Presentation Agenda: November 18, 2024
- Objectives and process agreements
- What are 501c3 bonds?
- Why 501c3 bonds?
- Eligibility – Orrick
- Oregon Centralized Application (ORCA)
- Questions
Presentation Objectives
- Inform partners about 501c3 bonds eligibility and application process.
- Gather external feedback about ORCA process and how this tool might be used.
- Consult partners to answer outstanding questions and discuss areas of clarification.
- Share implementation progress, current timelines, and next steps.
Process Agreements
- Help foster an inclusive environment.
- Stay engaged.
- Speak your truth responsibly.
- Listen to understand.
- Be willing to do things differently and experience discomfort.
- Expect and accept non-closure.
What are 501c3 bonds?
Sustainability. OHCS’ approach focuses on offering new lending tools and considering the most effective deployment of current resources.
- Development resources are constrained, including federally allocated volume cap for 4% Low-Income Housing Tax Credit (LIHTC)
- Resource that may be used for development up to 120% Area Median Income (AMI)
- Other projects down the line: Permanent Loan Program (Elderly and Disabled bonds, U.S. Department of Housing and Urban Development (HUD) Risk Share bonds)
501c3 Bond Eligibility
501c3 bonds are tax-exempt qualified private activity bonds issued by a state or local government, the proceeds of which are used by a 501c3 organization to further its mission and exempt purpose. Eligible borrowers include nonprofit corporations recognized by the Internal Revenue Service (IRS) as a 501c3 organization.
Note: Not all nonprofit organizations are 501c3 organizations. A 501c3 organization can issue tax-exempt bonds only if the use of the proceeds is in furtherance of its charitable/exempt purpose.
Limited Liabilities Companies (LLC) typically do not qualify as 501c3 organizations, but 501c3 organizations may form one or more single member LLCs (SMLLCs) for which the 501c3 organization is the sole member to act as the borrower. SMLLCs that do not elect other tax treatment are disregarded entities for this purpose.
To be tax-exempt under section 501c3 of the Internal Revenue Code, an organization:
- Must be organized and operated exclusively for exempt purposes set forth in section 501c3
- None of its earnings may inure to any private shareholder or individual
- May not attempt to influence legislation as a substantial part of its activities
- May not participate in any campaign activity for or against political candidates
- Must not be organized or operated for the benefit of private interests
- No part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual
Ownership test: All property financed by the net proceeds of a 501c3 bonds must be owned, at all times while the bonds are outstanding, by either a 501c3 organization or a state or local governmental unit.
Prohibited Private Business Use Test: Private use, payment and security greater than 5%. To put it another way, these costs must be below 5% to be eligible.
501c3 bond projects are subject to:
- TEFRA (Tax Equity and Fiscal Responsibility Act) notice, hearing, and approval
- 95/5 Good/Bad Costs Tests
- 2% Costs of Issuance (COI) limit
- Subject to Qualified Management Contract requirements
- Donnelly Amendment limitations
Oregon Centralized Application (ORCA) Process
Phase 1: Apply for 501c3 bonds mainly paired with other OHCS resources (two-project limit per phase applies). If only applying for 501c3 bonds, must still go through the standard ORCA process (two-project limit does not apply).
Potential Phase 2: If there is demand from sponsors, consider shortening the ORCA process for 501c3 bond-only applications. This will need to go to
Housing Stability Council for discussion and approval.