1. (a) General. Applicants shall demonstrate that the proposed project is financially feasible as a qualified low-income housing project. Development and operational costs shall be reasonable and within limits established by the Committee, and the Committee may adjust these costs and any corresponding basis at any time prior to issuance of tax forms. Approved sources of funds shall be sufficient to cover approved uses of funds, except that initial application errors resulting in a shortage of sources up to the higher of $100,000 or 50% of the contingency line item shall be deemed covered by the contingency line item. If it is determined that sources of funds are insufficient, an application shall be deemed not to have met basic threshold requirements and shall be considered incomplete. Following its initial and subsequent feasibility determinations, the Committee may determine a lesser amount of Tax Credits for which the proposed project is eligible, pursuant to the requirements herein, and may rescind a reservation or allocation of Tax Credits in the event that the maximum amount of Tax Credits achievable is insufficient for financial feasibility.
2. (b) Limitation on determination. A Committee determination of financial feasibility in no way warrants to any applicant, investor, lender or others that the proposed project is, in fact, feasible.

3. (c) Reasonable cost determination. IRC Section 42(m) requires that the housing Credit dollar amount allocated to a project not exceed the amount the housing Credit agency determines is necessary for the financial feasibility of the project. The following standards shall apply:

   1. (1) Builder overhead, profit and general requirements. An overall cost limitation of fourteen percent (14%) of the cost of construction shall apply to builder overhead, profit, and general requirements, excluding builder's general liability insurance. For purposes of builder overhead and profit, the cost of construction includes offsite improvements, demolition and site work, structures, prevailing wages, and general requirements. For purposes of general requirements, the cost of construction includes offsite improvements, demolition and site work, structures, and prevailing wages. Project developers shall not enter into fixed-price contracts that do not account for these restrictions, and shall disclose any payments for services from the builder to the developer.

   2. (2) Developer Fee.

      1. (A) The maximum developer fee that may be included in project costs and eligible basis for 9% competitive credit new construction, rehabilitation only, or adaptive reuse applications applying under Section 10325 of these regulations is the lesser of 15% of the project's unadjusted eligible basis and 15% of the basis for non-residential costs included in the project allocated on a pro rata basis or two million five hundred thousand dollars ($2,500,000). The maximum developer fee that may be included in project costs and eligible basis for a 9% competitive credit acquisition/rehabilitation application is the lesser of 15% of the project's unadjusted eligible construction related basis plus 5% of the project's unadjusted eligible acquisition basis and 15% for the basis for non-residential costs included in the project allocated on a pro rata basis or two million five hundred thousand dollars ($2,500,000).

         Notwithstanding the paragraph above, for projects which restrict for Special Needs Population(s) the greater of 1) 15 Low-Income Units or 2) 25% of the Low-Income Units, the maximum developer fee that may be included in project costs and eligible basis for 9% competitive credit new construction, rehabilitation only, or adaptive reuse applications applying under Section 10325 of these regulations is the lesser of 15% of the project's unadjusted eligible basis and 15% of the basis for non-residential costs included in the project allocated on a pro rata basis or two million eight hundred thousand dollars ($2,800,000). The maximum developer fee that may be included in project costs and eligible basis for a 9% competitive credit acquisition/rehabilitation application is the lesser of 15% of the project's unadjusted eligible construction related basis plus 5% of the project's unadjusted eligible acquisition basis and 15% for the basis for non-residential costs included in the project allocated on a pro rata basis or two million eight hundred thousand dollars ($2,800,000).

      2. (B) For 4% credit applications applying under Section 10326 of these regulations, the maximum developer fee that may be included in project costs and eligible basis shall be as follows:

         1. (i) For new construction, rehabilitation only, or adaptive reuse projects, the maximum developer fee is the sum of 15% of the project's unadjusted eligible basis and 15% of the basis for non-residential costs included in the project allocated on a pro rata basis.

            All developer fee in excess of the greater of the following shall be deferred or contributed as equity to the project:

            • 15% of the project's unadjusted eligible basis, up to two million five hundred dollars ($2,500,000); or

            • one million dollars ($1,000,000) plus 5% of the project's unadjusted eligible basis in excess of six million six hundred sixty six thousand six hundred sixty seven dollars ($6,666,667).

            Notwithstanding the paragraph above, for projects which restrict for Special Needs Population(s) the greater of 1) 15 Low-Income Units or 2) 25% of the Low-Income Units, all developer fees in excess of the greater of the following shall be deferred or contributed as equity to the project:

            • 15% of eligible basis, up to two million eight hundred thousand dollars ($2,800,000); or

            • one million dollars ($1,000,000) plus 7% of eligible basis in excess of six million six hundred sixty six thousand six hundred sixty seven dollars ($6,666,667).

         2. (ii) For acquisition/rehabilitation projects, the maximum developer fee is 15% of the unadjusted eligible construction related basis and 5% of the unadjusted eligible acquisition basis and 15% of the basis for non-residential costs included in the project allocated on a pro rata basis. 15% of the project's unadjusted eligible acquisition basis will be permitted for at-risk developments meeting the requirements of section 10325(g)(4) or for other acquisition/rehabilitation projects, except for existing tax credit projects applying for a new reservation of tax credits for acquisition (i.e. resyndication), whose hard construction costs per unit in rehabilitation expenditures are at least $50,000 or where the development will restrict at least 30% of its Low Income Units for those with incomes no greater than 50% of area median and restrict rents concomitantly.

            All developer fees in excess of the greater of the following shall be deferred or contributed as equity to the project:

            • 15% of the project's unadjusted eligible construction related basis plus 5% of the project's unadjusted eligible acquisition basis, up to two million five hundred thousand dollars ($2,500,000); provided however, and subject to the $2,500,000 limitation in the aggregate, 15% of the project's unadjusted eligible acquisition basis will be permitted for at-risk developments meeting the requirements of section 10325(g)(4) or for other acquisition/rehabilitation projects, except for existing tax credit projects applying for a new reservation of tax credits for acquisition (i.e. resyndication), whose hard construction costs per unit in rehabilitation expenditures are at least $50,000 or where the development will restrict at least 30% of its Low Income Units for those with incomes no greater than 50% of area median and restrict rents concomitantly; or

            • one million dollars ($1,000,000) plus 5% of the project's unadjusted eligible basis in excess of six million six hundred sixty-six thousand six hundred sixty seven dollar ($6,666,667).

            Notwithstanding the paragraph above, for projects which restrict for Special Needs Population(s) the greater of 1) 15 Low-Income Units or 2) 25% of the Low-Income Units, all developer fees in excess of the greater of the following shall be deferred or contributed as equity to the project:

            • 15% of the project's unadjusted eligible construction related basis plus 5% of the project's unadjusted eligible acquisition basis, up to two million eight hundred thousand dollars ($2,800,000); provided however, and subject to the $2,800,000 limitation in the aggregate, 15% of the project's unadjusted eligible acquisition basis will be permitted for at-risk developments meeting the requirements of section 10325(g)(4) or for other acquisition/rehabilitation projects, except for existing tax credit projects applying for a new reservation of tax credits for acquisition (i.e. resyndication), whose hard construction costs per unit in rehabilitation expenditures are at least $50,000 or where the development will restrict at least 30% of its Low Income Units for those with incomes no greater than 50% of area median and restrict rents concomitantly; or

            • one million dollars ($1,000,000) plus 7% of the project's unadjusted eligible basis in excess of six million six hundred sixty-six thousand six hundred sixty seven dollars ($6,666,667).

         3. (iii) Notwithstanding (i) and (ii), effective through December 31, 2028, any developer fee in excess of $6,000,000 shall be deferred or contributed as equity to the project. Prior to December 31, 2028, the Committee shall meet to discuss the application of any developer fee in excess of $6,000,000.
         4. (iv) Applicants awarded 4% credits in round 1 or round 2 of 2025 may elect to reduce their tax-exempt bond allocation amount consistent with CDLAC Resolution No. 25-007. Applicants making this election may request a waiver to exceed the maximum developer fee at initial application by no more than twenty thousand dollars ($20,000) for every one million dollars ($1,000,000) in tax-exempt bond allocation returned, to account for increased lending costs associated with the reduced bond allocation. Waiver requests must be received in writing by 5:00 p.m. on August 31, 2025.
      3. (C) For purposes of this subsection, the unadjusted eligible basis is determined without consideration of the developer fee. With exception of 4% projects with a 2016 or later reservation, the developer fee in cost and in basis shall not be increased once established by a reservation of Tax Credits but may be decreased in the event of a modification in basis. Once established by a reservation of Tax Credits, the developer fee in cost and in basis for a 4% project with a 2016 or later reservation may increase or decrease in the event of modification in basis, and in the cases it is increased, any increase above the maximum developer fee established at reservation shall be additionally deferred or contributed as equity to the project. The maximum developer fees above apply to projects developed as multiple simultaneous phases using the same credit type: (2)(A) applies to all simultaneous phases using all 9% credits and (2)(B) above applies to all simultaneous phases using all 4% credits. Only when the immediately preceding phase of an all 9% credit phased project equals or exceeds 150 units or when any other phased project is using both credit types shall the provision of (2)(A) and (2)(B) apply to each phase independently. For purposes of this limitation, unless waived by the Executive Director, “simultaneous” refers to projects consisting of a single building, or projects on the same parcel or on parcels within ¼ mile of each other and with construction start dates within six months of each other, or completion dates that are within six months of each other.
      4. (D) Deferred developer fee notes and/or agreements must be included in the placed-in-service application and the interest rates of such notes shall not exceed eight percent (8%).
      5. (E) Black, Indigenous, or Other People of Color (BIPOC). For projects that receive general partner experience pursuant to Section 5105(f)(1)(B) of the CDLAC Regulations, the 15% of project's unadjusted eligible construction related basis stated in Section 10327(c)(2)(B) shall be increased to 20% of the project's unadjusted eligible construction related basis and the two million five hundred thousand ($2,500,000) dollars in subsection (c)(2)(B) above, is increased to three million ($3,000,000) dollars.
   3. (3) Syndication expenses. A cost limitation on syndication expenses, excluding bridge loan costs, shall be twenty percent (20%) of the gross syndication proceeds, if the sale of Tax Credits is through a public offering or private Securities and Commission Regulation D offering, and ten percent (10%) of the gross syndication proceeds, if the sale is through a private offering. The Executive Director may allow exceptions to the above limitation, in amounts not to exceed twenty-four percent (24%) for public offerings and private Securities and Exchange Commission Regulation D offerings, and fifteen percent (15%) for private offerings, should the following circumstances be present: smaller than average project size; complex financing structure due to multiple sources; complex land lease or ownership structure; higher than average investor yield requirements, due to higher than average investor risk; and, little or no anticipated project cash allowing lower-than-market investor returns. Syndication costs cannot be included as a cost or included in eligible basis.
   4. (4) Net syndication proceeds. The Executive Director shall evaluate the net syndication proceeds to ensure that project sources do not exceed uses and that the sale of Tax Credits generates proceeds equivalent to amounts paid in comparable syndication raises. The Executive Director shall determine the minimum tax credit factor to be used in all initial applications prior to the beginning of a funding cycle for projects applying under Section 10325 for both Federal and State Tax Credits. The minimum tax credit factor for initial applications made under Section 10326 shall be adjusted annually based on current market conditions.

   5. (5) Threshold Basis Limits. At application, the Committee shall limit the unadjusted eligible basis amount, used for calculating the maximum amount of Tax Credits to amounts published on its website in effect at the time of application and in accordance with the Threshold Basis Limit definition in Section 10302 of these regulations. At placed in service, the Committee shall limit the unadjusted eligible basis amount to the higher of the amount published on its website in effect at the time of application or in effect for the year the project places in service.

      1. (A) Increases in the threshold basis limits shall be permitted as follows for projects applying under Section 10325 or 10326 of these regulations.

         A twenty percent (20%) increase to limits for a development that is paid for in whole or in part out of public funds and is subject to a legal requirement for the payment of state or federal prevailing wages on the entire project or financed in part by a labor-affiliated organization that requires the employment of construction workers who are paid at least state or federal prevailing wages. An additional five percent (5%) increase to the unadjusted eligible basis shall be available for projects that certify that they are subject to a project labor agreement within the meaning of Section 2500(b)(1) of the Public Contract Code that requires the employment of construction workers who are paid at least state or federal prevailing wages or that they will use a skilled and trained workforce, as defined in Section 25536.7 of the Health and Safety Code, to perform all onsite work within an apprenticeable occupation in the building and construction trades. All applicants under this paragraph shall certify that contractors and subcontractors will comply with Section 1725.5 of the Labor Code, if applicable;

         A ten percent (10%) increase to the limits for a new construction development where parking is required to be provided beneath the residential units (but not “tuck under” parking) or through construction of an on-site parking structure of two or more levels;

         A two percent (2%) increase to the limits where a day care center is part of the development;

         A two percent (2%) increase to the limits where 100% of the Low-Income Units are for special needs populations;

         A ten percent (10%) increase to the limits for a development wherein at least 95% of the project's upper floor units are serviced by an elevator.

         A fifteen percent (15%) increase to the limits for a development wherein at least 95% of the building(s) is constructed as Type I as defined in the California Building Code, in which case, the Type III increase below (10%) shall not be allowed.

         A ten percent (10%) increase to the limits for a development wherein at least 95% of the building(s) is constructed as (1) a Type III as defined in the California Building Code, or (2) a Type III/Type I combination, in which case, the Type I increase above (15%) shall not be allowed.

         With the exception of the prevailing wage increase, the Local Impact Fee increase, and the special needs increase, in order to receive the basis limit increases by the corresponding percentage(s) listed above, a certification signed by the project architect shall be provided within the initial and placed-in-service application confirming that item(s) listed above will be or have been incorporated into the project design, respectively.

      2. (B) A further increase of up to twenty percent (20%) in the Threshold Basis Limits will be permitted for projects applying under Section 10325 or Section 10326 of these regulations that include one or more of the following energy efficiency/resource conservation/indoor air quality items:

         1. (1) All electric. Twenty percent (20%)
         2. (2) For rehabilitation projects, electric ready as defined in Section 160.9 of the 2022 Building Energy Efficiency Standards. Fifteen percent (15%)
         3. (3) Project shall have onsite renewable generation estimated to produce 50 percent (50%) or more of annual tenant electricity use. If the combined available roof area of the project structures, including carports, is insufficient for provision of 50% of annual electricity use, then the project shall have onsite renewable generation based on at least 90 percent (90%) of the available solar accessible roof area. Available solar accessible area is defined as roof area less north facing roof area for sloped roofs, equipment, solar thermal hot water and required local or state fire department set-backs and access routes. A project not availing itself of the 90% roof area exception may also receive an increase under paragraph (2) only if the renewable generation used to calculate each basis increase does not overlap. Five percent (5%)
         4. (4) Project shall have onsite renewable generation estimated to produce 75 percent (75%) or more of annual common area electricity use. If the combined available roof area of the project structures, including carports, is insufficient for provision of 75% of annual electricity use, then the project shall have onsite renewable generation based on at least 90 percent (90%) of the available solar accessible roof area. Available solar accessible area is defined as roof area less north facing roof area for sloped roofs, equipment, solar thermal hot water and required local or state fire department set-backs and access routes. A project not availing itself of the 90% roof area exception may also receive an increase under paragraph (1) only if the renewable generation used to calculate each basis increase does not overlap. Two percent (2%)
         5. (5) Newly constructed project buildings shall be 15% more energy efficient than the applicable Building Energy Efficiency Standards (Energy Code, California Code of Regulations, Title 24) for energy efficiency alone (not counting solar). Four percent (4%)
         6. (6) Rehabilitated project buildings shall have eighty percent (80%) decrease in estimated TDV energy use (or improvement in energy efficiency) post rehabilitation as demonstrated using the appropriate performance module of CEC approved software. Four percent (4%)
         7. (7) Irrigate only with reclaimed water, greywater, or rainwater (excepting water used for Community Gardens) or irrigate with reclaimed water, grey water, or rainwater in an amount that annually equals or exceeds 20,000 gallons or 300 gallons per unit, whichever is less. One percent (1%)
         8. (8) Community Gardens of at least 60 square feet per unit. Permanent site improvements that provide a viable growing space within the project including solar access, fencing, watering systems, secure storage space for tools, and pedestrian access. One percent (1%)
         9. (9) Install bamboo, stained concrete, cork, salvaged or FSC-Certified wood, natural linoleum, natural rubber, or ceramic tile in all kitchens, living rooms, and bathrooms (where no VOC adhesives or backing is also used). One percent (1%)
         10. (10) Install bamboo, stained concrete, cork, salvaged or FSC-Certified wood, natural linoleum, natural rubber, or ceramic tile in all interior floor space other than units (where no VOC adhesives or backing is also used). Two percent (2%)

         11. (11) For new construction projects, meet all requirements of the U.S. Environmental Protection Agency Indoor Air Plus Program. Two percent (2%)

             Compliance and Verification: For placed-in-service applications, in order to receive the increase to the basis limit, the application shall contain a certification from a HERS, GreenPoint, NGBS Green Verifier, PHIUS, Passive House, or Living Building Challenge Rater, or from a LEED for Homes Green Rater verifying that item(s) listed above have been incorporated into the project, except that items (7) through (10) may be verified by the project architect. For items (3) through (6), the applicant must submit a certification from a third-party certified HERS Rater with the original application and the placed-in-service application. For item (7), the Rater, architect, landscape architect, or water system engineer shall certify that reclaimed water, greywater, or rainwater systems have been installed and are functioning to supply sufficient irrigation to the property to meet the standards under normal conditions. Failure to incorporate the features, or to submit the appropriate documentation may result in a reduction in credits awarded and/or an award of negative points.

      3. (C) Additionally, for projects applying under Section 10326 of these regulations, an increase of one percent (1%) in the threshold basis limits shall be available for every 1% of the project's Low-Income and Market Rate Units that will be income and rent restricted at or below 50 percent (50%) but above thirty-five percent (35%) of AMI. An increase of two percent (2%) shall be available for every 1% of the project's Low-Income and Market Rate Units that will be restricted at or below 35% of AMI. In addition, the applicant must agree to maintain the affordability period of the project for 55 years (50 years for projects located on tribal trust land).
      4. (D) Projects requiring seismic upgrading of existing structures, and/or projects requiring on-site toxic or other environmental mitigation may be permitted an increase in basis limit equal to the lesser of the amount of costs associated with the seismic upgrading or on-site environmental mitigation or 15% of the project's unadjusted eligible basis to the extent that the project architect or seismic engineer certifies in the application to the costs associated with such work.
      5. (E) An increase equal to any Local Development Impact Fees as defined in Section 10302 of these regulations if the fees are documented in the application submission by the entities charging such fees.

      6. (F) In a county that has an unadjusted 9% threshold basis limit for a 2-bedroom unit equal to or less than $500,000, a ten percent (10%) increase to the project's threshold basis limit for a development located in a census tract, or census block group as applicable, designated on the CTCAC/HCD Opportunity Area Map as Highest or High Resource.

         An applicant may choose to utilize the census tract, or census block group as applicable, resource designation from the CTCAC/HCD Opportunity Maps in effect when the initial site control was obtained up to seven calendar years prior to the application.

      Exceptions to limits.

   6. (6) Acquisition costs. All applications must include the cost of land and improvements in the Sources and Uses budget, except that (i) competitive projects with donated land and/or improvements shall include the appraised value of the donated land and improvements that is not nominal, and (ii) projects on tribal trust land need only provide an improvement cost or value. If the acquisition for a new construction project involves a Related Party, the applicant shall disclose the relationship at the time of initial application.

      1. (A) New Construction. The cost of land acquired through a third-party transaction with an unrelated party shall be evidenced by a sales agreement, purchase contract, or escrow closing statement. The value of land acquired from a Related Party shall be underwritten using the lesser of the current purchase price or appraised value pursuant to Section 10322(h)(9). If the purchase price exceeds appraised value, the applicant shall, within the shortfall calculation section of the basis and credits page of the application only, reduce the project cost and the soft permanent financing by the overage. For all other purposes, the project cost shall include the overage.

         The value of donated land, including land donated as part of an inclusionary housing ordinance, must be evidenced by an appraisal pursuant to Section 10322(h)(9).

      2. (B) Rehabilitation. Except as noted below, the applicant shall provide a sales agreement or purchase contract in additional to the appraisal. The value of land and improvements shall be underwritten using the lesser amount of the purchase price or the “as is” appraised value of the subject property (as defined in Section 10322(h)(9)) and its existing improvements without consideration of the future use of the property as rent restricted housing except if the property has existing long term rent restrictions that affect the as-is value of the property. The land value shall be based upon an “as if vacant” value as determined by the appraisal methodology described in Section 10322(h)(9) of these regulations. If the purchase price is less than the appraised value, the savings shall be prorated between the land and improvements based on the ratio in the appraisal. If the purchase price exceeds appraised value, the applicant shall (i) limit improvements acquisition basis to the amount supported by the appraisal and (ii) within the shortfall calculation section of the basis and credits page of the application only, reduce the project cost and the soft permanent financing, exclusive of any developer fee that must be deferred or contributed pursuant to Section 10327(c)(2)(B), by the overage. For all other purposes, the project cost shall include the overage.

         The Executive Director may approve a waiver to underwrite the project with a purchase price in excess of the appraised value where (i) a local governmental entity is purchasing, or providing funds for the purchase of land for more than its appraised value in designated revitalization area when the local governmental entity has determined that the higher cost is justified, or (ii) the purchase price does not exceed the sum of third-party debt encumbering the property that will be assumed or paid off.

         For tax-exempt bond-funded properties receiving credits under Section 10326 only or in combination with State Tax Credits and exercising the option to forgo an appraisal pursuant to Section 10322(h)(9)(A), no sales agreement or purchase contract is required, and CTCAC shall approve a reasonable proration of land and improvement value consistent with similar projects in the market area.

      Once established in the initial application, the acquisition cost of a new construction site shall not increase except for increases after the purchase that were necessary for development, not knowable at the time of application, and approved by the Executive Director, or as provided below for land and improvements donated or leased. Except as allowed pursuant to Section 10322(h)(9)(A) or by a waiver pursuant to this section below for projects basing cost on assumed debt, neither the purchase price nor the basis associated with existing improvements, if any, shall increase during all subsequent reviews including the placed-in-service review.

      If land or land and improvements (real property) are donated to the general partner or member of the project owner and if approved by CTCAC in advance, the general partner or member may sell the real property to the project for an amount equal to the donated value established in the application provided that: there must be a seller carryback loan for the full amount of the sale, the loan must be “soft,” having a term of at least 15 years, a below market interest rate and interest accrual, and be either fully deferred or require only residual receipts payments for the loan term. Alternatively, the value may be a capital contribution of a general partner or member. Once established in the initial application, the donated value of the real property shall not increase.

      If land or land and improvements (real property) are donated or are leased for a mandatory lease payment of $100 per year or less, and if approved by CTCAC in advance, the donation value established in the application may be a capital contribution of a general partner or member. Once established in the initial application, the donated value of the real property/lease shall not increase.

   7. (7) Reserve accounts. All reserve accounts shall be used to maintain the property (which does not include repayment of loans) and/or benefit its residents, and shall remain with the project except as provided in subparagraph (B) below and except when a public lender funds rent subsidy and/or service reserves and requires repayment of unused rent subsidy and/or service reserves. If ownership of a project is transferred, the reserve accounts may be loaned to the project at zero percent (0%) interest and/or purchased by the purchaser(s) or transferee(s) for an amount equal to the reserve account(s) balance(s).

      1. (A) The minimum replacement reserve deposit for projects shall be three hundred dollars ($300) per unit per year, or for new construction or senior projects, two hundred fifty dollars ($250) per unit per year. The on-going funding of the replacement reserve in this amount shall be a requirement of the regulatory agreement during the term of the agreement, and the owner shall maintain these reserves in a segregated account. Funds in the replacement reserve shall only be used for capital improvements or repairs.
      2. (B) An operating reserve shall be funded in an amount equal to three months of estimated operating expenses and debt service under stabilized occupancy. Additional funding will be required only if withdrawals result in a reduction of the operating reserve account balance to 50% or less of the originally funded amount. At the discretion of the Executive Director, an equal, verified operating reserve requirement of any other debt or equity source, letter of credit, or demand note may be used as a substitute, and may be released following achievement of a minimum annual debt service ratio of 1.15 for three consecutive years following stabilized occupancy only to pay deferred developer fee. The Committee shall allow operating reserve amounts in excess of industry norms to be considered “reasonable costs,” for purposes of this subsection, only for homeless assistance projects under the Non-Profit Set-Aside, as described in Section 10315(b), Special Needs projects, HOPE VI projects, or project based Section 8 projects. The original Sources and Uses budget and the final cost certification shall demonstrate the initial and subsequent funding of the operating reserves.
   8. (8) Applicant resources. If the applicant intends to finance part or all of the project from its own resources or a Related Party's resources (other than deferred fees), the applicant shall be required to prove, to the Executive Director's satisfaction, that such resources are available and committed solely for this purpose, including an audited certification from a third party certified public accountant that applicant has sufficient funds to successfully accomplish the financing. Public entities are exempt from this requirement.
   9. (9) Self-syndication. If the applicant or a Related Party intends to be the sole or primary tax credit investor in a project, the project shall be underwritten using a tax credit factor (i.e., price) of $1 for each dollar of federal tax credit and $.79 dollars for each dollar of State Tax Credit, unless the applicant proposes a higher value.

4. (d) Determination of eligible and qualified basis. The Committee shall provide forms to assist applicants in determining basis. The Committee shall rely on certification from an independent, qualified Certified Public Accountant for determination of basis; however, the Committee retains the right to disallow any basis it determines ineligible or inappropriate.

   1. (1) High-Cost Area adjustment to eligible basis. Proposed projects located in a qualified census tract or difficult development area, as defined in IRC Section 42(d)(5)(c)(iii), may qualify for a thirty percent (30%) increase to eligible basis, subject to Section 42, applicable California statutes and these regulations. Pursuant to Authority granted by IRC § 42(d)(5)(B)(v), CTCAC designates credit ceiling applications relating to sites that have lost their difficult development area or qualified census tract status within the previous 12 months as a difficult development area (DDA).
   2. (2) Pursuant to Authority granted by IRC § 42(d)(5)(B)(v), CTCAC designates credit ceiling applications proposing a project meeting the Special Needs housing type threshold requirements at Section 10325(g)(3) as a difficult development area (DDA).
   3. (3) Pursuant to authority granted by IRC § 42(d)(5)(B)(v), CTCAC designates credit ceiling applications seeking state credits for which there are insufficient state credits as a difficult development area (DDA).
   4. (4) Pursuant to authority granted by IRC § 42(d)(5)(B)(v), CTCAC designates credit ceiling applications for the Federal Credit established by the Further Consolidated Appropriations Act, 2020 or the Consolidated Appropriations Act, 2021 as a difficult development area (DDA).
5. (e) Determination of Credit amounts. The applicant shall determine, and the Committee shall verify, the maximum allowable Tax Credits and the minimum Tax Credits necessary for financial feasibility, subject to all conditions of this Section. For purposes of determining the amount of Tax Credits, the project's qualified basis shall be multiplied by an applicable Credit percentage established by the Executive Director, prior to each funding cycle. The percentage shall be determined taking into account recently published monthly Credit percentages.
6. (f) Determination of feasibility. To be considered feasible, a proposed project shall exhibit positive cash flow after debt service for a 15-year minimum term beginning at stabilized occupancy, or in the case of acquisition/rehabilitation projects, at the completion of rehabilitation. “Cash flow after debt service” is defined as gross income (including (1) all rental income generated by proposed initial rent levels contained within the project application and (2) committed federal, state, and local rental subsidies; excluding income generated by tenant-based rental subsidies) minus vacancy, operating expenses, property taxes, service and site amenity expenses, operating and replacement reserves and must pay debt service (not including residual receipts debt payments). Expenses that do not continue through all 15 years of the pro forma shall be excluded from the evaluation of feasibility as well as from the minimum debt service coverage ratio and cash flow parameters pursuant to Section 10327(g)(6). For applications that qualify for a reservation of Tax Credits: (1) from the Nonprofit set-aside homeless assistance apportionment, (2) with special needs units comprising at least 25% of the low-income units, or (3) with an average targeted affordability of 40% of AMI or less, capitalized operating reserves in excess of the 3-month minimum amount may be added to gross income for purposes of determining “cash flow after debt service.” In addition, applications with a committed capitalized operating subsidy reserve from HCD, CalHFA, or another public entity approved by the Executive Director may add withdrawals from this reserve to gross income for purposes of determining “cash flow after debt service.”

7. (g) Underwriting criteria. The following underwriting criteria shall be employed by the Committee in a pro forma analysis of proposed project cash flow to determine the minimum Tax Credits necessary for financial feasibility and the maximum allowable Tax Credits. The Committee shall allow initial applicants to correct cash flow shortages or overages up to the higher of $25,000 or 0.5% of gross income at placed in service. In addition, if the operating expenses are below the published amount pursuant to subparagraph (1), the CTCAC Executive Director may correct the error by increasing the operating expenses to the published amount, provided the increase maintains compliance with all other feasibility and underwriting criteria.

   1. (1) The 15-year pro forma revenue and expense projection calculations shall utilize a two-and-one-half percent (2.5%) increase in gross income, a three-and-one-half percent (3.5%) increase in operating expenses (excluding operating and replacement reserves set at prescribed amounts), and a two percent (2%) increase in property taxes.

      1. (A) Where a private conventional lender and project equity partner use a 2% gross income and 3% operating expense increase underwriting assumption, CTCAC shall accept this methodology as well.

      2. (B) For projects with a HUD rental subsidy that will receive a subsidy layering review from CTCAC, CTCAC shall accept 2% gross income, 3% operating expense increase, and 7% vacancy underwriting assumptions.

         For purposes of the pro forma projections only, the application form Subsidy Contract Calculation may utilize post-rehabilitation rental subsidy contract rent assumptions when applicable.

         Minimum operating expenses shall include expenses of all manager units and market rate units, and must be at least equal to the minimum operating expense standards published by the Committee staff annually. The published minimums shall be established based upon periodic calculations of operating expense averages annually reported to CTCAC by existing tax credit property operators. The minimums shall be displayed by region, and project type (including large family, senior, and Special Needs), and shall be calculated at the reported average or at some level discounted from the reported average. The Executive Director may, in his/her sole discretion, utilize operating expenses up to 15% less than required in this subsection for underwriting when the equity investor and the permanent lender are in place and provide evidence that they have agreed to such lesser operating expenses. These minimum operating expenses do not include property taxes, replacement reserves, depreciation or amortization expense, compliance monitoring or lender fees, or the costs of any site or service amenities.

         Special needs projects that are less than 100% special needs shall prorate the operating expense minimums, using the special needs operating expenses for the special needs units, and the other applicable operating expense minimums for the remainder of the units.

   2. (2) Property tax expense minimums shall be one percent (1%) of total replacement cost, unless:

      1. (A) the verified tax rate is higher or lower;
      2. (B) the proposed sponsorship of the applicant includes an identified 501(c)(3) corporate general partner which will pursue a property tax exemption; or
      3. (C) the proposed sponsorship of the applicant includes a Tribe or tribally-designated housing entity.
   3. (3) Vacancy and collection loss rates shall be ten percent (10%) for special needs units and non-special needs SRO units without a significant project-based public rental subsidy, unless waived by the Executive Director based on vacancy data in the market area for the population to be served. Vacancy and collection loss rates shall be between five and ten percent (5-10%) for special needs units and non-special needs SRO units with a significant project-based public rental subsidy. Vacancy and collection loss rates shall be five (5%) for all other units.
   4. (4) Loan terms, including interest rate, length of term, and debt service coverage, shall be evidenced as achievable and supported in the application, or applicant shall be subject to the prevailing loan terms of a lender selected by the Committee.
   5. (5) Variable interest rate permanent loans shall be considered at the underwriting interest rate, or, alternatively, at the permanent lender's underwriting rate upon submission of a letter from the lender indicating the rate used by it to underwrite the loan. All permanent loan commitments with variable interest rates must demonstrate that a “ceiling” rate is included in the loan commitment or loan documentation. If not, the permanent loan will not be accepted by CTCAC as a funding source.

   6. (6) Minimum and Maximum Debt Service Coverage. An initial debt service coverage ratio equal to at least 1.15 to 1 in at least one of the project's first three years is required, except for FHA/HUD projects, RHS projects or projects financed with hard debt by the California Housing Finance Agency. Debt service does not include residual receipts debt payments. Except for projects in which less than 50% of the units are Tax Credit Units or where a higher first year ratio is necessary to meet the requirements of subsection 10327(f) (under such an exception the year-15 cash flow shall be no more than the greater of 1) two percent (2%) of the year-15 gross income or 2) the lesser of $500 per unit or $25,000 total), “cash flow after debt service” shall be limited to the higher of twenty-five percent (25%) of the anticipated annual must pay debt service payment or eight percent (8%) of gross income, during each of the first three years of project operation. Gross income includes rental income generated by proposed initial rent levels contained with the project application.

      9% credit applications without a HUD subsidy layering review: A pro forma statement utilizing CTCAC underwriting requirements and submitted to CTCAC at initial application; application at 180 days or 194 days pursuant to Section 10328(c); and placed in service application review must demonstrate that this limitation is not exceeded during the first three years of the project's operation.

      All other applications: A pro forma statement utilizing CTCAC underwriting requirements and submitted to CTCAC at initial application; application at 180 days or 194 days pursuant to Section 10328(c); and if applicable, application at subsidy layering review must demonstrate that this limitation is not exceeded during the first three years of the project's operation. For these applications, effective November 1, 2019 CTCAC underwriting requirements for placed in service applications currently under review pursuant to Section 10322(i) are eliminated.

   7. (7) The income from the residential portion of a project shall not be used to support any negative cash flow of a commercial portion and the commercial income shall not support the residential portion.
   8. (8) Existing tax credit projects applying for a new reservation of tax credits for acquisition and/or rehabilitation (i.e., resyndication) that are subject to the hold harmless rent provisions of the federal Housing and Economic Recovery Act of 2008 (HERA) at application may, at the request of the applicant, be underwritten at the hold harmless rent limits to the extent that they do not exceed the elected federal set-aside current tax credit rent limits, except that the application of the rent adjuster shall be delayed for a number of years equal to the percentage difference between the hold harmless rent limits and the current tax credit rent limits, with the result divided by 2.5 and rounded to the nearest year. The new regulatory agreement shall reflect the current tax credit rent limits, but the project may continue to charge hold harmless HERA rents for units targeted below the elected federal set-aside (i.e,, 40% of units at 60% AMI or 20% of units at 50% AMI) provided that the hold harmless rents do not exceed the rent level for the applicable elected federal set-aside and only until such time as the current tax credit rent limits equal or exceed the hold harmless rents.

Note: Authority cited: Section 50199.17, Health and Safety Code; and Sections 12206, 17058 and 23610.5, Revenue and Taxation Code. Reference: Sections 12206, 17058 and 23610.5, Revenue and Taxation Code; and Sections 50199.4, 50199.5, 50199.6, 50199.7, 50199.8, 50199.9, 50199.10, 50199.11, 50199.12, 50199.13, 50199.14, 50199.15, 50199.16, 50199.17, 50199.18, 50199.20, 50199.21 and 50199.22, Health and Safety Code.

History

1. New section filed 8-19-97; operative 2-18-97 pursuant to Health and Safety Code section 50199.17 (Register 97, No. 34).

2. Amendment of subsections (c)(2)(C), (c)(3), (c)(5)(H), (c)(8), (f) and (g)(9) filed 7-21-98; operative 11-20-97 and 12-11-97 pursuant to Health and Safety Code section 50199.17 (Register 98, No. 30).

3. Amendment filed 7-26-99; operative 6-3-99 pursuant to Health and Safety Code section 50199.17 (Register 99, No. 31).

4. Readoption of emergency action filed 7-26-99, operative 6-3-99; filed 4-3-2000 as an emergency; operative 10-12-99 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 14).

5. Readoption of emergency action filed 4-3-2000, operative 10-12-99; filed 4-3-2000 as an emergency; operative 2-9-2000 pursuant to Health and Safety Code section 50199.17, with amendment of section (Register 2000, No. 14).

6. Emergency readoption without change filed 9-22-2000 of an action originally filed 4-3-2000; operative 6-9-2000 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 38).

7. Emergency readoption without change filed 10-23-2000 of an action originally filed 4-3-2000; operative 9-27-2000 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 43).

8. Emergency amendment effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 16, 2001, filed with the Secretary of State on March 5, 2001 (Register 2001, No. 10). Editor's Note: On December 20, 2000, the Committee adopted and made effective an emergency amendment to an earlier version of this regulation; this amendment was superseded by the February 16, 2001 amendment. The December 20, 2000 amendment was filed with the Secretary of State on March 5, 2001; it was not printed in the California Code of Regulations.

9. Emergency readoption without change filed 11-19-2001 of an action most recently filed 3-5-2001; operative 9-17-2001 pursuant to Health and Safety Code section 50199.17 (Register 2001, No. 47).

10. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on March 19, 2003, filed with the Secretary of State on 5-8-2003 (Register 2003, No. 19). Editor's Note: These March 19, 2003 emergency regulations supersede prior emergency regulations adopted and made effective by the Committee on January 29, 2003. The January 29 emergency regulations were filed with the Secretary of State on May 8, 2003, but were never printed in the California Code of Regulations.

11. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 18, 2004, filed with the Secretary of State on 4-26-2004. These February 18, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 18).

12. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on June 16, 2004, filed with the Secretary of State on 7-19-2004. These June 16, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 30).

13. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on October 5, 2004, filed with the Secretary of State on 12-16-2004. These October 5, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 51).

14. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 16, 2005, filed with the Secretary of State on 4-4-2005. These February 16, 2005 emergency regulations supersede prior emergency regulations (Register 2005, No. 14).

15. Emergency readoption of action adopted by the Committee 2-16-2005 and filed with the Secretary of State 4-4-2005; refiled 11-1-2005; readopted by the Committee and effective 9-28-2005 pursuant to Health and Safety Code section 50199.17 (Register 2005, No. 44).

16. Emergency adoption filed 3-23-2006; conclusively presumed to be an emergency and effective upon adoption by the Committee on 1-18-2006 pursuant to Health and Safety Code section 50199.17(c) and (d). This filing supercedes prior emergency regulations and is exempt from the Administrative Procedure Act except as provided in Health and Safety Code section 50199.17 (a) and (b) (Register 2006, No. 12).

17. New section replacing prior emergency adoption filed 7-22-2010; operative 2-17-2010. Submitted to OAL for printing only pursuant to Health and Safety Code section 50199.17 (Register 2010, No. 30).

18. Amendment of subsections (c)(1), (c)(2)(C) and (c)(5)(B), new subsections (c)(5)(B)(1)-(9), amendment of subsection (c)(5)(D), repealer of subsection (c)(5)(E) and amendment of subsections (c)(9) and (d) filed 4-18-2011; operative date of the amendments is immediately upon adoption by the committee pursuant to Health and Safety Code section 50199.17(c) (Register 2011, No. 16).

19. Amendment of subsections (c)(2)-(c)(2)(A), (c)(2)(B), (c)(6), (f) and (f)(6) filed 4-11-2012; operative upon adoption by the committee on 2-1-2012 pursuant to Health and Safety Code section 50199.17(c) (Register 2012, No. 15).

20. Amendment of subsections (c)(5)(A), (c)(7) and (g)(1) filed 3-19-2013; operative upon adoption by the California Tax Credit Allocation Committee on 1-23-2013 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for printing only (Register 2013, No. 12).

21. Amendment filed 3-28-2014; operative upon adoption by the California Tax Credit Allocation Committee on 1-29-2014 pursuant to Health and Safety Code section 50199.77(c). Submitted to OAL for printing only (Register 2014, No. 13).

22. Amendment of subsections (c)(2)(B), (c)(2)(C), (c)(5)(B)(3) and (g)(6) filed 5-7-2015; operative upon adoption by the California Tax Credit Allocation Committee on 1-21-2015 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for printing only (Register 2015, No. 19).

23. Amendment of subsections (c)(2)(B)-(c)(2)(B)(ii), (c)(5)(A), (c)(5)(B)(3) and (c)(5)(B)(9), new subsection (c)(5)(E), amendment of subsection (c)(6), new subsection (c)(9), amendment of subsections (d)(1) and (g)(6) and new subsection (g)(8) filed 12-28-2015; operative upon adoption by the Tax Credit Allocation Committee on 10-21-2015 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2016, No. 1).

24. Amendment of subsection (a), subsections within subsection (c) and subsection (d)(1), new subsection (d)(3) and amendment of subsections (g) and (g)(6)-(7) filed 2-9-2017; operative upon adoption by the Tax Credit Allocation Committee on 12-14-2016 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17(c) (Register 2017, No. 6).

25. Amendment of subsections within subsection (c) and subsections (f), (g)(1), (g)(3) and (g)(6) filed 2-22-2018; operative upon adoption by the Tax Credit Allocation Committee on 12-13-2017 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2018, No. 8).

26. Amendment of subsections (c)(2)(C), (c)(5)(B)(8), (c)(6), (c)(6)(B), (c)(7) and (c)(7)(A), repealer of subsection (c)(7)(B), subsection relettering, amendment of newly designated subsection (c)(7)(B) and subsections (c)(9), (f), (g)(3), (g)(6) and (g)(7) filed 2-7-2019; operative upon adoption by the California Tax Credit Allocation Committee on 12-12-2018 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to pursuant to Health and Safety Code section 50199.17 (Register 2019, No. 6).

27. Amendment of subsections (a), (c)(2)(A)-(c)(2)(A)(ii), repealer of subsection (c)(2)(A)(iii), amendment of subsections (c)(5)(A), (c)(5)(B)(3) and (c)(9), repealer of subsections (c)(10)-(c)(10)(D) and amendment of subsections (g) and (g)(6) filed 12-23-2019; operative upon adoption by the committee on 10-28-2019 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2019, No. 52).

28. Amendment of subsection (c)(5)(F) and new subsection (d)(4) filed 8-14-2020; operative 6-17-2020. Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2020, No. 33).

29. Amendment of subsections (c)(2)(A)-(D), new subsection (c)(2)(E), amendment of subsections (c)(5)(A), (c)(6), (c)(6)(A), (c)(7), (f) and (g)(1), repealer and new subsection (g)(1)(A), new subsection (g)(1)(B) and amendment of Note filed 2-26-2021; operative upon adoption by the California Tax Credit Allocation Committee on 12-20-2020 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2021, No. 9).

30. Amendment of subsection (d)(4) filed 7-29-2021; operative upon adoption by the California Tax Credit Allocation Committee on 6-16-2021 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2021, No. 31).

31. Amendment of subsections (c)(2)(E), (c)(5) and (c)(5)(B)(3) filed 8-8-2022; operative upon adoption by the California Tax Credit Allocation Committee on 7-20-2022 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2022, No. 32).

32. Amendment of subsection (c)(5)(F) filed 2-8-2023 as an emergency; operative 2-8-2023 (Register 2023, No. 6). A Certificate of Compliance must be transmitted to OAL by 8-7-2023 or emergency language will be repealed by operation of law on the following day.

33. Amendment of subsections (a), (c)(2)(C), (c)(5)(A), (c)(5)(B)(3), (c)(5)(F), (c)(6)-(c)(6)(B), (d) and (g)(1) filed 3-13-2023; operative upon adoption by the California Tax Credit Allocation Committee on 1-18-2023 pursuant to Health and Safety Code section 50199.17. Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2023, No. 11).

34. Although 2-8-2023 emergency order was scheduled to expire by operation of law on 8-8-2023, amendment replacing 2-8-2023 emergency order filed 6-21-2023; operative upon adoption by the California Tax Credit Allocation Committee on 5-10-2023 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2023, No. 25).

35. Amendment of subsections (c)(2)-(c)(2)(A), (c)(2)(C), (c)(3)-(4), (c)(5)(B)(9), (c)(6) and (c)(8) filed 3-12-2024; operative 1-24-2024 upon adoption by the California Tax Credit Allocation Committee pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2024, No. 11).

36. Amendment of subsections (c)(2)(A) and (c)(2)(B)(i)-(ii) and new subsection (c)(2)(B)(iii) filed 5-20-2024; operative upon adoption by the California Tax Credit Allocation Committee on 4-3-2024 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2024, No. 21).

37. Amendment of subsections (c)(2)(A), (c)(2)(B)(i)-(ii), (c)(5)(A)-(B), (c)(5)(C) and (f), new subsections (c)(5)(B)(1)-(2), subsection renumbering and amendment of newly designated subsections (c)(5)(B)(5) and (c)(5)(B)(11) filed 2-3-2025; operative upon adoption by the California Tax Credit Allocation Committee on 12-11-2024 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2025, No. 6).

38. New subsection (c)(2)(B)(iv) and amendment of Note filed 9-8-2025 as an emergency; operative 8-5-2025 pursuant to Health and Safety Code section 50199.17(c) (Register 2025, No. 37). A Certificate of Compliance must be transmitted to OAL by 2-2-2026 or emergency language will be repealed by operation of law on the following day.

39. Certificate of compliance as to 9-8-2025 order, including amendment of subsections (c)(2)(D)-(E), (c)(6), (c)(7), (c)(7)(B) and (g)(7) and amendment of Note, filed 2-3-2026; operative upon adoption by the California Tax Credit Allocation Committee on 12-10-2025 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2026, No. 6).