and driveways within 50 feet of the residential units. Shading should be calculated for noon on August 1st, when the sun is directly overhead, based on five yearsʹ growth. 19 Points Avail. 2 0.5 2 2.0 2.0 2.0 Qualified Allocation Plan Passive Solar Design 2011 Shading: Design shading for at least 80% of the South, West and East facing windows that is appropriate for the climate zone. 0.5 Orientation: Optimize the orientation of the building (or at least 75% of the square footage in the multi‐building campus) such that the ratio of Southern Wall Area to West (or East) Facing Wall Area is equal or greater than 2:1. 0.5 New* Clerestory Windows: Provide clerestory windows for optimized daylighting, ventilation, and passive solar heating where appropriate, for at least 50% of the square footage of the Project. Renewable Energy (e.g. Solar PV and Solar Thermal) New and Rehab Windows New and Rehab Duct Leakage New and Rehab High Efficiency HVAC Water Heating New and Rehab New and Rehab Thermal Mass: Provide internal, exposed thermal mass (e.g. tile floor, concrete floor, internal cmu wall) with a surface area that is at least 15% of the net square footage of each dwelling Unit. Thermal mass must be located in at least 75% of the dwelling Units and in any community spaces. One or multiple renewable energy systems large enough to offset the estimated residential annual energy load by 10% and maximized use of incentives. This will require the residential units to be master metered. One or multiple renewable energy systems large enough to off‐set the estimated residential annual energy load by 5% and maximized use of incentives. This will require the residential units to be master metered Site, design, engineer and wire the development to accommodate installation of solar PV in the future. This will require the residential units to be master metered. One or multiple renewable energy systems large enough to off‐set the estimated common area energy load by 50% and maximized use of incentives. Install high performance windows that meet or exceed Energy Star criteria. http://www.energystar.gov/index.cfm?c=windows_doors.pr_anat_window Keep the system (including air handler and ducts) entirely within the conditioned envelope or install a ductless system. Install a high efficiency HVAC system with a minimum SEER rating of 14. Furnaces must be greater than or equal to 92 AFUE and boilers must be greater than or equal to 87 AFUE. *All Units. Install a very high efficiency HVAC system with a minimum SEER rating of 16. Furnaces must be greater than or equal to 94 AFUE and boilers must be greater than or equal to 90 AFUE. *All Units. Install an energy efficient hot water distribution system that meets one of the following requirements: ‐ Electric Water Heater: EF >= 0.95 ‐ Gas Water Heater: EF >= 0.65 ‐ Gas Tankless Water Heater: EF >= 0.8 20 0.5 0.5 8.0 4.0 1.5 4.0 2.0 1.5 1.0 4.0 1.5 Qualified Allocation Plan Lighting 2.7(C) 1. 2. 3. ‐ Electric Tankless Water Heater: EF >= 0.99 ‐ Heat Pump Water Heater Install an Energy Star Advanced Lighting Package using only Energy Star labeled fixtures. The Advanced Lighting Package consists of a minimum of 60% Energy Star hard‐ wired fixtures and 100% Energy Star‐qualified ceiling fans (if any). New and Rehab Transit Oriented Design 30 points max Project Meets Criteria of Quality Bus Transit: Project Located in Proximity of Mixed Use Center: Project Located in Proximity of High Capacity Transit Station 2.7(D) 1. 2011 Occupancy Preferences See Categories Below. 2.0 Section 2.9(R)/Tab 18 5 points 5 points 20 points Section 2.9(T)/Tab 20 Households with Children: 5 points are available to Projects in which 40% of all units are offered on a preferential basis to households with children and of which 20% are 3 and 4 bedroom units. ** Additional points are available to Applicant’s who will provide one or more of the following services**: a. b. c. d. e. f. Childcare Center is located within a half mile (2,640’) straight line radius: On‐site Before/After School Program: On‐site Bi‐Monthly Parenting Classes: On‐site Bi‐Monthly Computer Training: On‐site Bi‐Monthly Job Training, Search Assistance and/or Placement Onsite Quarterly Credit and Financial Counseling/Education Additional 4 points Additional 4 points Additional 0.5 points Additional 0.5 points Additional 0.5 points Additional 0.5 points 2. Elderly Person Project: 10 points are available to Projects in which 100% of the Units are reserved for Elderly Persons, who are 62 years of age or more and, or disabled. The Project must offer Supportive Services. 3. Mixed Income Development: 5 points are available to Projects in which a minimum of 10% and up to 20% of the Units will have unrestricted income and rents. 2.7(E) Developer/Non‐Profit Joint Venture 10 points max Section 2.9(U)/Tab 21 10 points are available to Projects in which a Developer partners with an Arizona‐based Non‐Profit. The Non‐Profit must materially participate during the design process in exchange for 10% of the total Developer Fee. Additionally, the Non‐ Profit must provide Supportive Services. 2.7(F) Targeting Low Income Levels 35 points max Section 2.9(V)/Tab 22 Select the % of restricted Low‐Income Units per the Area Median Gross Income (AMGI). DO NOT ROUND UP. Units Equal To or Less Than 40% AMGI Units Equal To or Less Than 50% AMGI RURAL 40% + = 15 points 21‐39% = 10 points 10‐20% = 5 points 30% + = 20 points 16‐29% = 15 points 5‐15% = 10 points URBAN 45% + = 15 points 21‐44% = 10 points 10‐20% = 5 points 35% + = 20 points 16‐34% = 15 points 5‐15% = 10 points 21 Qualified Allocation Plan 2.7(G) Tenant Lease Purchase 2011 10 points max Section 2.9(W)/Tab 23 10 points are available to Projects in which 100% of the Project is intended for Tenant Ownership after the 15 year compliance period. 2.7(H) Arizona‐Based Developer 5 points max Section 2.9(X)/Tab 24 10 points max Section 2.9(Y)/Tab 25 5 points are available to Arizona‐based Developer’s. 2.7(I) Local Government Financing 10 points are available to Projects in which at least 10% of the Permanent Financing is from a Local Government and the Funding Jurisdiction has a population of less than 500,000. 2.7(J) Community Revitalization 15 points max Section 2.9(Z)/Tab 26 15 points are available to Projects who meet 1 of the 4 requirements listed below: 1. The Project is in a Priority Housing Area designated by the Local Government, and evidenced in the Local Government’s Comprehensive Affordable Housing Plan; 2. The Project is located within a Federal Empowerment Zone; 3. The Project is located within a Federal Enterprise Community; or 4. The Project has been established as a HUD Neighborhood Revitalization Strategy Area. 2.7(K) 1. 2. 3. 2.7(L) Acquisition ‐ REHAB Acquisition ‐ DEMO Acquisition – DEMO of Defunct Property 40 points max 40 points max 15 points max Section 2.9(AA)/Tab 27 Acquisition/Rehab: $35,000 or more $25,000 ‐ $34,999 $15,000 ‐ $24,999 Foreclosed Property: HAP/RD Rental Assistance/ACC Blighted Structure: 30 points 15 points 10 points Additional 5 points Additional 5 points Additional 5 points Acquisition/Demo and New Construction of a Blighted Structure: 30 points Foreclosed Property: HAP/RD Rental Assistance/ACC Additional 5 points Additional 5 points Acquisition/Demo and Redeveloping of a Defunct Property: 15 points QCT or DDA 1 point max ___________________ 1 point is available to Project’s located within a QCT or DDA as designated in Exhibit E. 2.7(M) 1. Rural Area Development 17 points max Projects located outside of Maricopa and Pima Counties or in a “rural area” as defined in 7 C.F.R. § 3550.10: 2. 15 points Projects funded by U.S.D.A. through Section 514/515/516 or 538 Programs: 22 2 points Qualified Allocation Plan 2.7(N) City/Town/County 2011 5 points max 5 points are available to Projects located in a City, Town or County which has not received a LIHTC Allocation in the past 5 years. For purposes if this Scoring Category, City, Town or County means the local entity with land use and building code jurisdiction over the Project. 2.7(O) Applicant Entity 5 points max 5 points are available to Projects in which the final Ownership Entity is the Applicant. Applications wherein the “Applicant” is identified as the partner, general partner, a member, managing member or officer of the final Ownership Entity may not claim points under this category. 2.7(P) Efficient Use of Tax Credits 10 points max Section 2.9(AB) Tab 28 5 points are available if the total development costs as stated in the development budget on Form 3 do not exceed the 221d3 limits per unit based on bedroom size. 10 points are available if the total development costs as stated in the development budget on Form 3 are 15% or more below the 221d3 limits based on bedroom size. 2.8 Tiebreaker In the event two projects have the same adjusted competitive score, ADOH shall reserve Tax Credits to the Project receiving the most points according to the following tiebreaker criteria: A. First, to Applicants with the most Efficient Use of Tax Credits per bedroom based on Scoring from Section 2.7(P). B. Second, to Applicants in order of the time the Application was date stamped and received by ADOH. 2.9 Threshold Applications must include threshold requirements to support a claim for points in each Scoring Category. ADOH may make written inquiries in order to verify the information submitted. ADOH shall consider such supplemental documentation for threshold purposes only, and may not consider the supplemental information in scoring the Application. ADOH may verify representations, information, and data in an Application with public information and statistics available through recognized subscription services. Documentation must be included at the specified TAB as noted below. A. Tab 1: Cover Letter, Waiver of Requirements. (1) Cover Letter. Applicant must provide a cover letter that describes the Project, the target AMI and rent structure, public benefit, any special characteristics, and any other information deemed pertinent. (2) Waiver of Requirements. Applicants may request that ADOH waive specific requirements of this Plan. Waiver requests shall be supported by a detailed narrative explanation sufficient to permit ADOH to determine that: a) waiver of the requirement is consistent with I.R.C. Section 42 and its implementing regulations, and IRS guidance, b) waiver of the requirement accomplishes the 23 Qualified Allocation Plan 2011 purposes and objectives of this Plan; and c) the waiver shall not adversely affect the feasibility of the Project. Each waiver request must be submitted on a separate sheet of paper and inserted behind the cover letter. B. TAB 2: Self Score Sheet & Set‐Aside Election. (1) Insert executed Form 2 “Self Score Sheet”. (2) Insert executed Form 2‐1 “Set‐Aside Election”. An Applicant may designate one or more Set‐ aside categories. Applications that fail to demonstrate the requisite Applicant or project characteristics for a designated set‐aside shall not qualify for a Reservation of Tax Credits in that set‐ aside category. C. TAB 3: Application & Certifications. (1) Complete and execute Form 3. (2) Complete, execute and insert Gap Financing Application behind Form 3. (3) Complete, execute and insert behind Gap Financing Application, executed copies of IRS Form 8821, “Tax Information Authorization,” for the Applicant and each Development Team member who has a financial interest in the Project, authorizing ADOH as “Appointee” to receive from the IRS available information regarding any “Financial Beneficiary’s” conduct of its business with the Internal Revenue Service (“IRS”) relating to the Low‐Income Housing Tax Credit Program. Such information received from the Internal Revenue Service may be used by ADOH in its sole discretion to disqualify an Application pursuant this Plan. D. TAB 4: CPA Opinion. Applicant must provide, on CPA letterhead and in substantially similar form to Exhibit B, an opinion which includes all reductions to eligible basis, i.e. solar credits, grants. E. TAB 5: Legal Opinion. The Applicant must include a legal opinion opining that the Project meets the requirements of I.R.C. § 42 and that the Project has not been Placed in Service prior to the LIHTC Application date. The legal opinion must be provided by an attorney, on professional letterhead, in accordance with Arizona Supreme Court Rules 31 and 33 and should at a minimum address the issues suggested in Exhibit C. If Acquisition Credits are being requested in connection with an Acquisition/Rehabilitation Project only, the legal opinion must clearly address the 10‐Year Rule regarding the eligibility for Acquisition Credits. If the legal opinion submitted in the Application does not meet the requirements of I.R.C. § 42, ADOH may require the Applicant to update the legal opinion. F. TAB 6: Legal Formation, Licensing, and Business Registration. The Applicant must include evidence that the Applicant, Developer, and every member of the Development Team that holds an interest in the Project, are duly formed legal entities authorized to transact business in the State of Arizona and in good standing with the Arizona Corporation Commission or the Office of the Secretary of State of Arizona. (1) Corporations. If the Applicant or Developer is incorporated in Arizona, provide a Certificate of Good Standing issued by the Arizona Corporation Commission and dated not earlier than 30 days prior to the Deadline Date. Applicants and Developers incorporated in another state and doing business in Arizona 24 Qualified Allocation Plan 2011 should submit the following: a Certificate of Good Standing or its equivalent from the state of incorporation dated not earlier than 30 days prior to the Deadline Date and a Certificate of Authority to Transact Business in Arizona or a Certificate of Good Standing for such foreign corporation, issued by the Arizona Corporation Commission and dated not earlier than 30 days prior to the deadline date. (2) Limited Partnerships. If the Applicant or Developer is a limited partnership organized under the laws of Arizona, then the Applicant must provide a Certificate of Existence, issued by the Arizona Secretary of State and dated not earlier than 30 days prior to the Deadline Date. Applicants and Developers organized under the laws of another state and doing business in Arizona should submit the following: a Certificate of Existence or its equivalent from the state of organization, dated not earlier than 30 days prior to the Deadline Date, and an Arizona Certificate of Foreign Limited Partnership from the Arizona Secretary of State or a Certificate of Existence dated not earlier than 30 days prior to the Deadline Date. (3) Limited Liability Companies. If the Applicant or Developer is a limited liability company organized under the laws of Arizona, then provide a Certificate of Good Standing, issued by the Arizona Corporation Commission, dated not earlier than 30 days prior to the deadline date. Applicants and Developers organized under the laws of another state and doing business in Arizona should submit the following: a Certificate of Good Standing or its equivalent from the state of organization dated not earlier than 30 days prior to the Deadline Date and an Arizona Certificate of Authority to Transact Business in Arizona issued by the Arizona Corporation Commission and dated in the year of application or a Certificate of Good Standing for such foreign limited liability company dated not earlier than 30 days prior to the Deadline Date. G. TAB 7: Non‐Profit Information. Projects seeking consideration in the Non‐Profit Set Aside shall provide the information and materials described in this Paragraph. (1) The Applicant must complete and execute Form 7, certifying that the nonprofit organization will materially participate in the development and operations of the Project on a basis which is regular, continuous, and substantial. “Non‐Profit Projects” are Projects in which a qualified non‐profit organization (i.e., an I.R.C. Section 501(c)(3) or (4) organization) owns an interest (directly or through a partnership) and materially participates within the meaning of I.R.C. Section 469(h)(i) in the development and operation of the project throughout the compliance period. The non‐profit organization may not itself be an Affiliate of or controlled by a for‐profit organization. “Material participation” is defined at I.R.C. Section 469(h)(i) as involvement “in the operations of the activity on a basis that is regular, continuous and substantial.” The ADOH defines “substantial” as having the authority or right to, among other things, participate in the decision‐making process for design, location, materials, and management of the Project. (2) ADOH requires that the Non‐Profit organization provide: (a) IRS documentation of status 501(c)(3) or 501(c)(4); or in the case where a governmental or tribal agency is applying for non‐profit consideration, it must provide the appropriate 501(c)(3) or (4) documentation, a letter from the executive officer of the Local Governmental or tribal agency; (b) a description of the Non‐Profit organization and its activities, to include the promotion of Affordable Housing in its articles; 25 Qualified Allocation Plan 2011 (c) evidence that it or its officers or members have experience in developing or operating low‐income housing; (d) evidence (in the letter of intent received from the investment syndicator) that it holds the right of first refusal to acquire the Project following the fifteen‐year compliance period; (e) evidence that it has developed an operating plan for the project covering its role in developing and managing the Project, including its participation in the Developer fee; its control of Project reserves; its plan for maintenance, replacement, and renovation; and its oversight of marketing and of compliance with I.R.C. Section 42; (f) the names of board members of the nonprofit organization; (g) the sources of funds for annual Operating Expenses and current programs; and (h) evidence of financial capacity in the form of Financial Statements for the prior two full calendar years. H. TAB 8: Development Team. The Applicant must demonstrate that the Development Team possesses the experience and financial capacity necessary to undertake and complete the Project, and that the Developer, Co‐Developer or Consultant has developed Projects of comparable size and financing complexity. (1) Applicant shall provide the following information: (a) Insert a completed Form 8. (b) Include an organizational chart that describes the relationship whether through control or contract between the Applicant, the Developer, and the Owner. (c) Include a copy of the legal document demonstrating the authority of the Applicant to bind the Owner such as, a limited partnership agreement, operating agreement for a Limited Liability Company, or a development services agreement, or similar agreement. If the limited partnership agreement, operating agreement, or development services agreement has not been finalized, then ADOH will accept a provisional agreement with a warranty that the requisite authority will be made a part of any such agreement at the time of closing with the Tax Credit investor and the construction lender. (d) Provide a narrative describing the experience of the Development Team as it relates to the development of the proposed Project, and include resumes that specifically identify the officers or supervisory employees of the Developer who possess the knowledge and experience required by this Paragraph and as otherwise necessary to support a claim for points for Developer experience. (e) Include Financial Statements of the Developer for the prior two full calendar years. 26 Qualified Allocation Plan 2011 (f) The Developer identified in the Application must demonstrate that it has developed the Project(s) from concept through lease up, conversion of the construction loan, or issuance of IRS Forms 8609 for Tax Credit Projects, whichever is latest. (g) Insert a completed Form 8‐1. (h) Insert a completed Form 8‐2. (i) Provide explanation of an Identity of Interest designated under Development Team Information on Form 3 Item 7. I. TAB 9: Acquisition and Site Control. (1) Acquisition. (a) For a New Construction Project, a land only Appraisal of real property must be provided as part of the Application submittal. ADOH will allow the lesser of the purchase price or appraised value to be included in the calculation of gap financing. (b) For an Acquisition/Rehab/Demo Project, the appraisal shall include separate values for the land and the buildings. (2) Site Control. Applicant must provide an enforceable commitment to transfer the land to the Project Owner, a recorded deed or long term lease in the Project Owner’s name, a lease option or by a fully executed purchase contract or purchase option to the Project Owner. If a purchase contract or purchase option is submitted, the agreement must provide for, either a closing date or an initial term lasting until the period ending no less than 180 days after the Deadline Date for submittal of the Application. To establish Site Control, the Applicant must submit the following to ADOH: (a) A “Title Commitment” for the property dated within 60 calendar days of the date of the Application by a title insurer licensed in Arizona. The title commitment must not include any conditions or requirements materially and substantially adverse to the feasibility of the Project. (b) If the project or a Development Team member holds fee title to the property, then Applicant should provide a copy of the settlement statement prepared by the title company for the buyer and seller at the closing. (c) 30 years. If the Applicant has entered into a lease agreement, the term must be a minimum of (d) For Projects that are located on government or Tribal lands, Applicant must establish legal control of the property by submitting: (i) an agreement between the Project Owner and the Tribe or other government to enter into a lease of specific real property for a term at least equal to the duration of the LURA, and (ii) a resolution of a Tribe or other government agency authorizing the Tribe or government entity to enter into the agreement. For Tribal leases only, ADOH may consider the length of the lease to be the original term of the lease plus the term of any option to renew, provided that the option to renew is held solely by the Applicant. 27 Qualified Allocation Plan 2011 (e) In cases requiring use of powers of eminent domain by the Local Government, the Applicant must enclose evidence that a condemnation lawsuit has been filed for the specific parcels of real property upon which the Project may be situated together with the court’s order of possession. J. TAB 10: Planning and Zoning Verification. Insert a completed Form 10. K. TAB 11: Financial Ability to Proceed. Applicant must demonstrate that the Development Team has secured funding sources necessary to complete the Project. Applicant must provide the following documentary support: (1) Letter of Interest/Intent from Tax Credit Syndicator. A Letter of Interest/Intent from a Tax Credit syndicator proposing the terms and pricing of purchase of tax credits allocated to the Project. (2) Letters of Interest/Intent from Other Sources of Financing. Copies of Letters of Interest/Intent from all sources of financing that include a (a) a term sheet (b) amount of the loan, (c) interest rate, including all points, (d) amortization period, if applicable, (e) term of the loan, (f) loan‐to‐value factor, (g) maximum and minimum debt service coverage allowable (not required if the permanent lending source is a governmental or tribal entity), (h) all commitment and/or origination fees, (i) and a description of all other fees directly attributed to the funding of the loan. (3) Pro Forma and Operating Expenses. Include a 15‐year pro forma and operating expense data. See Section 7.2(C)(3)(e) for assumptions relating to Operating Expenses. (a) The pro forma must reflect the rent structure in the Application, all lenders’ assumptions such as principal and interest payments, cash flow obligations, non‐rental income, detailed operating expenses, required reserves, annual fees, debt service coverage ratio etc. (b) If the pro forma reflects negative cash flow in any year, the Application shall demonstrate the funding and utilization of an operating deficit escrow account or describe the source of the operating deficit funds. A commitment from the entity facilitating the operating deficit reserve/escrow funds must be included with the other funding source documents. (c) The pro forma may reflect rental assistance if supported by the other funding source documents. (d)Applicants proposing operating expenses that are not compliant with Section 7 shall submit at least two forms of data supporting the operating expenses stated in the pro forma (for example, comparable Project information as illustrated in a Market Demand Study, IREM information or National Apartment Association information). ADOH may require submission of the audited Financial Statements for comparable Projects owned by the Applicant. Rehabilitation Projects may submit 3 years of historical information as evidence of operating expense assumptions. (e) The pro forma income and expense shall trend at 2.00% and 3.00% respectively. Annual replacement reserve obligations shall trend at 3.00%. 28 Qualified Allocation Plan L. 2011 TAB 12: Market Demand Study. The Applicant shall include a Market Demand Study that meets the requirements of the Market Demand Study Guide (Exhibit L). M. TAB 13: Project Location. The Applicant must include detailed directions to the site from the nearest major intersection, and an 8x10 or fold‐up map indicating the following facilities located within 2 miles of the Project: (1) Existing LIHTC or any other governmental subsidized housing developments (2) Retail centers (3) Medical complexes (4) Recreational Facilities (5) Educational Facilities (6) Large scale employment centers (7) Public transportation N. TAB 14: Utility Allowance Schedule. The Applicant must include a copy of the current utility allowance schedule, published by the local Public Housing Authority or Utility Company Estimate, along with a letter from the issuing authority dated no sooner than 30 days prior to the date of Application submission. Utility allowances based on the Energy Consumption Model shall be prepared by a professional engineer licensed to practice in Arizona or some other qualified professional. ADOH considers energy raters and auditors who are certified and currently in good standing with Residential Energy Services Network (“RESNET”) to be “qualified professionals” for the purposes of the Utility Allowance Regulation. Owners using professionals who are not RESNET‐certified raters or auditors must demonstrate to the satisfaction of ADOH that the professional otherwise meets RESNET qualifications. Furthermore, the professional engineer or energy rater or auditor must not be related to the building owner, property manager or any other entities owned or controlled by these parties within the meaning of Sections 267(b) or 707(b) of the Internal Revenue Code. In addition, Owners who obtain estimates based on the Energy Consumption Model shall provide ADOH with documentary evidence that the estimate was prepared by a licensed professional engineer or other qualified professional consistent with the requirements of this paragraph. O. TAB 15: Drawings and Plans. The Applicant must include preliminary drawings and renderings of the development including: (1) A site plan showing the site topography, general development of the site, the Building and parking location; (2) The facility Building layout and net floor area for Projects proposing a Community Facility or Community Services Facility; and (3) Plans and elevations for each proposed Building and clubhouse. 29 Qualified Allocation Plan P. 2011 TAB 16: Property Design Standards for New Construction and Rehabilitated Properties. Insert Form 16, Architect’s Certificate, stating that the architect has read the Mandatory Design Guidelines – Exhibit D, and certifies that the project complies with the requirements. Q. TAB 17: Sustainable Development. Insert Form 17, signed by the Architect certifying that all Sustainable Development products/systems shall be included in design documents/specifications. Form 17 must be resubmitted along with the Application for Final Allocation of Tax Credits. Prescriptive Categories These Categories were developed in conjunction with the LEED for Homes and Enterprise Sustainable Communities. For clarifications on individual line items, refer to the LEED for Homes Reference Guide: http://www.usgbc.org/Store/PublicationsList_New.aspx and the Enterprise Sustainable Communities Criteria 2008: http://www.practitionerresources.org/cache/documents/666/66641.pdf To be awarded any Sustainable Development Points, specific Sustainable product details, building methods / applications and/or systems are required to be listed on Form 17 at time of initial Application and at Final Tax Credit Allocation. The Project Architect and/or General Contractor is required to list all of the Sustainable products, building methods and energy systems corresponding to the respective point categories claimed. The Architect must specify and ensure the use of all claimed Sustainable products. The Architect, and the Arizona Energy Office (“AEO”), will be required, at Final Tax Credit Allocation, to certify that all specified Sustainable point criteria have been met and validate with Project contracts, work orders, or delivery receipts. Please note AEO will require 10‐days notice prior to scheduling inspections and confirmation that the Construction Superintendant is available to accompany the AEO representative throughout the entire inspection. There are three available paths for obtaining the Sustainable Development points as shown below: 30 Qualified Allocation Plan 2011 For Projects that use the LEED certification path, a copy of the LEED for Homes checklist must be included with the Application. The checklist can be found at the following website: http://www.usgbc.org/ShowFile.aspx?DocumentID=3658. All non‐LEED Projects must include the Project’s Sustainable Development specification list at time of Application to apply for Sustainable Development points. A sample Sustainable Development specification summary sheet is found below representing the minimum amount of information required at time of Application. Product detail should be sufficient enough to allow ADOH to verify the appropriate cost of the proposed product / system. For Projects that use the Performance Based path for Energy Efficiency, provide verification demonstrating the projected energy efficiency of the least efficient dwelling Units.  In New Construction, 1 point will be awarded for each point awarded by the Home Energy Rating System (HERS) beyond the baseline index of 85, with a maximum score of 20 points (e.g. HERS index of 65).  In moderate and substantial Rehabilitation Projects, perform energy analysis, utilizing a Home Performance Contractor, participating in the Arizona Home Performance with Energy Star Program, in the of the existing building condition and identify cost‐effective energy improvements by preparing an energy improvement report. A 15% improvement in the energy efficiency is the baseline. 1 point will be awarded for each percent reduction in the energy efficiency after the first 15%, with a maximum score of 20 points (e.g. 35% reduction in energy usage). The projected, pre‐construction HERS index must be submitted to the ADOH once the construction drawings have been completed and the final HERS index must be submitted at 8609 submission. This category is available for Projects that have a maximum of 4 stories. Common areas should use construction materials and methods consistent with those used in the dwelling Units. To verify the projected HERS score at the time of Application, Applicant should provide approval from a HERS consultant that the Project’s schematic design has been reviewed and it is possible for Applicant to achieve the projected HERS score. In the event Applicant does not meet the projected HERS score, ADOH shall withhold issuance of 8609’s. For Renewable Energy system points, a separate additional financial worksheet must be provided showing all of the applicable financial incentives including, but not limited to: Energy Tax Credits (include syndication agreements or IRC Section 1603 exchange documentation for valuing these credits), Power Purchase Agreements (include PPA’s if applicable), federal state and local tax deductions, enhanced / accelerated depreciation values, manufacturer’s rebates and property tax assessment exemptions, credits or offsets. See Form 17. The same Sustainable Development specification list must be resubmitted in conjunction with Form 16 ‐ Architect’s Certificate affirming that all of the specified materials, methods or systems listed were in fact included in the project. Be advised that failure to include all scored elements could result in a loss of points on future ADOH projects. 31 Qualified Allocation Plan 2011 R. TAB 18: Transit Oriented Design. (1) Quality Bus Transit. A. Quality Bus Transit in the Greater Phoenix Area is defined as:  Minimum 30 minute weekday headways 6am to 6 pm.  Minimum 30 minute headways 6am to 6pm on weekends.  Minimum 15 hours of service on weekdays, minimum 12 hours on weekend days. B. Quality Bus Transit in the balance of the State is defined as:  Minimum 30 minute weekday headways 6am to 6 pm.  Minimum 1 hour headways 6am to 6pm on weekends.  Minimum 12 hours of service on weekdays, minimum 10 hours on weekend days. The bus route corridor should provide one or more bus stops that are within a quarter mile (1,320’) straight line radius of the proposed site and the transit agency must confirm that there currently are no plans to move the route(s) to a different corridor or reduce bus service. Proposed site located within a half mile (2,640’) straight line radius of a mixed use center represented by at least three of the following elements:      At least 25,000 sf of convenience retail or grocery. At least 25,000 sf of other retail. At least 25,000 sf of commercial office or other employment other than the retail. At least 25,000 sf of institutional and civic uses. At least 25,000 sf of restaurant, café and coffee shop uses. (2) High Capacity Transit.    High Capacity Transit includes light rail transit, commuter rail, intercity rail and streetcar. Proposed site to be located within a half mile (2,640’) straight line radius of a High Capacity Transit Station. High Capacity Transit Station includes all existing stations and those that are physically under construction, have secured funding commitments, construction contracts have been awarded, and construction activities have been physically commenced. S. TAB 19: Supportive Housing Development. Permanent Supportive Housing means a Housing First model which centers on providing chronically homeless people with housing quickly and then providing Supportive Services that target the specific needs of the individual. Services provided through permanent supportive housing can include, but are not limited to, health care, substance abuse treatment, mental health treatment, employment counseling, connections with mainstream benefits like Medicaid and others. Requirements: 1. Documented support for the project from the municipality in which the project is located. 32 Qualified Allocation Plan 2. 3. 4. 5. 2011 Adequate financial support must be in place in order for the project to be viable. Residents of a Housing First project are charged 30% of their income, if any, for rent. Therefore, adequate financial support must be demonstrated. In most cases this would require vouchers. Supportive Services Provider must provide a Supportive Services Plan as outlined in Exhibit N and demonstrate proven capacity and experience to serve the chronically homeless. Project must meet architectural requirements of Housing First model such as, a secured single point of entry to the building, community room spaces and offices for supportive services commensurate to number of units etc. Veteran’s preference must include a commitment to make available case management services to address the bio‐psycho‐social needs of tenants including connection to veteran‐specific services and resources as part of its service plan and include a veteran‐specific outreach plan. Developments with project‐based HUD VASH vouchers will be considered as having met this standard as HUD VASH includes VA provided Case Management Services. Otherwise, these services must be clearly described in the service plan and Letters of Support and Collaboration from the nearest VA Hospital or Community Based Outreach Clinic and the Arizona Department of Veterans Services are required to demonstrate coordination of veteran‐specific resources and services. T. TAB 20: Occupancy Preferences. (1) Household with Children. Projects in which 40% of all Units are reserved for households comprised of Individuals with Children, and of which 20% of the Units are 3 or 4 bedrooms. Applicant must provide a description of the Project’s specific design elements that serve the needs of households with children. Insert Form 20 and Supportive Services Plans outlined in Exhibit N. Costs for Supportive Services should be reflected as a line item in the Annual Operating Expenses (Form 3). (2) Elderly ‐ 62 years of Age and Older and or Disabled. Applicant’s proposing Projects that serve elderly who are 62 years and older and, or disabled shall not propose Units with more than two bedrooms. Supportive Services shall promote the resident’s quality of life and independence while providing efficient delivery of Supportive Services to the residents. Insert Form 20 and Supportive Services Plans outlined in Exhibit N. Costs for Supportive Services should be reflected as a line item in the Annual Operating Expenses (Form 3). (3) Mixed Income Development. A minimum of 10% and up to 20% of the Units may be set aside for households with incomes greater than 60% of AMI. The occupancy preferences requirements and any additional Supportive Services committed will be enforced through a provision in the LURA, which will require notification of any termination in service contracts, no more than a 30 day gap in service provided and the Project will be determined non‐compliant if a new service contract is not executed. U. TAB 21: Developer/Non‐Profit Joint Venture. To evidence the joint venture relationship, the Applicant must provide an Operating Agreement or equivalent agreement between the Developer and Non‐Profit, which sets forth the Non‐Profit’s duties with respect to their role as the service provider for the Project; and which includes language that the Non‐Profit will receive a minimum of 10% of the total developer fee received by the Developer for the Non‐Profit’s material participation during the development phase of the Project. Non‐ Profit shall still be entitled to collect an annual fee for acting as the Service Provider for the Project. Applicant should submit information required in Exhibit N for Non‐Profit. 33 Qualified Allocation Plan 2011 V. TAB 22: Targeting Low Income Levels. Insert completed Form 22. Applicant should note that the information provided in Form 22 shall be binding on Applicant in the event that the information provided in Form 22 is not consistent with Form 3. W. TAB 23: Tenant Lease Purchase. Applicants should demonstrate that 100% of the Project is designed for home ownership. 1. (a) Tenant Lease Purchase points are limited to single family, duplex, four‐plex or townhome style Projects. (b) Project must be designed at the time of Application for eventual home ownership, and meets current subdivision and building code requirements, including fire department requirements of the Local Government. 2. Submittal Requirements: (a) A letter of intent from a qualified Non‐Profit organization to purchase the Units, (b) A detailed description of the Ownership proposal to include: (i) an exit strategy that incorporates a valuation estimate/calculation per I.R.C. Section 42; (ii) home‐ownership financial counseling services; (iii) how the eligible tenants will be identified and offered a right of first refusal; (iv) how the Units will be priced in accordance with I.R.C. Section 42(i)(7); (v) the manner in which homebuyer assistance will be generated from the Project and provided to the homebuyer; and (vi) proposed sale agreement. 2. Post Allocation Requirements. Projects awarded points under this Paragraph shall be required to execute and record an LURA that indicates the provisions set forth above for the remaining compliance period. There are additional fees associated with these points. (See Section 6.4). X. TAB 24: Arizona‐based Developers. As Arizona‐based Developers are more accessible and accountable to the residents of the State of Arizona, the ADOH and the public, Arizona‐based Developers shall be awarded 5 points. An Arizona‐based Developer is defined as one whom: 1. Is an Arizona resident or has been organized as a corporation, partnership, limited liability company or other business entity pursuant to Arizona law, or is licensed to do business in Arizona, for the past 30 consecutive months; 34 Qualified Allocation Plan 2011 2. Maintains an office in Arizona from which the Developer (if an individual) or a general partner, managing member or principal officer of the entity conducts business, and has maintained such Arizona office for the past 30 consecutive months; and 3. Maintains sufficient staff in its local office to ensure that a resident or member of the public may visit that office to substantively discuss matters with one of the people described in Item #2 above. Y. TAB 25: Financing Commitment from Local Government. Points will be awarded if a City, Town or County with a population of less than 500,000 provides 10% of the Permanent Financing for the Project, as evidenced by a Letter of Commitment or Funding Resolution from City Council. A donation of land by the Local Government, which is supported by a land appraisal, will also satisfy this requirement. Z. TAB 26: Community Revitalization. Applicants claiming points under this Section should provide the following documentary support: (a) Insert completed Form 26; (b) Provide a copy of the Local Government’s Comprehensive Affordable Housing Plan, i.e. consolidated plan, etc. with areas highlighted to show the priority housing area, and the Project area identified in the plan; and (c) Insert a map showing boundaries and the location of the project within The Local Government’s Plan. The map must clearly show the names of the roads, streets or other boundaries of the priority housing area and also clearly reflect the location of the Project on such roads or streets. AA. TAB 27: Acquisition/Rehabilitation and/or Demolition. If requesting additional points under this Section with respect to a Foreclosed Property, provide evidence that property is in foreclosure such as the purchase and sale agreement, title report, or bank documentation evidencing foreclosure sale, or evidence that the property was purchased out of foreclosure. If requesting additional points under this Section with respect to Rental Assistance, provide copy of HAP, RD or ACC rental assistance contract. If requesting additional points under this Section with respect to a Blighted Structure, provide CNA and letter from Local Government stating the structure meets the QAP’s definition of Blighted Structure. 1. Acquisition/Rehabilitation. (a) Projects containing Acquisition/Rehabilitation and New Construction components shall qualify for points in this category only if the rehabilitation Units total 50% or more of the total Project and the Acquisition/Rehabilitation is 100% of the acquired Units. (b) Applicant should identify the Project as an Acquisition/Rehabilitation Project and fully explain the acquisition and scope of rehabilitation work in the Cover Letter. The rehabilitation improvements and the amount of rehabilitation costs shall be based on the Capital Needs Assessment. ADOH may utilize the services of an independent cost estimator in determining 35 Qualified Allocation Plan 2011 whether the rehabilitation costs are reasonable. The Applicant shall be responsible for the costs of the cost estimator. Cost of rehabilitation per Unit is determined by dividing “Total Direct Construction Costs” on Form 3, by the number of Units. (c) Applications for Acquisition/Rehabilitation of existing rental housing shall be supported by a relocation plan. The relocation plan shall comply with the Uniform Relocation Assistance Act, 42 U.S.C. § 4621, et seq. (d) An Appraisal is required with separate values for land and building. (e) Applicants must include a statement from the architect or CNA analyst, that the CNA was prepared according to ADOH’s CNA Guidelines. (f) The CNA shall examine and analyze the following Building Components: (i) Site, including topography, drainage, pavement, curbing, sidewalks, parking, landscaping, amenities, water, storm drainage, gas and electric utilities and lines. (ii) Structural systems, both substructure and superstructure, including exterior walls and balconies, exterior doors and windows, roofing system, and drainage. (iii) Interiors, including Unit and common area finishes (carpeting, vinyl tile, plaster walls, paint condition, etc.), Unit kitchen finishes and appliances, Unit bathroom finishes and fixtures, and common area lobbies and corridors. (iv) Mechanical systems, including plumbing and domestic hot water, HVAC, electrical, and fire protection. (v) Elevators. (vi) Provide Building life cycle study to economically justify either rehabilitation or demolition. Provide a comparative analysis to determine cost feasibility of either rehabilitation or demolition option. (g) The CNA report shall include the following major parts: (i) All health and safety deficiencies or violations of housing quality standards, requiring immediate remediation. If the Project has tenants, these repairs are to be made a first priority. (ii) Repairs, replacements, and significant deferred and other maintenance items that need to be addressed within twenty four (24) months of the date of the CNA. Include any necessary redesign of the Project and market amenities needed to restore the property to the standard outlined in this Plan and Exhibit D. (iii) Repairs and replacements beyond the first two years that are required to maintain the Project’s physical integrity over the next twenty (20) years, such as major structural systems. (h) The professional preparing the CNA report must: 36 Qualified Allocation Plan 2011 (i) Conduct site inspections of a minimum of 35% of all Units. Units shall be randomly sampled while taking into consideration the Unit size mix, e.g., one‐bedroom, two‐bedroom, etc. All vacant Units must be inspected. (ii) Identify any physical deficiencies as a result of (a) visual survey, (b) review of pertinent documentation, and (c) interviews with the property owner, management staff, tenants, community groups, and government officials. (iii) Identify physical deficiencies, including critical repair items, two‐year physical needs, and long‐term physical needs. These should include repair items that represent an immediate threat to health and safety and all other significant defects, deficiencies, items of deferred maintenance, and material building code violations that would limit the expected useful life of major components or systems. (iv) Explain how the Project will meet the requirements for accessibility to persons with disabilities. Identify the physical obstacles and describe methods to make the project more accessible, and list needed repair items in the rehabilitation plan. (v) Prepare a rehabilitation plan, addressing separately all two‐year and long‐term physical needs. (vi) Conduct a cost/benefit analysis of each significant work item in the rehabilitation plan (items greater than $5,000.00) that represents an improvement or upgrade that will result in reduced operating expenses (e.g., individual utility metering, extra insulation, thermo‐pane windows, setback thermostats). Compare the cost of the item with the long‐term impact on rent and expenses, taking into account the remaining useful life of building systems. 2. Acquisition/Demo and New Construction of a Blighted Structure. Applicant must provide evidence and documentation to satisfactorily substantiate to ADOH that the property has outlived its economic usefulness as follows: (a) Assessment of Obsolescence: (i) CNA substantiating demolition is a more cost effective option than rehabilitation. (ii) Market analysis confirming new design accommodates market demand better than existing design (Example – motel with studio Units where market demand is for families). (iii) Dated photo of Building taken no more than 60 days before the Application Deadline Date. (b) Additional Requirements: (i) No demolition permit may be issued, nor shall demolition activity commence prior to the deadline date for submittal of Applications. Development activity undertaken prior to satisfaction of cross‐cutting federal regulatory requirements may disqualify a project for Gap Financing through federal sources. (ii) A relocation plan which complies with the Uniform Relocation Assistance Act, 42 U.S.C. §4621, et seq. Relocation costs should be included in the Development Budget, Form 3. 37 Qualified Allocation Plan 3. 2011 Acquisition/Demo and Redeveloping of a Defunct Property. (a) Property must be Foreclosed, Abandoned or Defunct: (i) Foreclosed Property: provide evidence that property is in foreclosure such as the purchase and sale agreement, title report, or bank documentation evidencing foreclosure sale, or evidence that the property was purchased out of foreclosure. (ii) Abandoned Property: provide evidence that mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 120 days and the property has been vacant for at least 120 days. (iii) Defunct Property: provide evidence that no work has taken place within the last twelve (12) months by substantiating when last work occurred. Provide copy of last inspection report and letter from Local Government stating that no work has occurred on the site within the last twelve (12) months. (b) Horizontal Improvements must be completed – provide engineer’s report supported by photos detailing work that has been completed; (c) Vertical Improvements must be started– provide engineer’s report supported by photos detailing work that has been completed; and No demolition permit may be issued, nor shall demolition activity commence prior to the deadline date for submittal of Applications. Development activity undertaken prior to satisfaction of cross‐cutting federal regulatory requirements may disqualify a project for Gap Financing through federal sources. AB. TAB 28: Efficient Use of Tax Credits. Use the table below for the scoring calculation for total development costs based on number of bedrooms and size. Ex: A 10 unit five 1‐bedrooms and five 2‐bedrooms project in Coconino County may not exceed total development costs of $1,597,925 and receive 5 points in this Category. The Applicant may qualify for an additional 5 points if the total development costs are 15% or more below the 221d3 limits. Ex: $1,358,238 or less. US Department of Housing and Urban Development Section 221d3 and 234 Per unit Limits Bedroom size Coconino and Yavapai Counties Cochise, Douglas, Pima, Santa Cruz and Yuma Counties Maricopa, Mohave and Navajo Counties Greenlee, La Paz and Pinal Counties Apache and Graham Counties 0 Bedroom 1 Bedroom $125,647 $144,869 $116,173 $133,947 $115,176 $132,797 $108,694 $125,323 $107,697 $124,174 38 Gila County $106,201 $122,449 Qualified Allocation Plan 2 Bedroom 3 Bedroom 4 Bedroom $174,716 $232,642 $249,144 2011 $161,543 $206,780 $230,360 $160,156 $205,005 $228,382 $151,143 $193,468 $215,530 $149,757 $191,693 $213,552 $147,677 $189,031 $210,586 $114,384 $131,122 $159,445 $206,269 $226,421 $113,335 $129,919 $157,982 $204,377 $224,344 $111,761 $128,115 $155,788 $201,538 $221,228 Elevator 0 Bedroom 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 2.10 $132,224 $151,572 $184,312 $238,439 $261,734 $122,255 $140,144 $170,416 $220,462 $242,000 $121,205 $138,941 $168,953 $218,569 $239,923 Carryover Allocation Projects that will not place Buildings in service by December 31, 2011, must request a Carryover Allocation Agreement (the “Agreement”) by submitting the information below no later than December 1st unless otherwise provided in the Reservation letter. Failure to satisfy the requirements and execute the Agreement by the Deadline Date in the Reservation letter may result in cancellation of the Reservation of Tax Credits. The person signing the Agreement must have authority to bind the Owner. ADOH will not execute the Agreement until the Owner has met all the requirements listed below in addition to any additional requirements as may be described in the Reservation letter. (A) Updated Form 3; (B) Current Certificate of Good Standing for Ownership Entity, or if previously provided, Applicant should provide an updated Certificate; (C) Updated Project Schedule; and (D) Documentation for EIN (Employer Identification Number). 2.11 10% Cost Test Requirements The IRS requires that Owners of Projects receiving a Tax Credit Allocation which are not Placed in Service in the year their Allocation is made must meet the 10% Cost Test to have a valid Carryover Agreement. The 10% Cost Test due date will be 12 months from the issuance of the Tax Credit Reservation Letter. To satisfy the 10% Cost Test, the Owner must demonstrate it has incurred or expensed by the due date stated in the Reservation Letter qualified costs in an amount that is greater than 10% of the reasonably expected basis in the Project (including land costs) at the close of the second calendar year. If I.R.C.Section 42(h) (1) (E) (ii) is more restrictive, it shall govern. A. The following items are required to be submitted for the 10% Cost Test: (1) Updated Form 3; (2) Independent auditor’s report; (3) Certification of Costs Incurred; 39 Qualified Allocation Plan 2011 (4) Evidence of Land Ownership; (5) Commitments of all sources of financing for the Project; (6) A 15‐year pro forma signed by the senior lender (or the syndicator/investor if the Project is funded 100% by equity) that exclusively reflects the following language verbatim: “We acknowledge that this pro forma substantially matches the assumptions used in our underwriting”; (7) Syndication or Investor Agreement; (8) Executed Construction Contracts: (a) evidence showing the contractor is licensed to do business in Arizona; and (b) copy of Payment and Performance Bond or Letter of Credit acceptable to the syndicator; (9) Building Permits; (10) Plans and Specifications (Copy also to be submitted to the Arizona Energy Office); (11) Construction Lender’s Appraisal; (12) Architect Certification evidencing compliance with Exhibit D Mandatory Design Guidelines and Sustainable Development Points; (13) Updated Project Schedule; (14) Any unpaid fees owed to ADOH; (15) 8X10 photograph of an erected sign at the construction site listing all sources of financing. The sign must be a minimum size of 24 inches high by 36 inches wide, include a minimum 5‐inch high ADOH logo and text printed at a minimum 72‐point font. An individual ADOH sign does not have to be provided if incorporated into a larger group sign; (16) Will‐serve letters for water and sewer and a written certification from an independent engineer that he has evaluated the utility capacity of the Project and that the utilities provided will meet the needs of the Project; and (17) Evidence that the Property Management Company possesses the experience and capacity to manage the Project as required by I.R.C. § 42, the requirements of other applicable federal and state programs, and this Plan by providing its resume. In determining whether the Property Management Company identified in the Application has the requisite experience and capacity, ADOH will consider the following: (a) whether the Property Management Company will make staff available to the Project that has managed Tax Credit properties for a period of five years or more; (b) whether the Property Management Company will make staff available to the Project that have industry‐standard training and are certified to manage Tax Credit properties; and (c) whether the Property Management Company has unresolved compliance issues at two or more properties within the period beginning two years before the date of the deadline for submittal of the Application. Insert a completed Form 8‐3 “Management Company Experience.” 40 Qualified Allocation Plan 2011 Insert a completed Form 8‐4 “Authorization for Release of Information”, for the Property Management Company. B. Compliance Monitoring. 1. Include a plan that describes how the Project will meet the requirements of I.R.C. § 42, the requirements of other applicable housing programs, and state and local requirements. 2. The Applicant must demonstrate that the entities responsible for operation and management of the property possess the training and education necessary to comply with all applicable program requirements. See Section 8 of this Plan for specific compliance monitoring requirements. C. Marketing Plan. The Applicant must include an affirmative marketing plan in accordance with fair housing requirements that demonstrates how the Project will meet lease up requirements consistent with I.R.C. § 42 and any requirements of the equity investors and permanent lenders to the Project. The marketing plan shall specifically address any potentially adverse demographic, rent‐up or capture rate information in the Application for the primary market area identified in the Market Demand Study. If Applicant has designated certain Units for a certain Populations, the marketing plan must indicate how the population will be targeted. To obtain a copy of HUD Form 935‐2a, reference the following website: http://www.hud.gov/offices/adm/hudclips/forms/files/935‐2a.pdf D. Environmental Reports. Applicant must provide a Phase I and a full ERR Environmental Report. If the Project includes a Building or structure that was built before January 1, 1978, the Applicant must have a lead‐based paint inspection completed by a certified lead‐based paint inspector. That inspector must enclose a complete copy of the inspection report. If the report indicates the presence of lead‐based paint, the Applicant must include: (1) a written amelioration plan for the elimination and disposal or encapsulation of the lead‐based paint, and (2) a written ongoing maintenance plan to manage the lead‐ based paint. 41 Qualified Allocation Plan 2011 3. 4% TAX CREDITS WITH TAX EXEMPT BOND FINANCING Determination of Tax Credits for Tax‐Exempt Bond Projects I.R.C. Section 42(h)(4) allows low‐income housing Projects financed with tax‐exempt bonds to be eligible for 4% Tax Credits if they meet the minimum requirements of the Plan. Applications for Projects financed with tax‐exempt bonds may be submitted to ADOH as soon as Applicants receive confirmation of volume cap Allocation from the Finance Division of the Arizona Department of Commerce (phone: 602‐771‐1112, fax: 602‐771‐1208). At the time of Initial Application, Applicant’s sponsoring tax‐exempt bond financed Tax Credit Projects shall be required to pass all eligibility requirements, adhere to all General Regulations set forth in this Plan, and comply with all applicable requirements under Section 5. Applications for eligible tax‐ exempt bond projects may be submitted and ADOH may allocate such Tax Credits outside the normal Application round. The review of an Application for a Determination of Qualification under I.R.C. Section 42(m)(1)(D) may occur in conjunction with the tax‐exempt bond hearing that is required under A.R.S. Section 35‐726(E). Tax‐exempt bond financed Projects may receive Tax Credits on the full amount of their eligible basis only if at least 50% of the Project’s “aggregate basis” of any building and land upon which the Building is located is financed with tax‐exempt bonds. Tax‐exempt bond Projects with funding gaps, requesting Gap Financing through ADOH to fill those funding gaps, must submit an Application at the same time that the Applicant submits its Tax Credit Application. See Gap Financing requirements. The procedures followed by ADOH in processing Applications for bond‐financed projects are set forth below. (A) Upon Application: (1) ADOH may review Tax Credit Applications at any time of the year after the Applicant has received a final resolution from the bond issuing authority. An Applicant must submit a complete Tax Credit Application, at least 30 calendar days prior to the hearing required by Section 35‐726 (E) of the Arizona Revised Statutes (“Section 35‐726 (E) hearing”). The Applicant must use the current year Tax Credit Application forms. The Application must be accompanied by the appropriate Application fee. (2) To fully utilize 4% Tax Credits for tax‐exempt bond Projects, the Applicant must include a letter from a certified public accountant or tax attorney at Tab 4 – “CPA Opinion”, that attests that 50% or more of the Project’s aggregate basis of any Building and land upon which the Building is to be located is “financed” by the tax‐exempt obligation. (3) ADOH shall determine whether the Applicant and the Project comply with all eligibility requirements of the Plan. (4) The Applicant must submit a certification that principal payments on the bonds will be applied within a reasonable period of time to redeem bonds that funded the financing for the Project. (5) ADOH shall perform the first of two feasibility analyses to determine the amount of credits necessary for the viability of the Project. For Projects subject to the requirements of A.R.S. § 35‐ 726(E), ADOH shall complete underwriting and comparison of the Application submitted for the Section 35‐726(E) hearing before making a Determination of Qualification of Tax Credits. ADOH feasibility analysis will include an underwriting of the Project in accordance with ADOH’s current standards as set forth in this Plan. 42 Qualified Allocation Plan 2011 (6) The Applicant must pay all required fees to ADOH when due. (B) After Volume Cap Allocation for the Bonds: (1) ADOH may issue a Determination of Qualification letter after both the Section 35‐726 (E) hearing and after ADOH issues an approval letter. (2) The Applicant shall submit to ADOH a written election statement, referencing I.R.C. Section 42(b)(2)(A)(ii)(II). This election statement shall certify that the Applicant has chosen to lock in the applicable percentage as of the Placed‐in‐Service date or as of the month that the tax‐exempt bonds are issued. If the latter is elected: (a) The certification must specify the percentage of the aggregate basis of the Building and the land on which the Building is located financed with bond proceeds; (b) The certification must state the month in which the bonds are issued; (c) The certification must state that the month in which the bonds are issued is the month elected for the applicable percentage to be used in the Building; (d) The certification must be signed by the Applicant; (e) The Applicant must provide the original notarized election statement to ADOH before the close of the 5th calendar day following the end of the month in which the bonds are issued. If this certification is not received by that date, then ADOH must use the percentage based on the Placed in Service date; and (f) The Applicant must provide ADOH with a signed statement from the governmental unit that issued the bonds that certifies: (1) the percentage of the aggregate basis of the Building and the land on which the Building is located that is financed with bond proceeds and (2) the month in which the bonds were issued. (C) Final Tax Credit Allocation: The Applicant shall submit to ADOH: (1) a completed cost certification, and (2) an opinion of the Applicant’s certified public accountant that 50% or more of the aggregate basis for any Building included within the Project and the land on which the Building is located are financed with tax‐exempt bonds, and (3) an opinion of the Applicant’s counsel that the Project is eligible to receive Tax Credits under I.R.C. Section 42(h)(4). At this point ADOH will perform the final feasibility analysis of the Project. Projects that fail to submit the materials described in this Paragraph to ADOH on or before the period ending two years after the date of the Determination of Qualification letter described in Paragraph (B)(1) of this section are subject to additional fees as provided in Section 6 of this Plan. (D) The Applicant shall submit to ADOH the recorded LURA and Consent and Subordination Agreement for the Project along with certifications that: (1) the bonds issued to finance all or a portion of the Project have received an Allocation of the state’s private activity bond volume cap pursuant to 26 U.S.C. § 146; (2) the principal payments on the bonds shall be applied within a reasonable period of time to redeem bonds, the proceeds of which were used to provide financing for the Project; and 43 Qualified Allocation Plan 2011 (3) the governmental unit which issued the bonds made a determination under rules similar to those set forth in I.R.C. Section 42 (m)(2)(A) and (B) that the housing credit dollar amount for the Project does not exceed the amount necessary for the financial feasibility of the Project and its viability as a qualified low‐income housing Project throughout the credit period. (E) If the requirements of I.R.C. Section 42 and this Plan are satisfied, ADOH may issue I.R.C. Form 8609 for the Project at the applicable credit percentage under I.R.C. Section 42(B)(2) and may file the original of the election statement with the original of the Form 8609 with the appropriate IRS Form 8610. 44 Qualified Allocation Plan 4. GENERAL REGULATIONS 4.1 False Filing 2011 An Application, including all exhibits, appendices and attachments thereto, made to ADOH for an award of low‐income housing Tax Credits, including any materials filed at a later time with ADOH in connection with an Application, is considered to be an “instrument” for the purposes of A.R.S. Section 39‐161. According to that statute, knowingly including any false information in or with the Application is a class 6 felony. Such an act may also result in barring the Applicant and Development Team members from future awards of low‐ income housing Tax Credits. In addition, false filing may be subject to the provisions of A.R.S. Section 13‐ 2311 (designating as a class 5 felony the conduct of business with any department or agency of this state by knowingly using any false writing or document). 4.2 Satisfactory Progress (A) Applicants who have previously received a Determination of Qualification, Reservation or Allocation in Arizona or any other state must make Satisfactory Progress and be in substantial compliance with the requirements of federal law with respect to all prior Projects before ADOH may consider a new Application. If the Applicant fails to demonstrate satisfactory progress, ADOH may cancel the Reservation or Allocation of Tax Credits and reject any new Application from the same Applicant, Development Team, and any Person with an Ownership interest in the Applicant, or a member or members of the Applicant or Development Team. (B) Applicants that have received previous Allocations must demonstrate Satisfactory Progress. Applicants that have not closed on construction loans or utilized bond proceeds for construction within 365 days of Reservation are not eligible for future awards without a written waiver request explaining the circumstances causing and justifying the delay. Waivers for any delay shall be granted or denied by ADOH in its sole discretion. All Applicants that have received a Determination of Qualification or Reservation, Carryover Allocation or Allocation will be required to report on Project progress, using the “Bi‐Monthly Performance Report”, accompanied by a brief narrative, every 60 calendar days after receipt of the determination, Reservation, Carryover Allocation or Allocation. Applicants with Projects that include Tax Credits that have not received a final Allocation must make a written request for an approval of the deviation from the approved project schedule submitted with the Application. Projects that are not preceding according to the original Project schedule submitted, and approved amendments, may be subject to revocation due to lack of Satisfactory Progress. (C) ADOH may monitor both the progress and quality of construction. If progress or quality has not been satisfactory, ADOH may report significant deficiencies to any funding source, to other members of the Project team, and to the Applicant. 4.3 Return of Credits If at any time ADOH concludes that a Project no longer meets the requirements of I.R.C. § 42 or this Plan, ADOH may cancel a Reservation, a Carryover Allocation Agreement or a Determination of Qualification (s). Tax Credits that were reserved in a competitive round shall be considered returned to ADOH. In the event that ADOH requires a return of a Tax Credit Reservation, ADOH shall give notice to the Applicant. 45 Qualified Allocation Plan 2011 ADOH may deny or revoke a notice of eligibility for 4% tax‐exempt bond credits, Reservation or Carryover Allocation for 9% tax credits for any Project. Denial or revocation may occur at ADOH’s sole discretion, due to actions taken by the Applicant, Affiliate or Project Owner up to the Placed in Service date, for any of the following reasons: (A) Subsequent regulations issued by Department of Treasury or the Internal Revenue Service. (B) Information submitted in the Project Application to ADOH is determined to be fraudulent. (C) Failure to pay fees including late fees described in Section 6. (D) Failure to make Satisfactory Progress as defined in Section 4.2 of this Plan. (E) Instances of curable or incurable noncompliance existing at any time during the compliance period for any federal or state subsidized Project located in any state. (F) Failure by an Applicant or Owner to promptly notify ADOH of any material or adverse changes from the original application. (G) Material Changes without written approval of ADOH. (H) Change in the Unit design, square footage, Unit mix, number of Units, and number of Buildings described in an Application for Tax Credits without the written approval of ADOH. (I) Debarment by HUD or other federal and state programs, bankruptcy, criminal indictments and convictions. (J) Failure to comply with federal or state fair housing laws. (K) Other cause demonstrating the failure of the Applicant or the Project to be qualified or meet the requirements of federal or state law or the requirements of the applicable Tax Credit program. 4.4 Extended Use Period Pursuant to I.R.C. Section 42, the state requires that all recipients of Tax Credits enter into an initial 15‐year compliance requirement and an additional extended use restriction for at least an additional 15 years after the initial compliance requirement, extending the total commitment to a minimum of 30 years. Prior to the issuance of Form 8609(s), the Owner of the Project shall execute and record with the county recorder where the project is located, such an LURA, which shall constitute a restrictive covenant running with the property upon which the project is located. The Agreement shall be in the form provided by the state and is available from ADOH upon request. 4.5 Material Changes Development Team members holding an interest in the Project must deliver a Project as described in the Application for Tax Credits. ADOH must approve in writing any material change deviation from the project described in the Application. 46 Qualified Allocation Plan (A) 2011 Material Change: In order to obtain ADOH approval of a Material Change, the Applicant must submit a written request to ADOH explaining the change and the reasons justifying the change. A $1,500.00 Administration Fee must accompany the written request. ADOH will not consider the request unless the fee is included. Because of ADOH’s statutory mandate to award Tax Credits only to the extent they are necessary for Project feasibility, the Applicant must communicate in writing any proposed Material Change in the Project immediately to ADOH for an assessment of the impact on final underwriting and Allocation. The written request must include the Applicant’s reasons under I.R.C. Section 42 or in this Allocation Plan for believing that the change is permissible. Projects applying for a Material Change shall be underwritten to the standards in the Allocation Plan of the year that Tax Credits were awarded. The Applicant must submit to ADOH written approvals of the Material Change from the Local Government, the lender, and the syndicator as discussed below. (B) Specific Material Changes: (1) Change of Location and Use. ADOH shall not allow an Applicant to change the location of a Project once the Application has been submitted. Notwithstanding the foregoing, ADOH, may allow Project relocation prior to the Carryover Allocation of Tax Credits if the new site for the Project is within the census tract specified in the Application, ADOH receives the written approval of the unit of Local Government, and the need for relocation was unforeseeable and beyond the Developer’s control at the time of Application. If an Applicant changes the location of a Project without the written approval of ADOH, ADOH may revoke the Tax Credits determined for the Project. A change in the use of a Project (e.g., elderly, family) after the Application has been submitted may not be allowed except with the written approval of both the unit of Local Government and ADOH. (2) Changes to Principals. Substitution of a general or limited partner, or a syndicator or permanent lender may constitute a Material Change, and therefore, must be reviewed by ADOH. If ADOH determines there is no negative effect on the Project’s feasibility, the change may not be considered material and no fee is due. (3) Complex Material Changes. (e.g. restructurings that involve a change in the number of units or in the amount of borrowed funds, or in the sources of funds), shall be reviewed following the guidelines below: (a) Unforeseeable circumstances or the imposition of extraordinary governmental rules and regulations, if fully documented and justified, may be viewed as reasons to approve a Material Change. (b) A request for Material Change shall be denied if it results in a change in the project score, the eligibility for a set‐aside, or failure of the project to meet eligibility or threshold requirements. (c) Notwithstanding subparagraph (b), above, ADOH may approve a request for Material Change as necessary to further the goals of this Plan. (d) When the Material Change involves a restructuring, all commitments (e.g., set‐asides, amenities) must be proportionately the same as at time of Application. 47 Qualified Allocation Plan 2011 (C) Failure to obtain ADOH approval. If the Project fails to obtain ADOH’s prior written approval to a Material Change, ADOH may recapture or reduce all or part of the Tax Credits determined or reserved for the Project. 4.6 Disclaimer and Limitation of Liability (A) ADOH makes no representations to the Applicant, Developer, Owner, or syndicator or to any other Person as to Project eligibility or compliance with the Code, Treasury Regulations, or any other laws or regulations governing the Low‐Income Housing Tax Credit program. (B) Applicants, Development Team Members, and Investors participate in the Tax Credit program at their own risk. No member, officer, agent or employee of ADOH or the State of Arizona shall be liable for any claim arising out of, or in relation to, any Project or the Tax Credit program, including claims for repayment of construction, financing, carrying costs, any loss resulting from a decision of the Internal Revenue Service, or consequential damage or loss of any kind incurred by an Applicant, Developer, Owner, Lender, Investor, Syndicator or any other Person. Applicants shall be required to execute a release and indemnification of ADOH and related parties as part of the Application of Tax Credits and as a condition of final Allocation of Tax Credits. (C) Although ADOH makes every effort to protect information that is privileged from disclosure, applicants should only enter confidential information such as taxpayer identification numbers and financial statements at the specific locations required by the application materials or the QAP. Applicants should redact confidential information from documents if the information is not specifically required by ADOH. Disclosures. Public disclosure of LIHTC Applications shall be as provided by Title 39, Chapter 1 Article 2 of the Arizona Revised Statutes. All information included in an Application submitted to ADOH is subject to disclosure to the public unless specifically exempted from disclosure by statute. ADOH may redact information or withhold records that are protected from disclosure pursuant to Arizona law. 48 Qualified Allocation Plan 5. 2011 FINAL TAX CREDIT ALLOCATION ADOH makes a final determination of the amount of Tax Credits at the time the Project is Placed in Service in accordance with the requirements of I.R.C. § 42. For the final Allocation of Tax Credits, the Project must submit Final Allocation materials to ADOH as required by I.R.C. § 42. ADOH evaluates the Projectʹs final costs and the amount of revenues from the sale of the Tax Credits. ADOH’s final evaluation may require review of documentary support for development costs including but not limited to invoices, canceled checks and contracts. ADOH, in its sole discretion, may reduce credits based on its final evaluation and require a return of Tax Credits to ADOH. 5.1 Request for Issuance of Final Allocation (IRS Form 8609) For Buildings that are Placed in Service as part of a qualified Project (by December 31st following the 24 months of closing of the bonds or from issuance of a Carryover Allocation), and upon compliance with all requirements of the Code and ADOH, ADOH shall issue an IRS Form 8609 for each Building as of the time the Building is Placed in Service. ADOH shall issue the Form 8609 after the Applicant fully pays all fees, and submits the items described below in 8.5x11 format, bound in a three‐ring binder, and tabbed accordingly: (A) An updated Application (ADOH Form 3); (B) A 15 year pro forma starting with the Placed‐in‐Service date; (C) Final appraisal of the project; (D) All certificates of occupancy, issued by the appropriate governmental authorities, for qualifying Buildings that must indicate the dates the Buildings were Placed in Service and the addresses of those Buildings; (E) A Final Cost Certification in the form of an independent auditor’s report prepared by a Certified Public Accountant certifying the final cost according to Generally Accepted Accounting Principles for Projects with more than 10 units as required by IRS Regulation 1.42‐17; as follows: (1) The auditor must certify to ADOH the full extent of all sources of funds and all development costs for the Project including any federal, state, and local subsidies that apply (or that the Applicant expects to apply) to the Project. (2) The auditor must prepare the required schedule of development costs based on the method of accounting used by the Applicant for federal income tax purposes, and it must detail the Project’s total costs as well as those costs that may qualify for inclusion in eligible basis under I.R.C. Section 42. (3) The Applicant must make the required certifications on the Certificate of Actual Costs Form satisfactory to ADOH. See Exhibit G. IRS Regulation 1.42‐17 also requires that Projects with greater than 10 units submit a Certified Public Accountant’s audit report on the schedule of Project costs. (F) The Applicants Building‐by‐Building Tax Credit computation (on ADOH form Table A); 49 Qualified Allocation Plan 2011 (G) A letter from the permanent lender summarizing the terms and conditions of the permanent loan. Upon closing of the permanent loan, the Applicant must submit copies of the executed Promissory Note recorded Deed of Trust, and recorded Consent and Subordination Agreement; (H) A promissory note from the Project’s Ownership entity payable to the Developer in an amount sufficient to cover any Deferred Developer Fee. Other forms of obligation to pay may be substituted if allowed under the definition of Deferred Developer Fee and if they include the following: (a) the interest rate; (b) the term of repayment; (c) the source of repayment and proof that the source of repayment is supported by cash flow projections or a binding commitment from a party capable of repayment; and (d) if there is a lien, language stating that the lien is subordinate to other liens relating to permanent financing; (I) The LURA for compliance with I.R.C. § 42(h)(6) in a form of a declaration of covenants, conditions, and restrictions effective for a period of at least 30 years satisfactory to ADOH shall be executed and recorded prior to the time of the Final Allocation. The LURA shall specify the Units set‐aside for lower income tenants, the percentage of median income tenants served, as otherwise appropriate for the Project described in the Application. (1) Evidence of that recording must be presented to ADOH before the issuance of IRS Form 8609(s). (2) All agreements to be signed and recorded by December 31st must be submitted to ADOH not later than December 1st of that same year. (3) Applicants who desire to have the LURA completed and recorded by the end of the year must request it by no later than November 1. Any requests submitted after the November 1st deadline may not be completed by the end of the year. (J) One 8‐x 10‐inch color photograph of at least one of the Project’s Buildings with signage; (K) A completed form stating the Project’s first credit year (ADOH provided form); (L) Fully executed partnership, operating, or joint venture agreements and other agreements between the Project and the equity investor; (M) An investor certification letter (ADOH sample form provided); (N) Written certification from the Architect that the Project meets the Design Standards of this Plan. See Form 16; (O) Completed and signed certification from the contractor (Contractor’s Certificate – Form 8609‐1) that the Project was built in compliance with the plans and specs provided by the architect; (P) Completed and signed Placed‐In‐Service Acknowledgement (ADOH provided form) for each Building in the Project; (Q) Certification from the Arizona Energy Office that the project complies with the 2006 International Energy Conservation Code (IECC) (contact Terry Rother (602) 771‐1253 or Scott Watters (602) 771‐1139 of the Energy Office at the Arizona Department of Commerce); 50 Qualified Allocation Plan 2011 (R) Completed Form 8609‐2 – Operational Risk Management (ADOH provided form); (S) Proof of flood insurance, or verification that property is not located in a flood zone; (T) Completed and executed Form 17. The Architect is required to certify that all specified green point criteria have been met. Supporting details such as contracts, work orders, delivery receipts, etc. are required to be submitted to certify Green products were incorporated into the Project as planned; (U) Final Allocation Fee; (V) As built survey of completed Project; and (W) Any additional information requested by ADOH. 5.2 Final Allocation Underwriting Prior to the issuance of IRS Form 8609(s), ADOH underwrites the Project using the information provided in Section 7.2. In addition to the limitation regarding eligible basis, ADOH limits the total amount of Tax Credits to the amount computed under the Gap Analysis, so Projects are not awarded Tax Credits in excess of the amount necessary to make the Project feasible. Unreasonable costs, changes in financing sources, funding amounts, or excess equity may reduce the final amount of Tax Credits. 51 Qualified Allocation Plan 6. 2011 FEES ‐ All fees set forth in this Section 6 are Non‐refundable. ADOH assesses all non‐refundable fees described herein for the purpose of covering the costs and expenses of processing an Application to the point where the Applicant may receive a Final Tax Credit Allocation. If an Application, Reservation, or Carryover Allocation is denied due to action or inaction by the Applicant, the fees are nonetheless due and payable to ADOH upon demand. Notwithstanding ADOH’s determination of the amount of the Final Allocation of Tax Credits, no Reservation Fee and Final Allocation Fee shall be refundable by ADOH. 6.1 Tax Credit Application Fee An Application fee of $5,000.00 is due ADOH at the time of submission of the Application. Applications will not be accepted unless accompanied by this fee. 6.2 Gap Financing Review Fee A Gap Financing review fee in the amount of $3,500.00 shall be due and payable upon notice of Reservation. 6.3 Reservation Fee, Determination of Qualification Fee, and Final Allocation Fee ADOH requires payment of the Reservation Fee for 9% Tax Credits and the Determination of Qualification Fee for 4% Tax Credits. The Reservation Fee and the Determination of Qualification Fee is calculated as 8% of the annual amount of Tax Credits. The Reservation Fee is due and payable at the time of the Reservation for 9% Tax Credits. The Determination of Qualification Fee is due and payable at the time of issuance of the Determination of Qualification letter for 4% Tax Credits. The Final Allocation Fee in the amount of 2% of the annual amount of Tax Credits is due and payable at final allocation and prior to issuance of 8609’s. 6.4 Tenant Ownership Fees Applicants with Applications that include Tenant Ownership shall pay an additional $4,000.00 legal review fee at the same time that they pay the determination or Reservation Fee. 6.5 Carryover and 10% Test Late Fees ADOH charges a Carryover Allocation and 10% Test late fee of $250.00 per day for information received after the Deadline Date specified by ADOH in the Reservation Letter. Information not received by the close of business of the deadline established by ADOH may result in the Project not receiving a Carryover Allocation. In extreme circumstances, such as a late Reservation of Tax Credits, ADOH may waive the late fees. 6.6 Administration Fees An Administration Fee in the amount of $1,500.00 is due and payable to ADOH: 1) if an Owner or Applicant requests additional underwriting after a Reservation has been made; and 2) in the event that an Owner or Applicant requests approval of a Material Change. 6.7 Compliance Monitoring Fees Every Applicant for a Project that receives an Allocation must pay to ADOH an annual, non‐refundable 52 Qualified Allocation Plan 2011 Compliance Monitoring Fee. The timing and amount of the annual Compliance Monitoring Fee are as described in this Section unless the LURA applicable to the Project property specifically provides otherwise. Beginning January 1, 2011, and until a subsequent QAP becomes effective, the annual Compliance Monitoring Fee shall be $65.00 per Low‐Income Unit, and is due annually whether or not a physical inspection is conducted on the property. Payment of the compliance monitoring fee is part of the Annual Report and is due and payable by no later than March 15th. 53 Qualified Allocation Plan 7. 2011 UNDERWRITING ADOH’s underwriting review of Applications for Tax Credits focuses on the feasibility and the long‐term viability of the Project. ADOH reserves and allocates Tax Credits at the minimum level needed to realize the financial feasibility and viability of a Project consistent with the requirement of I.R.C. § 42 and this Plan throughout the end of the Extended Use Period. 7.1 Calculation of Tax Credits Tax Credits are awarded based on the lesser of two calculations, the Eligible Basis Analysis or the Gap Analysis. Both methods are included on Form 3. (A) Eligible Basis Analysis: Tax Credits are calculated by multiplying the eligible basis by 130% (ADOH has elected under I.R.C. 42(d)(5)(C) to designate the entire State for this boost) times the Applicable Fraction times the Applicable Percentage. ADOH will use 9% and 3.5% credits respectively as the “applicable percentage” for underwriting applications. A Project’s eligible basis is the Project’s tax basis and may be adjusted as follows: Deductions from Eligible Basis: 1) Federal Grant funds used to finance costs pursuant to Code §42(d)(5)(A). 2) Amount of non‐qualifying/nonrecourse financing pursuant to Code §42(b)(1), 49(a)(1)(A). 3) Non‐qualifying units and/or excess costs related to units above the average quality standard for a Low‐Income Unit pursuant to Code §42(d)(3)(A). 4) Cost allocable to nonresidential mixed use square footage. 5) Historic or Solar Tax Credits. 6) Development Costs exceeding the limits set forth in this Plan. 7) Costs associated with unapproved waivers. (B) Gap Analysis: In addition to the limitation regarding eligible basis as discussed above, ADOH limits the total amount of Tax Credits that it may award to a Project to the amount computed under the “Gap Analysis”. So that Projects are not awarded credits in excess of the amount necessary to make the Project feasible, ADOH will calculate the Gap Analysis by dividing the Project Funding Gap by the Project “Syndication Rate”, by the Investor ownership percentage, and by 10 years. A Project’s “Funding Gap” is defined as the amount by which estimated development costs of the Project exceed projected available funds to the Developer for development of the project, after ADOH has adjusted sources and uses per underwriting guidelines described above. The Syndication Rate for a particular project is a ratio that reflects the price to the Project for one dollar of Tax Credits awarded to the Project (e.g., a Syndication Rate of 0.76 means that, for every dollar of Tax Credits awarded to the Project, the Project will realize $0.76). The Project’s projected sources of funds for purposes of the Gap Analysis consist of permanent financing and any other loans or grants for which the Project has received a Commitment Letter or Award Letter. 7.2 Underwriting Requirements (A) A Project will be underwritten a minimum of three times: (1) At original Application, (2) 10% Cost Test and (3) when a Project is Placed in Service. ADOH may request at any time updated information needed to perform an interim underwriting if a Material Change has occurred, i.e. loss of a Project funding source or change in Ownership. 54 Qualified Allocation Plan 2011 (B) Based on information submitted and other relevant information available to ADOH, ADOH analyzes and, if necessary, adjusts the financial considerations in accordance with this Plan. ADOH analyzes and adjusts development costs, permanent financing amounts, public funding amounts, developer fees, anticipated rents, operating costs, vacancy rates, and other financial considerations of a project as necessary in accordance with this Plan. Based on its review and after ADOH makes such adjustments as may be necessary to determine that proposed sources of funding, development costs, and operating costs are reasonable, ADOH may deny an application for tax credits, revoke a reservation of tax credits, or deny an application (a submittal and final certification for issuance of I.R.S. forms 8609) for final allocation of tax credits if ADOH concludes that: 1. Sources of funding are insufficient to finance the total development costs of the Project; 2. Operating revenues are insufficient to ensure for the viability of the Project through the end of the Compliance Period according the standards described in this Plan; 3. The Application is inconsistent with the requirements of I.R.C. § 42 and A.R.S. §§ 35‐728 (B), (C) and 41‐3953; 4. The Application is inconsistent with applicable federal law including without limitation the Americans with Disabilities Act (42 U.S.C. § 12101 et seq.) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. § 794), the program requirements for any source of funding, and any requirements or conditions described in an applicable notice of funding availability; 5. The Application fails to reasonably meet the underwriting standards and guidance described in this Section; 6. The information submitted is insufficient to permit ADOH to make a determination; or 7. A submittal contains material errors and inconsistencies including without limitation incorrect or contradictory information, incorrect numbers, and mathematical errors. (C) ADOH underwrites to the Plan standards and guidance below: 1. Permanent Financing Costs ADOH evaluates permanent financing costs based on the information provided in the commitment letters and letters of intent submitted in the Application and compares it to industry standards. Permanent Financing Costs requirements include: (a) Origination and loan fees must be below 2% of the permanent loan amount. (b) Applicants must maximize their primary debt. ADOH may adjust the amount of tax credits reserved to maximize the amount of available debt financing. ADOH may consider information gathered to determine whether the Applicant has committed the maximum amount of private sources of funds available to the Project. ADOH will expect the Applicant to maximize its lending sources by paying at least the maximum mortgage payment described hereafter. The maximum mortgage payment on the Primary Permanent Funding (see “Definitions”) for the term of any permanent loan or the duration of the compliance period, whichever is longer, the quotient obtained by dividing the net annual operating income by total annual debt service 55 Qualified Allocation Plan 2011 payments for all loans, shall be no less than 1.20 or as modified by the debt service coverage and loan‐to‐ value ratios established by the lender in the Letter of Interest or Intent for each year of operation. Tax credits will be adjusted, if necessary, to assume financing requiring maximum mortgage payments or such other maximum mortgage payment as is approved by the ADOH. Other mortgage terms (e.g. interest rate and amortization period) will be taken from the lender’s Letter of Interest or Commitment Letter. ADOH may consider a minimum DSCR of 1.15 for projects with commitments for loan guarantees or rental assistance through HUD or USDA/RD. 2. Debt Service Requirements (a) The debt service coverage ratio shall be no less than 1.20 for each year of operation. ADOH may consider a minimum debt service ratio of 1.15 for Projects with commitments for loan guarantees or rent assistance through HUD or the United States Department of Agriculture Rural Development Authority. (b) Debt service requirements for subordinate debt. The debt service coverage ratio shall be no less than 1.00 for any year during the compliance period. 3. Operating Budget ADOH restricts the costs in the Operating Budget to the costs directly associated with operating the real estate. *Supportive Services costs are to be considered an additional operating expense stipulated in the Plan. Accordingly, an operating budget including Supportive Services Costs must equal the sum of the minimum operating expense and the cost of the Supportive Services provided. Unless specifically waived by ADOH, the two expenses combined must be greater than the ADOH minimum operating expense. (a) Rental Analysis: Project’s rents shall: (i) not exceed the maximum allowable permitted under of I.R.C. § 42; (ii) be 10% below market rents being charged for the same type of units in the Primary Market Area; (iii) generate sufficient income to cover operating expenses and debt service of the Project; and (iv) undergo verification against the Market Study should any adjustments to rent be made. (b) Additional Monthly Income: ADOH underwrites additional monthly income at no more than $20/Unit/month. (c) Vacancy: ADOH will underwrite to a vacancy rate of 10%. (d) Reserves: ADOH underwrites replacement reserves for new construction at the rate $250 per unit per year, and for Acquisition/Rehabilitation projects at $350 per unit per year. (e) Operating Expenses: (i) ADOH underwrites operating expenses for new construction at $4,200.00 per unit per year and for acquisition/rehabilitation at $4,500.00 per unit per year. (ii) ADOH does not include Asset Management Fees in ordinary operating expenses. 56 Qualified Allocation Plan 2011 (iii) ADOH does not consider Supportive Services expenses as an ordinary operating expense. If included in the Operating Budget, the Applicant must add this amount to the minimum operating expense amounts stipulated by ADOH. (iv) Applicant must include property taxes in operating expenses and the formula used to determine the real estates taxes, as part of Form 3. If exempt from property taxes, the Applicant must submit a written certification from the treasurer’s or assessor’s office of the local government and any governmental entity that has taxing authority over the real property upon which the project is located that the project is exempt from real property taxes. 4. Deferred Developer Fees: The deferred developer fee may not exceed 40% of the total developer fee and may not be deferred for a term of greater than 15 years. 5. Development Budget Applicants shall disclose all uses of funds including but not limited to commercial and/or retail space. ADOH may draw comparable costs from industry standard sources, from information collected by ADOH from multifamily projects in the state, and in consultation with construction cost experts. (a) Construction Finance Costs Limits. (i) ADOH will use construction finance costs provided in the commitment letter from the construction lender up to a maximum amount of 2% of the construction loan. (ii) Maximum Construction Interest allowable in eligible basis will be calculated as follows: Construction Loan Amount * Annual Interest Rate divided by 12 * number of months of construction divided by 50%. (b) Developer Fee, Overhead, and Consultant Fee Limits. The total amount includable in eligible basis for the developer fee, overhead, and consultant fees shall be limited as provided in the table below. Developer fee will not be allowed to increase after the initial award of tax credits for the purposes of additional Gap Financing. Developer Fee, Overhead, and Consultant Fee Limits As A Percent Of Total Eligible Basis In Cost Categories I‐IV of the Development Budget Number of Units 1‐30 31‐60 61+ Percent Allowed 17% 15% 14% (c) Tax Credit Consultant’s Fees. Are included as part of the Developer Fee. (d) Builder Profit, Overhead, and General Requirement Limits. Are calculated as a percentage of “Subtotal Direct Construction Costs” as set forth in the table below: 57 Qualified Allocation Plan 2011 Builder’s Profit, Overhead and General Requirements Project size in units Percent of Costs 1‐15 16‐30 31‐45 46‐60 61+ Builder’s Profit Builder’s Overhead General Requirements Total Maximum Percentage 6.0 3.0 6.0 15.0 5.25 2.25 5.25 12.75 5.00 2.00 5.00 12.0 5.75 2.75 5.75 14.25 5.50 2.50 5.50 13.5 Note: General Requirements include Project‐related site costs such as temporary fencing, utilities to the site during construction, job site supervisor, job site office and similar costs. (e) Capitalized Reserve Minimums. The development budget shall include minimum capitalized reserves as follows: (i) Rent‐up Reserve. Minimum of six months of operating expenses plus six months of debt service. (ii) Operating Reserve. Minimum of six months of operating expenses plus six months of debt service. (iii) Replacement Reserve. Minimum of $250.00 per unit for new construction and $350.00 per unit for acquisition/rehabilitation projects. 6. Distribution of Units Projects shall allocate the low and moderate‐income Units among the different sized Units. Low and moderate‐income Units shall be distributed throughout the Project so that tenants of those units may have equal access to and enjoyment of all common facilities of the Project. 7. Market Study Analysis. In ADOH’s analysis of the market study, ADOH may limit the number of developments in a specific market or geographical area if ADOH determines that there is insufficient demand or that a particular Project would have adverse impact on Low Income Housing developments existing in a given market area. In the event that multiple Applications are submitted for a given market area that cannot support all of the projects, ADOH may select one or more Applications that will best serve market demand or has less of a negative impact than the others. ADOH may, refuse to reserve credits to any Project if ADOH determines that the given market area cannot support the Project. If multiple Applications are filed for a given market area proposing to serve different populations (e.g., elderly or households with children), ADOH shall analyze the Applications to ensure that no Project will be redundant or have adverse impact on the other applications or existing Projects in the given area. ADOH will deny an application due to market conditions for the following reasons: (1)Market Study does not comply with requirements in Exhibit L. (2) Market Study fails to demonstrate strong new market demand for the type of low‐income housing proposed. 58 Qualified Allocation Plan 2011 (3) Market study fails to address all salient features of a project, including but not limited to, market rate units, multiple‐use projects, commercial/retail or other non‐affordable components, and location in a high crime area. (4) Market study that fails to clearly describe the effective date or fails to specifically identify the age of all data and third‐party information, including but not limited to, demographic information and rates of population change, rental market, vacancy data, and the dates of any interviews. (5) The number of units proposed in the application may adversely affect the financial viability of existing housing stock in the primary market area. (6) Market study fails to objectively and explicitly justify the limits of the primary market area consistent with the requirements of the Exhibit L. (7)The Market Study fails to describe reasonable and appropriate ameliorating considerations for negative market information, including but not limited to, vacancy rates that exceed underwriting standards, high property or violent crime rates, and excessive gross or net capture rates. Should ADOH determine the Market Demand Study supplied with the application is unsatisfactory and requires additional information; the Market Demand Study shall be updated at the sole expense of the Applicant. ADOH may verify information and conclusions in the Market Demand Study through alternative sources. 8. Gap Financing & Layering Analysis A. Gap Financing. ADOH may provide up to $750,000 in State Housing Fund for Gap Financing. Applicant’s that request Gap Financing from ADOH must include a supplemental Gap application. Supplemental Gap applications may be downloaded from ADOH’s website. Gap Financing applications should be included at Tab 3, behind Form 3. In the event ADOH receives additional Gap Financing sources, the $750,000 cap as stated above may be not applicable. B. Layering Analysis. Layering Analysis will be performed at any time Gap Financing is requested. During the layering analysis review, ADOH may reduce credits or ADOH Gap Financing sources if it determines that the Project has been over sourced. ADOH takes into account all public subsidies in its Gap Analysis. Federal regulations prohibit the layering, or excessive use, of Federal Subsidy for any project or activity. ADOH will coordinate with other public funding agencies that by regulation or practice undertake layering reviews of projects proposed to be funded with tax credits. 59 Qualified Allocation Plan 8. COMPLIANCE MONITORING 8.1 Project Compliance Monitoring 2011 (A) Monitor and Inspect. ADOH is required to monitor and inspect projects for compliance with I.R.C. Section 42, Treasury Regulation 1.42‐5, the QAP, and the terms and provisions of the LURA. Generally, ADOH monitors to ensure: 1) Low‐Income Units are rent restricted and occupied by qualifying tenants; 2) the property as a whole is suitable for occupancy; 3) the Owner is keeping and retaining the necessary records; and 4) the project meets the requirements (set‐asides, income restrictions, rent skewing, affordability period, amenities and services, etc.) described in the application for tax credits. (B) Publish and Institute Monitoring Procedures. The I.R.C. also requires that ADOH publish and institute monitoring procedures as part of the Plan. This compliance monitoring procedure applies to all Projects to which ADOH has allocated tax credits. Accordingly, Projects allocated Tax Credits since January 1, 1987 are subject to compliance monitoring except as specifically provided by the Code. (C) Compliance Manual and Training Requirements. (1) Compliance Manual. ADOH has prepared a Low‐Income Housing Tax Credit Program Compliance Manual for all Program participants. The manual describes ADOH’s compliance monitoring procedures and reporting requirements. The manual includes samples of all annual reports, certifications, and other documents relevant to compliance monitoring. (2) Management Agent Compliance Training. Management Agent Compliance Training is offered by ADOH on the Compliance Manual and owners’/managers’ compliance responsibilities. Property manager must attend and be certified annually on ADOH compliance monitoring. Property managers must submit a compliance training certificate with the Project annual report to ADOH. (D) Fees. The Code also allows ADOH to collect fees from owners to cover the cost of administering the compliance‐monitoring program. Annual compliance monitoring fees are set forth in Section 6 above. (E) Registration with Social Serve. Applicants who receive an Allocation must agree to register the units with socialserve.com and maintain such registration with socialserve.com for the duration of the Compliance Period. 8.2 Compliance Monitoring Requirements The Owner of a qualified LIHTC Project for which tax credits are allowable is required to comply with the following: (A) Qualified Tenants. Low‐Income Units must be occupied by tenants who meet income eligibility standards described by the Code. Tenants occupying Low‐Income Units must be income qualified as required by the Code. (B) the Code. Rent Restrictions. The rents charged for Low‐Income Units must be restricted as required by 60 Qualified Allocation Plan 2011 (C) Physical Condition Standards. The Owner must maintain the Project property in compliance with physical conditions standards that include local building codes. (D) Annual Report. By no later than March 15th of each year the Owner must submit the Annual Report that contains the following: (1) Payment of the Compliance Monitoring Fee described in Section 6; (2) The certifications described in Section 8.2(G) on a form provided by ADOH; (3) The ownership entity’s financial statements (balance sheet, profit and loss, and cash flow statements) for the preceding year; (4) A rental schedule on a form provided by ADOH; (5) An applicable fraction per building on a form provided by ADOH; (6) A special commitments report on a form provided by ADOH; (7) The annual utility certification on a form provided by ADOH. (E) Record Keeping. The Owner must maintain accurate records for each building in the low‐ income housing Project. These records must include: (1) The total number of Residential Rental Units in the building, including the number of bedrooms and the square footage of each Residential Rental Unit. (2) The total number of Low‐Income Units in the building. (3) The total number of occupants in each Low‐Income Unit. (4) The rent charged on each Residential Rental Unit in the building, including any utility allowance. (5) The Low‐Income Unit vacancies in the building. (6) The number and household eligibility criteria for all special set‐aside units in the building. (7) The rentals of the next available Units in each building including when and to whom rented. (8) The character and use of the non‐residential portion of the building that was included in the building’s eligible basis under the Code (i.e., facilities that are available on a comparable basis to all residents and for which no separate fee is charged for use of the facilities, or facilities reasonably required by the Project). (9) Documentation regarding the eligible and qualified basis of each building as of the end of the first year of the Tax Credit period. 61 Qualified Allocation Plan 2011 (10) For each low‐income household: (a) Completed rental application, including the tenants’ certification of assets. (b) Tenant income certification form, including all required signatures. (c) Documentation supporting each household’s income certification (third‐party verifications, asset certification, asset documentation and verification if more than $5,000 in value). (d) Documentation of student status. (e) For Elderly Family Projects, the tenant file must include proof of date of birth and/or proof of the qualifying disability, if applicable. (11) Current‐year utility allowance schedule. (12) Documentation from a medical doctor licensed in Arizona or prepared by a social service or health service agency that qualifies a tenant for the Special Needs Population and any documentation that identifies any special accommodations that the tenant may require. (F) Record Retention. Owners are required to keep all records for each building for a minimum of six years after the due date (with extensions) for filing the federal income tax return for that year. The Owner must retain the records for the first year of the credit period for at least six years beyond the due date (with extensions) for filing the federal income tax return for the last year of the compliance period of the building. (G) Certification. The Owner must certify the following, under penalty of perjury, at least annually through the end of the compliance period: (1) That the Project complied with the requirements for special set‐asides on which the Allocation was based (e.g., 20%, 30%, 40%, 50% AMGI), as applicable. (2) At least 20% of the Residential Rental Units in the Project are both rent restricted and occupied by individuals whose income is 50 percent or less of the AMGI; or at least 40% of the Residential Rental Units in the Project are both rent restricted and occupied by individuals whose income is 60 percent or less of the AMGI. (3) That the Owner/agent has received an annual Tenant Income Certification (commonly called the “TIC”) form from each low‐income resident and verifying documentation to support that certification. (4) That the entire Project/Building was occupied by LIHTC residents and the Internal Revenue Service has or has not provided a waiver for the annual recertification of resident income. (5) That each Low‐Income Unit was rent restricted as defined in the Code. (6) That all units in the Project are for use by the general public and are not used on a transient basis. 62 Qualified Allocation Plan 2011 (7) That each building in the Project is in decent, safe, and sanitary condition and in good repair taking into account local health, safety, building codes, and HUD’s Uniform Physical Condition Standards, see 24 CFR 5.703. (8) That all resident facilities included in the eligible basis of any building in the Project were provided on a comparable basis without a separate fee to all residents in the Project. (9) That there was no change in the applicable fraction of any Building in the Project (or, if there was a change, a description of the change). (Applicable fraction is defined as the percentage of qualified basis in a building or the percentage of tax credit floor space to rentable floor space in a building, whichever is less.) (10) That there has been no change in any building’s eligible basis under the Code (or that there has been a change, with an explanation of the change). (11) That an LURA is in effect for Projects receiving Allocations on or after January 1, 1990. (12) That the Project complied with the requirements of all federal or state housing programs (e.g., RD assistance, HOME, Section 8, tax‐exempt financing), as applicable. (13) That, if the Owner received its Allocation set‐aside for Projects involving “qualified non‐ profit organizations,” the non‐profit entity materially participated in the operation of the development within the meaning of I.R.C. Section 469(h). (14) That if a Low‐Income Unit in the Project becomes vacant during the year, reasonable attempts are made to rent that Unit or the next available Unit of comparable or smaller size to residents having a qualifying income before any Unit in the Project is rented to a resident not having a qualifying income. (15) That if the income of the residents of a Low‐Income Unit increases above 140% of the limit allowed in the Code, the next available Unit of comparable or smaller size shall be rented to residents having a qualifying income. (16) For buildings with four units or less, whether any of the units in the building were occupied by the Owner or a Person related to the Owner for the preceding year. (17) Whether, for the preceding year, the Project was the recipient of a federal grant or other Federal Subsidy that would cause a reduction in eligible basis. (18) That the state or local government unit responsible for making building code inspections did not issue a report of a violation for the Project for the preceding 12 month period. (19) That the Owner has not refused to lease a Unit to an Applicant due to the Applicant holding a HUD Section 8 voucher or certificate. (20) That the Project has received no finding of discrimination under The Fair Housing Act (an adverse final decision by HUD, an adverse final decision by a substantially equivalent state or local fair housing agency, or an adverse judgment from a Federal court). 63 Qualified Allocation Plan 2011 (21) That the Owner has not evicted or terminated the tenancy of any existing tenant of any Unit (other than for good cause) or increased the gross rent with respect to a Unit not otherwise permitted. (H) Reviews and Inspections. Before ADOH issues the IRS Form 8609 or the end of the second calendar year following the year the last building in a Project is Placed in Service, whichever is first, ADOH conducts on‐site inspections of all new buildings in the Project and, for at least 20% of the Project’s Low‐ Income Units, ADOH inspects the units and reviews the low‐income certifications, the documentation supporting the certifications, and the rent records for the tenants in those units. (1)ADOH conducts on‐site inspections of all buildings in each low‐income housing Project at least once every three years, beginning after the Placed‐in‐Service date. For at least 20% of the Project’s Low‐Income Units selected by ADOH, ADOH inspects the units (including all vacant units) and reviews the low‐income certifications, the documentation supporting such certifications, and the rent record. (2)ADOH follows HUD’s inspection protocol under 24 CFR § 5.703 in conducting physical inspections. ADOH selects units for physical inspection and reviews files only at the time of the on‐site visit. (I) Miscellaneous Owner Responsibilities. In addition to the responsibilities described in this Section, the Owner must: (1) Notify ADOH prior to any change in ownership. (2) Notify ADOH prior to any change in the management agent. (3) Perform annual tenant recertifications as required by the Code. (4) Establish the utility allowance as required by Treas. Reg. 1.42‐10. (5) Comply with the program requirements relating to the source of any funding to the Project and the Fair Housing Act (42 U.S.C. § 3601 et seq.), the Americans with Disabilities Act (42 U.S.C. § 12101 et seq.), Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. § 794). (J) Liability. The Owner is responsible for compliance with the requirements of the Code and the QAP. ADOH shall not be liable to third parties for claims arising from an Owner’s failure to comply with the requirements of the Code or the QAP. (K) Correction of Non‐Compliance Condition. (1) ADOH shall provide written notice of noncompliance to the Owner if: (a) ADOH has not received a complete Annual Certification Report with attachments by the due date. (b) ADOH finds that the Project is out of compliance with any of the provisions of the Code or the terms and provisions of the LURA. (2) The Owner shall have 30 calendar days from the date of notice of noncompliance to correct the Annual Certification Report. The Owner shall have 90 calendar days from the 64 Qualified Allocation Plan 2011 date of notice of noncompliance to correct other issues. ADOH may grant an extension of up to 180 calendar days to complete corrective action if the Owner demonstrates good cause for the extension to the satisfaction of ADOH. (3) ADOH is required to file IRS Form 8823, “Low‐ Income Housing Credit Agencies Report of Noncompliance,” with the IRS within 45 calendar days of the end of the allowable correction period. ADOH must report all noncompliance issues whether corrected or not. ADOH may explain the nature of the noncompliance or failure to certify and state whether the noncompliance has been corrected. The IRS, not ADOH, shall make any determinations as to the applicability of recapture penalties. (4) In the event that the owner fails to take corrective action within the cure period described in Section 8.2(K) (2), ADOH may commence legal action to enforce the duties and obligations of the Owner described in the LURA. (5) ADOH must perform inspections of the Project and perform on‐site audits of the resident certification forms and supporting documentation throughout the first 15 years of the compliance period and any agreed‐upon extended compliance period. ADOH shall notify the Owner in writing of the scheduling of any such inspection or audit. 65