71 Op. Att'y Gen. 74 (1982)

71 Op. Att'y Gen. 74, 80 (1982)
  If a community development authority is created by a city pursuant to sec. 66.4325(1), Stats., the creation thereof operates to terminate the operations of a housing authority and/or a redevelopment authority. Sec. 66.4325(1)(a), Stats. Under sec. 66.4325(4), Stats., the community development authority has all powers set out in secs. 66.40 and 66.431, Stats.

71 Op. Att'y Gen. 74, 80 (1982)
  Section 66.436, Stats., provides that villages shall have all of the powers of cities under secs. 66.43, 66.431 and 66.4325, Stats.

71 Op. Att'y Gen. 74, 80-81 (1982)
  Let us assume that a village or city redevelopment authority or community development authority uses the procedure just described, intending to use bond proceeds for home mortgages. Because of the Jolly holding, such use must effectuate the purposes of the law (sec. 66.431, Stats.). Section 66.431(10), Stats., requires the authority to:

71 Op. Att'y Gen. 74, 81 (1982)
[P]repare a plan which shall be submitted to the local legislative body for approval which shall assure that decent, safe and sanitary dwellings substantially equal in number to the number of substandard dwellings to be removed in carrying out the redevelopment are available or will be provided at rents or prices within the financial reach of the income groups displaced.

71 Op. Att'y Gen. 74, 81 (1982)
  Therefore, bond proceeds could be used for residential mortgages only to the extent that such mortgage loans are made in connection with the furnishing of a replacement dwelling at a price within the financial reach of the displaced owner. However, the federal act will limit the use of the bond proceeds for such a use to not more than five percent of the issue.¯6 If more than five percent of the proceeds are so used, the authority will run afoul of the requirement in I.R.C. 103A(e) which requires that a purchasing mortgagor not have had an interest in a principal residence during the three-year period prior to executing the mortgage. The three-year restriction will not apply if the new house is in a targeted area. However, if the mortgage loans are less than five percent of the issue, the bonds are not mortgage subsidy bonds and the amounts need not be included in the ceiling amount set forth in I.R.C. 103A(g).

71 Op. Att'y Gen. 74, 81 (1982)
  Finally, one redevelopment authority possesses specific statutory authority to use bond proceeds for mortgage loans. That authority is the Redevelopment Authority of Milwaukee.

71 Op. Att'y Gen. 74, 81 (1982)
  The authority is granted by ch. 20, sec. 1023(g), Laws of 1981, which creates sec. 66.431(5m), Stats. Subsection (a) thereof provides:

71 Op. Att'y Gen. 74, 81-82 (1982)
Subject to par. (b), a redevelopment authority in a 1st class city may issue bonds to finance mortgage loans on owner-occupied dwellings located in an abandoned highway corridor. Bonds issued under this paragraph may be sold at a private sale at a price determined by the redevelopment authority. No bonds may be issued under this paragraph on or after July 1, 1984, except bonds issued to refund outstanding bonds.

71 Op. Att'y Gen. 74, 82 (1982)
Paragraph (b) requires common council approval.

71 Op. Att'y Gen. 74, 82 (1982)
  Once the bond proceeds are received, sec. 66.431(5m)(c), Stats., allows the redevelopment authority to:

71 Op. Att'y Gen. 74, 82 (1982)
  1.   Issue mortgage loans for the rehabilitation, purchase or construction of any owner-occupied dwelling in an abandoned highway corridor in the city.

71 Op. Att'y Gen. 74, 82 (1982)
  2.   Issue loans to any lending institution within the city which agrees to make mortgage loans for the rehabilitation, purchase or construction of any owner-occupied dwelling in an abandoned highway corridor in the city.

71 Op. Att'y Gen. 74, 82 (1982)
  3.   Purchase loans agreed to be made under subd. 2.

71 Op. Att'y Gen. 74, 82 (1982)
  I therefore conclude, pursuant to sec. 66.431(5m), Stats., that the Redevelopment Authority of Milwaukee has authority to issue bonds to be used for mortgage loans for owner-occupied residences. To the extent that the Redevelopment Authority of Milwaukee complies with all provisions of the federal act, the interest will be exempt from federal taxation. The amount issued must be included in the state's ceiling amount under I.R.C. 103A(g).

71 Op. Att'y Gen. 74, 82 (1982)
BCL:DJS

71 Op. Att'y Gen. 74, 74 (1982) - Footnote

Destination-22   1 In 1977, for example, 5.3% of the proceeds of tax-exempt bonds issued by state and local governments was used for housing purposes. Two years later, the percentage was 28.9%; in 1980, the percentage was 34.4%.

71 Op. Att'y Gen. 74, 74 (1982) - Footnote

Destination-23   2 Arbitrage bonds are defined generally in Treas. Reg. 1.103-13(a)(1) as "obligations issued by a State or local government, the proceeds of which are reasonably expected to be used to acquire other obligations where the yield on such acquired obligations will be materially higher than the yield on the governmental obligations during the term of such governmental issue." The interest on arbitrage bonds is taxable. I.R.C. 103(c)(1).

71 Op. Att'y Gen. 74, 74 (1982) - Footnote

Destination-24   3 Briefly, the requirements of I.R.C. 103A(d) through (j) are as follows:

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(d)   limits residences to single-family residences;

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(e)   restricts purchase money mortgages generally to first time buyers. Home improvement or rehabilitation loan mortgages are exempt;

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(f)   limits acquisition costs of residences;

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(g)   sets ceilings on the amounts of bonds issuable annually;

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(h)   gives target areas preference within the first year of a program;

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(i)   sets stricter arbitrage limitations; and

71 Op. Att'y Gen. 74, 74 (1982) - Footnote
(j)   requires that the bonds must be registered, prohibits refinancing and allows mortgages to be assumed under certain considerations.

71 Op. Att'y Gen. 74, 74 (1982) - Footnote

Destination-25   4 In defining a mortgage subsidy bond in I.R.C. 103A(b)(1), Congress declared that phrase to mean a bond which is "part of an issue a significant portion of the proceeds of which are to be used directly or indirectly for mortgages on owner-occupied residences." Congress considered the term "significant portion" to normally mean five percent. H.R. Rep. No. 1167, 96th Cong., 2nd Session (1980), reprinted in 1980 U.S. Code Cong. & Ad. News 5526, 5814.

71 Op. Att'y Gen. 74, 74 (1982) - Footnote

Destination-26   5 This opinion should not be construed as either approving or disapproving the described procedure.

71 Op. Att'y Gen. 74, 74 (1982) - Footnote

Destination-27   6 See footnote 4.
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