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monthly rent payment for five households residing in the Gardens of Ironwood by approximately 33% ($942 to $628 for 2007 rents). This program will be funded by the $313,216 paid by Ponderosa for the Lehman/Selway project and has a term of fifteen years with three five year extension options. The grants will be awarded on an annual basis to the five tenants based on need. The City and Ponderosa will meet to determine the most appropriate method for determining need, which will be determined in large part on annual household income with those with the least annual income qualifying for the grant. The City will pay the Gardens of Ironwood annually based on the difference between a monthly rent determined to be affordable for households at 60% of the Area Median Income (AMI) as set forth by the State Tax Credit Allocation Committee (TCAC) and rents determined to be affordable at 40% AMI. As indicated previously, the most affordable rents at The Gardens is 50% AMI set at approximately $830/month. The TCAC currently establishes rents for a number of affordable units at the development and as such, it is an appropriate indicator for the rent levels. Based on analysis conducted at the Gardens of Ironwood, establishing a 40% rent option will meet a significant need for households with limited incomes that are struggling to meet higher rents or for applicants with limited income that cannot afford to move into the project. The maximum annual income required for a household to qualify for the 40% rent payment is $23,240 for a single person household and $26,650 for atwo-person household. As noted in Section 1 (b) of the Amendment, increases for the 40% AMI rent levels will be capped at 4% annually. However, in the event the allowable TCAC rent exceeds 4% in any given year, the difference may be recovered in subsequent years. As an example, if in year four TCAC increases it rent levels by 3%, the annual financial grant amount paid to the Gardens of Ironwood will increase by 3%. However, if in year five TCAC increases it rent levels by 5%, the annual financial grant amount paid to the Gardens of Ironwood will increase by only 4%. If in year six TCAC increases its rent levels by 3%, the financial grant amount would increase by 4% to reflect the 1 % "lost" from year five. The maximum annual financial grant allowed in any given year is included in the Amendment. These amounts have been set to cover the expected earnings of investing the initial $313,216 at a four percent annual rate for the fifteen years. If the City elects to extend the grant program beyond the fifteen years, it will most likely use funding available from the City Lower Income Housing Fund. For accounting purposes, the rents for these five units remain at 60% AMI with the City providing an annual "grant" to the tenants that will effectively lower their monthly rent payment. The "grants" will be subject to annual renewal and may move from one tenant to another based on need. The City and the Gardens of Ironwood can amend the program if necessary to address unique tenant needs. When the Commission previously discussed the concept of establishing aunit/rent subsidy, it expressed concern with the fact that the subsidy was not for perpetuity. To address this matter, it structured the program as a grant rather than actually creating a new rent category. Further, the allocation of the grant is based on need and is not necessarily obligated to one tenant for the entire 15 years. Finally, any tenant receiving Page 3 of 4