Section 11004 - Financial Feasibility and Determination of Credit Amounts(a) General. The proposed project shall demonstrate that it is economically feasible as a qualified farmworker housing project and the applicant shall demonstrate the financial capacity to sustain the operation and maintenance of the proposed project or ensure the development, operation and maintenance from development through the term of the compliance period. Approved sources of funds shall be sufficient to cover approved uses of funds during the construction or rehabilitation and the project shall exhibit positive cash flow after debt service for a 30-year minimum term. (1) If the Committee determines that the proposed sources of funds are insufficient to complete and sustain the project, an application shall be deemed as not meeting threshold requirements and shall be considered incomplete.(2) At reservation and upon project completion, the Committee shall conduct economic feasibility determinations which may result in a reduction of the amount of Credit for which the proposed project is eligible or may rescind a Credit.(3) If the maximum amount of Credit achievable is insufficient for economic feasibility, the Committee may deny or rescind a reservation or allocation of Credit.(b) Limitation on determination. A Committee determination of economic feasibility in no way warrants to any applicant, investor, lender or others that the proposed project is, in fact, feasible.(c) Reasonable cost determination. The Credit amount allocated to a project shall not exceed the amount necessary to construct or rehabilitate farmworker housing and provide for general improvement costs necessary and directly related to the project including compliance with laws governing access for persons with handicaps, building and permit fees, and costs relating to reducing utility expenses. The following standards shall apply: (1) Builder overhead, profit and general requirements. An overall cost limitation of fourteen percent (14%) shall apply to builder overhead, profit and general requirements.(2) Development Fees. Development Fees shall not exceed seven percent (7%) of the Eligible Costs prior to the inclusion of the developer fee. When the developer fee is established at application, the fee cannot be increased. Should the Eligible Costs decrease however, the Developer fee will be reduced commensurably.(3) Syndication expenses. If applicable, syndication expenses, excluding bridge loan costs, shall not exceed twenty percent (20%) of the gross syndication proceeds if the sale of Credit is through a public offering or private Regulation D offering and shall not exceed ten percent (10%) of the gross syndication proceeds if the sale is through a private offering.(4) Reasonable Costs. Development and operational costs shall be reasonable and may be adjusted by the Committee at any time prior to issuance of tax forms.(5) Reserve Accounts. All unexpended funds in project reserve accounts shall remain with the project and shall be used for the benefit of the farmworker project or residents except for amounts designated for deferred developer fees which may be released when available.(6) Applicant resources. The applicant or owner shall demonstrate, to the Committee's satisfaction, that sufficient financial resources are available and committed solely to ensure project completion and operation of the project for the term of the compliance period. (A) An audited certification from a qualified accountant shall be provided at the time of application demonstrating that the applicant has sufficient unencumbered funds to successfully complete the project and sustain the annual operating expenses of the project.(d) Determination of Eligible Costs. The applicant shall provide the Committee with the amount of expenditures deemed qualified for Credit. The Eligible Costs shall be submitted to the Committee, on a Committee provided form. A qualified accountant shall provide a cost certification as to the Eligible Costs which the Committee shall verify. However, the Committee retains the right to disallow any expenditure it determines ineligible or inappropriate.(e) Determination of Credit amount. The Committee shall determine the maximum allowable Credit which shall not exceed the lesser of the amount necessary for economic feasibility or fifty percent of the Eligible Costs. The Committee retains the right to disallow any expenditure it determines ineligible or inappropriate.(f) Determination of economic feasibility. Based upon the evidence submitted by the applicant, the Committee shall determine if the applicant has sufficient expertise and financial capacity to complete or ensure the completion of the proposed project and the ability to sustain, operate and maintain or ensure the operation and maintenance of the proposed project for the term of the compliance period; and, that the proposed project operating budget demonstrates the adequacy to operate the project for the term of the compliance period.(g) Underwriting. The following criteria shall be employed by the Committee to assist in determining economic feasibility: (1) Minimum operating expenses per unit per year shall be the greater of the amounts from the initial operating expense budget proposed by the applicant or the following operating expense minimums. | Project Size | SRO/Dorm | | Family |
| ________________________________________________________________ |
| 5 or less beds | $3,000 | 5 or less Units | $2,100 |
| 5 to 10 beds | $3,000 | 5 to 10 Units | $2,000 |
| More than 10 beds | $2,900 | More than 10 Units | $1,900 |
(2) For family housing projects, replacement reserve minimums shall be the higher of two hundred dollars ($200) per unit per year, or an annual amount of six-tenths percent (.06%) of hard construction cost for new construction applications; or, six-tenths percent (.06%) of the Eligible Costs, excluding developer fees, for rehabilitation projects.(3) Out-year calculations shall be a two-and-one-half percent (2.5%) increase in gross income, a three-and-one-half percent (3.5%) increase in operating expenses (not including taxes and replacement reserves).(4) Property tax expense minimums shall be one percent (1%) of total replacement cost, unless:(A) the verified tax rate is higher or lower; or,(B) the proposed sponsorship of the applicant includes an identified 501 (c)(3) corporate general partner with, or pursuing, a property tax exemption.(5) Vacancy and collection loss assumptions shall be five percent (5%) of the gross potential income of the farmworker housing project.(6) Loan terms shall include interest rate, term, and debt service coverage.(7) Variable interest rate permanent loans shall be considered at the ceiling interest rate.Cal. Code Regs. Tit. 4, § 11004
1. New section filed 9-29-98; operative 9-29-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 40). Note: Authority cited: Sections 50199.51 and 50199.56, Health and Safety Code. Reference: Sections 50199.52 and 50199.55, Health and Safety Code; and Sections 17053.14(b), (d), (e) (f) and (h), 23608.2(b), (d), (e), (f) and (h) and 23608.3(d), (e) and (f), Revenue and Taxation Code.
1. New section filed 9-29-98; operative 9-29-98 pursuant to Government Code section 11343.4(d) (Register 98, No. 40).