ARRA Draw Procedure

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					                    OHFA’s ARRA Application and Instructions Q&A

              This Guidance is compiled from Questions received as of 7/16/09


ARRA Draw Procedure
   How is OHFA going to handle the draws for both TCAP and the 1602 Exchange? Will we
    need a construction lender or will OHFA be the construction lender? Will you follow the
    traditional way a bank would handle construction draws?
   Will OHFA advance funds during the construction phase of a project awarded ARRA
    funds?
   Question, on page 5 of the instructions, under Additional ARRA documentation, the
    wording "draw procedures, OHFA's 10% retainage of each draw" seems to indicate that
    OHFA is assuming the lending during the construction process cutting out the commercial
    banks. Is this for real??
   During the construction period - how/when will the exchange funds arrive? Once
    construction is complete or when construction begins? It is difficult to “size” the loan
    without this information.
   Another question on the ARRA app. If OHFA does construction draws, how is that going
    to effect developments with 538 loans? The 538 loans have 2 purposes - the RD guarantee
    on the loans and the bank's reduced interest. The draws really need to come through the
    bank.
    OHFA Response
        - Specifics on accessing the funds will be in future guidance from HUD and
            Treasury. OHFA procedures will be released after that guidance.
        o Both Exchange and TCAP are reimbursement programs. OHFA will not advance
            ARRA funds for any reason
        - OHFA does not intend to be the sole construction lender, but the availability of
            ARRA funds can reduce the amount borrowed or the amount of interest paid.
        - There will be some time delay in any fund withdrawal process.

OMB Circulars and Regulations
   I had a concern regarding my for-profit developers, who are interested in TCAP funds,
     having to deal with OMB Regulations and Circulars (page 8, item f of the ARRA App).
     Question - is OHFA going to require the developers to adhere to all of the OMB
     Regulations and Circulars?
   I was looking at the TCAP Notice CPD-09-03 dated 5-4-09 and found the following:
        o OMB Regulations and Circulars The following government-wide requirements are
            applicable to HUD grant programs, pursuant to Executive Orders requiring federal
            agencies to impose the requirements on all Federal grants:
        o The following requirements apply to TCAP grantees, not TCAP project
            owners:
        o 24 CFR Part 85 "Administrative Requirements for Grants and Cooperative
            Agreements to State, Local and Federally Recognized Indian Tribal Governments;"


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         o 2 CFR Part 222 "Cost Principles for State, Local, and Indian Tribal Governments"
           (OMB Circular A-87); and
         o OMB Circular A-133 "Audits of Institutions of Higher Education and Other
           Nonprofit Institutions."
         o The following requirement applies to the grantee and project owners:
         o 2 CFR Part 2424 "Non-procurement Debarment and Suspension."
         o It seems they are only required to adhere to this last one.
       OHFA Response
         - Based on current guidance, OHFA agrees that just the last one would apply.

Davis Bacon
    Why are TCAP applicants required to submit weekly payroll sheets and sample employee
       interview forms?
    As direct recipients of assistance, it has always been my understanding applicant cannot
       certify their own payrolls or conduct the required employee interviews. Aren’t these
       OHFA’s responsibilities as the TCAP Grantee?
    Is the attached documentation sufficient to verify Davis-Bacon experience?
       OHFA Response
           - Staff does not preview any documentation for applications.
           - We asked for samples to show you are familiar with this Federal requirement and
               will be able to fulfill these obligations.
           - The general contractor will be the main entity coordinating Davis Bacon.
               Information will be obtained from sub-contractors.
           - OHFA will monitor the completeness of the paperwork and the interview process.
           - From page 7 of the Application, "Documentation required - Davis Bacon
               Prevailing Wages - provide a list of developments that complied with Davis Bacon
               Prevailing Wages. If no previous experience, acknowledge this commitment by
               providing the prevailing wages for the locality as determined by the DOL. For
               developments already under construction acknowledge that applicant will consult
               with HUD about going forward on a prospective basis. For all applicants claiming
               capacity in this section, provide a payroll sheet and employee interview record
               forms. Note that first priority will be given to those with previous experience. Do
               not provide copies of the actual Acts."
           - If you have been keeping track of Davis Bacon for your project already, just
               provide the documentation above, not whole sets of paperwork.


      Page 2: What does it mean that “no other work can be done” until the environmental
       review is completed? Does this mean any type of project management work or just
       “construction-related” work? Please define “WORK.”
       OHFA Response
   -   An explanation is provided in the “ARRA TCAP Certification #2” included in the
       Application. HUD’s 24 CFR Part 58, Section 58.22 (below) is the “letter of the law” HUD
       follows regarding the Environmental Review process and procedures. Subparagraphs (a)
       and (d), in particular, are relevant to TCAP projects. The point here is not the definition of



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    “work” but rather the application of HUD’s definition of prohibited actions prior to
    receiving environmental clearance to proceed.

-   Sec. 58.22 Limitations on activities pending clearance.
       o Neither a recipient nor any participant in the development process, including public
         or private nonprofit or for-profit entities, or any of their contractors, may commit
         HUD assistance under a program listed in Sec. 58.1(b) on an activity or project
         until HUD or the state has approved the recipient's RROF and the related
         certification from the responsible entity. In addition, until the RROF and the related
         certification have been approved, neither a recipient nor any participant in the
         development process may commit non-HUD funds on or undertake an activity or
         project under a program listed in Sec. 58.1(b) if the activity or project would have
         an adverse environmental impact or limit the choice of reasonable alternatives.

       o If a project or activity is exempt under Sec. 58.34, or is categorically excluded
         (except in extraordinary circumstances) under Sec. 58.35(b), no RROF is required
         and the recipient may undertake the activity immediately after the responsible entity
         has documented its determination as required in Sec. 58.34(b) and Sec. 58.35(d),
         but the recipient must comply with applicable requirements under Sec. 58.6.

       o If a recipient is considering an application from a prospective subrecipient or
         beneficiary and is aware that the prospective subrecipient or beneficiary is about to
         take an action within the jurisdiction of the recipient that is prohibited by paragraph
         (a) of this section, then the recipient will take appropriate action to ensure that the
         objectives and procedures of NEPA are achieved.

       o An option agreement on a proposed site or property is allowable prior to the
         completion of the environmental review if the option agreement is subject to a
         determination by the recipient on the desirability of the property for the project as a
         result of the completion of the environmental review in accordance with this part
         and the cost of the option is a nominal portion of the purchase price. There is no
         constraint on the purchase of an option by third parties that have not been selected
         for HUD funding, have no responsibility for the environmental review and have no
         say in the approval or disapproval of the project. (“nominal” has been further
         defined as less than 5% of the purchase price.)

       o Self-Help Homeownership Opportunity Program (SHOP). In accordance with
         section 11(d)(2)(A) of the Housing Opportunity Program Extension Act of 1996 (42
         U.S.C. 12805 note), an organization, consortium, or affiliate receiving assistance
         under the SHOP program may advance nongrant funds to acquire land prior to
         completion of an environmental review and approval of a Request for Release of
         Funds (RROF) and certification, notwithstanding paragraph (a) of this section. Any
         advances to acquire land prior to approval of the RROF and certification are made
         at the risk of the organization, consortium, or affiliate and reimbursement for such
         advances may depend on the result of the environmental review. This authorization



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           is limited to the SHOP program only and all other forms of HUD assistance are
           subject to the limitations in paragraph (a) of this section.

   Page 6: Is closing by January 15, 2010 and completion by January 15, 2012 are “threshold
    requirements”? Or, are you just giving “priority” to projects that can meet that date?
    “Threshold requirements” and “giving priority” to projects “that are expected to be
    completed by January 15, 2012” seem like possible contradictory statements/requirements.
    Please clarify.
    OHFA Response
       - Those are specific timelines outlined in ARRA and HUD language. OHFA was
           following the HUD guidance in stating that it was giving priority to projects that are
           expected to be completed by January 15, 2012. Projects must be completed by that
           date to qualify for the funds.
           Priority will be given to projects that are ready to proceed and can be completed the
           soonest. That is why we asked for timelines specific to completion

   Page 6: Also, if a project has 2009 credits (and has a PIS date of December 31, 2011),
    please confirm that if construction completion occurs by 12/31/11 (architects’ substantial
    completion certificate executed, etc.) that the developer is still allowed to secure the 10%
    OHFA retainage through 1/15/2012. Is that true and the intent of the 1/15/12 date?
    OHFA Response
        - The retainage is to insure that we have not funded more than necessary in ARRA
           funds. If the costs still support the 10% that we have held back from each draw,
           then yes it is possible for that to be secured by the 1/15/12 date.

   Page 6: Regarding the “good faith effort” and the “if returning any tax credits and seeking
    TCAP funding in lieu of the equity” reference: Does that only apply to projects who are
    intending to return or exchange all or part of their credits? We plan to retain all of our
    allocated credits and use TCAP to support the decreased equity pricing/Davis-Bacon gap.
    We will still supply the LOI, but how much documentation is required if we are not
    returning any credits?
    OHFA Response
        - The “Good Faith Effort” requirement only applies to those developments that are
            returning all or some of their credits due to their inability to attract an acceptable
            equity investment for them.


   Page 7: Are points given for 2.a. and 2.b. given on the initial credit award or is it the
    allocation year of the current credits? For example, our project received 2008 credits
    initially and we requested a re-allocation of 2009 credits which was approved last month.
    Please clarify.
    OHFA Response
         - Any Points or Priorities will be based on a Projects Original Credit Award date.




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Other Issues
    Do you know if there has been a determination on whether a grant of TCAP funds is a
       taxable event?
       OHFA Response
           - As always, OHFA Staff does not give any tax advice. Contact your tax attorney or
              CPA for their guidance.

      The TCAP/1602 Application directs applicants to, “…submit any required documentation
       if there have been or will be any changes in the structure of the ownership entity pending
       the award of these funding sources.”
      Specifically, what is required to satisfy this requirement?
       OHFA Response
            - From page 11 of the Application, "Applicant is to submit any required
               documentation if there have been or will be any changes in the structure of the
               ownership entity pending the award of these funding sources. The new name, tax id
               number, if available, any certificates from the State, and organizational chart should
               be included."

      Since we included TCAP in our tax credit application, do we fill out the actual TCAP
       application? I assume so, but wanted to be sure.
       OHFA Response
          - Pursuant to guidance from HUD and the IRS, Second Cycle Tax Credit applications
              are not eligible for either TCAP or Exchange funds. Therefore, OHFA cannot
              accept an ARRA funds application from the development in question.

      My understanding was that Board and Staff were primarily concerned about OHFA’s
       exposure if a 1602 deal went bad. However, the application does not appear to make any
       requirements regarding minimum reserves or DCR which are the primary risk mitigating
       factors. Are we to use just the minimums outlined in the original application threshold
       requirements or should we arbitrarily increase those amounts to make the deal stronger and,
       if so, how strong can we make it without risking OHFA deciding that less assistance is
       needed?
       OHFA Response
           - Staff will not be creating any Special underwriting criteria for these ARRA Funds
               but will continue to apply the Standard Underwriting Procedures as outlined in the
               2009 QAP and 2009 LIHTC Application materials.

      Once the project is complete and if there is a permanent loan – how do you see this being
       structured? Previously the Syndicator’s strength with a strong balance sheet, asset
       management experience, oversight, etc., gave the Lender comfort with issues such as low
       DSCR, longer term and am, non-recourse, etc. Can you give me insight into how these
       issues will be addressed with the Exchange program? Who will the Borrower be?
       OHFA Response –


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    -   OHFA is working on specifics as to how the ARRA funds will be structured. We are
        still awaiting guidance from both Treasury and HUD.
    -   If OHFA has the majority of funding in a development with no syndicator we will focus
        on the bonding, financial strength and guarantees of the principals in the development.

   Is there an option to obtain the additional tax credits requested earlier this year in order to
    exchange them all thus avoiding requesting Exchange and TCAP funds?
    OHFA Response
    - At this time, it is not OHFA's plan to offer additional credits.
    - OHFA certainly would not award credits just so they could be exchanged.

   When and how will the RFP for Asset Management be completed and processed?
    OHFA Response
      Oklahoma Housing Finance Agency is in the process of developing an Invitation to Bid
      for a Construction and Asset Management company as it relates to the The American
      Recovery Reinvestment Act. Companies interested in responding to this bid should
      visit the Department of Central Services "Central Purchasing Division" web site for
      details.

http://www.ok.gov/DCS/Central_Purchasing/index.html

    IINDIVIDUALS/COMPANIES MAY BE DISQUALIFIED FROM THE BID PROCESS
    IF THEY CONTACT ANYONE AT OHFA ABOUT THE RFP.

   Please verify that TCAP funds can pay for existing buildings that have not been placed in
    service. The federal guidance appears to allow for this as long as it is allowed in eligible
    basis.
    OHFA Response
        - At this time, based on current Industry Guidance it is OHFA’s understanding that
            TCAP funds can be used to pay for existing buildings (not land) that have not yet
            been Placed-In-Service

   The Q&A states that 2009 1st round awardees can apply for TCAP only at this time. It also
    states that OHFA does not intend to exchange any of its 2009 population based credits. My
    concern is that 1st round 2009 awardees my miss the opportunity to participate in 1602
    exchange if we apply for TCAP at this time. The 1602 exchange is much more attractive
    and simpler to work with, therefore I would recommend that you come up with a policy
    which allows 1st round 2009 awardees the opportunity to swap a potential TCAP award for
    1602 exchange funds if OHFA decides to do that at a later date.
    OHFA Response
        - Once an award of TCAP has been made it will be final. OHFA will not allow it to
             be returned/swapped for 1602 Exchange Funds if said funds should be made
             available at a later date.

   Could you please clarify a couple bonding questions/concerns regarding the ARRA
    application. If we are acting as developer and as general contractor then is it necessary to


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    get a bid bond? Also, we were originally not required to get a surety bond with our
    lender. Now that our lender and syndicator have withdrawn is OHFA requiring us to get a
    surety bond?
   Regarding bonding, it has been my experience that some lenders/investors have not
    required a Payment and/or Performance Bond…some have waived the requirement totally
    or some have allowed a 15% to 25% Bank Letter of Credit….the surety bond is provided
    by the Management company typically and is not a big deal…, I am going to provide a
    narrative discussing this, the lender requirements and my previous experiences and this will
    suffice for the application, is that correct?
    OHFA Response –
            If developer and general contractor are the same then no bid bond is required.
            The bonds listed in the first Q&A are required if OHFA provides the majority of
            any funding in a development.

   Letter of Credit question dealing with reserves…is the question relating to the operating
    and other reserves? Do I read the answer to mean you should have adequate funded
    reserves built into your Sources & Uses? That is what I thought you required with the
    minimum underwriting standards? Did I miss something? If I have reserves built in to the
    deal per your underwriting standards, is there anything else required?
    OHFA Response
        - The Letter of Credit / Financial Capacity to cover Reserves will not affect the actual
           amount of reserves carried on a given project. Once a developer has worked
           through their development and operating budgets based on OHFA’s 2009 QAP and
           Standard Underwriting Procedures then they will need to provide proof that they
           can cover those reserves by either providing sufficient Financials or Letters of
           Credit.

   Are there parameters to what the TCAP funds will support (i.e. restrictions on ARRA gap
    calculation other than QAP underwriting standards)?
    OHFA Response
        - From page 9 of the Application, "TCAP funds shall only be used to cover capital
            investment for cost includable in “eligible basis” for rental projects under IRC
            Section 42 rules, our QAP and the ARRA funding requirements. Exclusion for
            TCAP funding includes swimming pools and other specific costs identified in the
            Act. Costs will be specifically tracked under the TCAP program. If at a later time
            HUD allows TCAP to pay for acquisition costs, only acquisition costs for
            land/buildings not placed in service for the acquisition date will be allowed."


   Is the due date of July 29, 2009 applicable to projects with 2009 credit awards or will there
    be a later TCAP round for 2009 projects?
    OHFA Response
        - The July 29, 2009 deadline is for all applications for 1602 Exchange and/or TCAP
            funds. From page 3 of Application, "If funds are still available after all applications
            are submitted and processed, and if time permits, applications may be accepted later



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               in 2009 or 2010. Notification will be sent to all interested parties and posted on our
               website."

       I couldn't see in the application what the exchange rate will be. Am I missing it?
        OHFA Response
            - There is no “exchange rate” When determining the amount of 1602 Exchange
               funds to apply for Applicants should only be taking into consideration the dollar
               amounts they need to fill the gap as determined in the ARRA Gap Calculation in the
               Application. (so long as the amount requested complies with the “maximum”
               amount allowed as explained in more detail in OHFA’s first Q&A response as Well
               As Treasury’s Q&A from 7/9/09)

     The submission requirements for TCAP and 1602 Exchange funds instruct applicants to
      provide, "Current commitment letters from all sources, including for the total credits and/or
      remaining credits."
     I understand this means construction and perm loans, but does it also mean we must go
      back to the city if we had waived fees and permits? Also, what does this mean with regard
      to “total credits and/or remaining credits”?
    OHFA Response
      - If one of your sources for funding is a community, then no you do not have to get new
          commitments. Just provide a copy of the original commitment.
      - If Staff has a question about the source later, a confirmation letter from the Mayor
          might be needed.
      - All credits still in the deal must have either a syndicator or someone who will buy the
          credits. Just provide commitment letters.

        Will there be a heal period or opportunity to address staff questions/issues/corrections or
         will it be one chance all or nothing?
    OHFA Response
     - If during the review process questions arise, Staff will ask. We understand this is a new
    process both for developers and Staff.

   I feel that once a PLR is issued, a “precedence” is set and most CPA’s & attorneys will be
    comfortable with those being the rules for all deals assuming similar facts…Reznick or
    Novoco can confirm this…so I would suggest that for future reference, this be left up to the
    CPA’s who are providing the cost certification and their opinions…a lot of issues are resolved
    once a PLR is issued…even though they say it is only for that specific deal, it is considered
    guidance for the CPA’s
    OHFA Response

    Private Letter Rulings are limited to the taxpayer/entity requesting same and are based on a
    specific set of circumstances and issues. PLR’s contain specific disclaimers on general
    applicability. OHFA in disbursing ARRA funds will not reimburse for any request for funds
    unless the applicant provides an opinion from their tax attorney or CPA stating that in their
    opinion the item qualifies for eligible basis. The opinion, if relying upon a PLR, Revenue



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Ruling and opine how the facts of the PLR would fit the fact situation of the applicant. Any
other authority for the opinion should be cited.




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