Special Bd. of Aldermen — 12/20/2018 Page 3
The second one they just did last year was a library, about a $13 million dollar library they used to leverage
general obligation bonds, much as we are suggesting here.
The second point I’d like to bring up is, the amount of the tax credit is 39% of the investment, we call that the
qualified equity investment which they talk to in the slide. For example, if you have $1 million dollar investment
or project cost, the credit amount is $390,000.00. We want to raise cash, reduce debt by selling that credit, we
don’t want the credit, we want the cash. Right now the market is about .85 cents per $1.00. So | can sell that
$390,000.00 in credits to investors, private investors, who will pay us .85 cents a dollar or $331,500.00 cash.
In an ordinary real estate deal you go to the bank and you say to the bank — I'll put up 20% cash, you loan me
80%, | don’t have to put up cash, I’m selling my credits for cash. That is reducing the amount | have to borrow.
That is shown on the next slide.
What else is new? There are fees involved in this and generally they reduce the value of the equity investment
by about 15% as those fees are collected. So that $331 goes to $281,775.00 net. But that is still 28% of your
deal. Earlier in the slide they said it was about 25%, but right now the price is really strong at .85 cents. So
that brings it up to about 28.2%. We don’t know what the price is going to be when we sell these, but my best
guess, we are marveling at .85 cents. In a Concord project | was involved in, we recently got .89 cents. Until
we are ready to close, we are not going to know; the impact of that is if the price per credit goes down the City
bond proceeds put into the project would have to go up or other money that is put in the project would have to
go up. If the price goes up, the price of the credits goes up, we get more for our money and the City’s
exposure goes down. | wish | could tell you what it is going to be, but | can’t.
Number 4, there is a 7 year compliance period. So the structure we put into effect to make this deal happen
has to stay the same for 7 years. Because the investors, the private investors are receiving their tax credits
over a 7 year period; it goes 5% a year for the first 3 years and then 6% for the next 4. So the deal has to stay
in place, the structure of the deal. After 7 years it is by the door, if the City wants to own the property instead
of leasing it, it can. If the City, you know, any kind of deal can happen after that 7 years but because of IRS
regulations and because those investors that are putting the private money in the deal want it to stay together
for 7 years so they can get their full 39%, we can’t do anything. It has got to stay the way it is when we initially
sell the deal and structure the deal.
And finally, number 5 — you heard again in the video touched, well actually the narrator is a CDE. CDE’s are
the key to an MTC funding. They are awarded credits by the US Treasury and they can in turn sub-allocate
these credits to worthy projects that meet their program guidelines. Therefore it is our job to convince at least
1 or 2 CDE’s that the proposed project has financial strength and results in positive community impacts;
whether that includes jobs, more private investment, benefits to low and moderate income residents, all those
things are included. There are several hundred CDE’s in the United States. They all compete for a pot of
authority, right now there is a pending allocation of $3.5 billion dollars, probably 50 or 60 CDE’s will get an
allocation. We are talking to several of them that traditionally get allocations and we will be putting out a
proposal within the next few days, shortly after the 1*' of the year, that we will send to about a dozen CDE’s to
ask them for an allocation of tax credits. What we are asking for in allocation of $18.5 million dollars.
So now take a deep breath and let’s go to the fun part. Dave Fredette is in the house so this is always the one
that he has. Would you like to explain this Dave? So let’s start in the upper left hand corner and we are going
to work our way down all the way to the QALICB and then we will go back up to the top so we are coming
down with how the money is invested, go back to the top how it is paid off. So in the upper left hand corner
you have the bond purchaser. You have authorized the sale of up to $15.5 million dollars of bonds to support
this project. We are estimating that the total bond proceeds that are required for this project are going to be on
the order of $12,927,250.00. So that money comes into the City coffers when they sell it and the City would
then make a loan to what we call the senior leverage lender but it is really an intermediary lender. It is an entity
that we set up that is basically a pass through lender, it is an intermediary, it keeps the City one step away
from a deal which is where the City wants to be, where your lawyers are probably going to want you to be and
