The Equity Factor

Dear Congress, Here’s Why You Should Stop Holding Up New Markets Tax Credits

Affirmative Investments and The Housing Partnership Network are working together to maximize NMTCs. One possible project is turning an unused Pittsburgh market space into a new, non-profit grocery store.

Earlier this month, the Treasury Department’s Community Development Financial Institutions Fund announced $3.5 billion in New Markets Tax Credits awards. The NMTC program, which began in 2000, helps community development entities (CDEs) entice investors to projects in low-income areas, urban and rural.

The selected CDEs receive credits that had been set aside for the year prior. Since 2009, the program has been bundled with dozens of other tax provisions and re-upped annually. (See here for more background on what placed NMTCs in such a slippery position.) Its extension remains in limbo. Senate Republicans blocked the most recent package of incentives, apparently to protest how the Democrats had been running things.

Advocates of NMTCs have reason to remain optimistic. “We’ll get this bill through one way or the other,” Sen. Orrin Hatch (R-UT) told the AP. Plus, Obama recommended that NMTCs be extended permanently in his proposed budget for 2015 this March. By the numbers, the program has created upwards of 560,000 jobs since 2000, according to the CDFI Fund. The Fund also states that every dollar of federal subsidy yields more than $8 in private investment. But what do projects launched with the help of NMTCs look like? As we wait for Congress on next year’s tax credits, here’s a look at a few organizations that put them to use.

LISC: The Foundry in Indianapolis

Converting a vacant building into a commercial space, as developers in Indianapolis have with the Foundry, is not uncommon for an NMTC-supported project. But they do tend to be a lot larger — the Foundry is the site of a former gas station.

“Generally, NMTCs will only work for investments greater than $5 million because of the cost and complexity of the NMTC program,” Kevin Boes, president of LISC’s New Markets Support Company, explains in an email. “Small businesses in low-income neighborhoods have a difficult time utilizing these programs because of lower real estate values, lower credit scores, or banks that simply aren’t interested in lending in tough neighborhoods.”

The Local Initiatives Support Coalition, a CDFI with branches nationwide in 30 metro areas, received $85 million in NMTCs for 2011. (This month, LISC’s award amounted to $60 million.)

The Foundry in Indianapolis

The two-building Foundry complex has been, at different points, a welding space for artists (that’s where the name comes from) and a taxi station; years of pollution turned it into a brownfield. The city cleaned the Foundry for reuse while the local neighborhood association pushed for its stabilization. LISC, looking to lend funds to the community association to buy the property, began to consider if NMTCs could be used in different way.

“Small commercial projects are frankly the bread and butter of neighborhood revitalization,” says William Taft, executive director of LISC Indianapolis. LISC needed a new approach, says Taft, because storefront renovations “are often the most important ones.”

Boes came back from the drawing board with the idea of pairing NMTCs with a Small Business Administration (SBA) loan. Using the two in tandem “ensur[es] that SBA loan capital is available on terms that the businesses can meet, while also lowering the interest rate to improve the small business’ cash flow,” writes Boes. The project received $227,500 in tax credits and a total financing package of $425,000.

The Foundry, which became fully rehabbed in 2013, is now home to a real estate firm, the office of an internet car dealership and a café.

Northern California Community Loan Fund: East Oakland Youth Development Center

When the East Oakland Youth Development Center’s expansion is complete, its staffers hope to serve an additional 1,000 students. Today, the center serves 2,000 for free, five days a week.

“They’re focused on having folks complete high school,” Mary Rogier, NCCLF president, says of the center’s importance. Only two-thirds of Oakland Unified School District’s high school students graduate (the national average is 80 percent), while a quarter of students in Oakland’s district drop out.

Expansion plans for East Oakland Youth Development Center

NCCLF pulled a $9.75 NMTC-enhanced investment to the table, the lead investor being U.S. Bank. The CDFI also teamed with Partners for the Common Good to offer a supplementary $2.85 million loan. The Treasury Department allocated $20 million to the organization in its 2012 round of NMTCs. Their total award this month was $33 million.

Ross Culverwell, NCCLF’s director of lending, says what distinguishes NMTC dollars is they allow CDFIs to support construction and contribute to larger budgets than, say, the startup capital needed for developing a business. Plans for the youth center’s renovation show that 5,294 square feet will be added to the building by 2015.

Since the NCCLF’s service area is so large — 46 counties — they’re tasked with not only reaching communities in San Francisco and Oakland but also in towns in the Central Valley. Culverwell says they hope to pursue four or five projects with this increased award, “We’re hoping to do more of the same but have more impact.”

Affirmative Investments/The Housing Partnership Network: Pittsburgh Grocery Store? (TBD)

Nancy Wagner-Hilsip, executive vice president of The Reinvestment Fund, told Next City in January, “The uncertainty of [NMTCs] overall means that it is very hard to plan a full-on business strategy that relies on the credit.” None of the allocatees interviewed could speak of definitive plans for their slice of the latest round, as the early June announcement has sent them into negotiations.

Affirmative Investments, a three-time awardee, is still pinning down their plans, as expected. They can say that it will be their first multi-state allocation beyond their native Massachusetts, and that they’ll be working with the Housing Partnership Network, an umbrella group for affordable housing non-profits and CDCs. Affirmative Investments President David Ennis adds the collaboration “brings us into contact with developers who want to expand from just doing housing to housing and mixed-use development.”

This year’s announcement doled out $38 million to the real estate and finance company’s LLC. Ennis says the company was thrilled with the award and lists several locations they’ve had their eye on: an old hotel in Boston’s Dudley Square, a former steel plant on the river in Pittsburgh, a possible youth homeless shelter in Nevada. Maybe they’ll connect with another CDE to finance a charter school too.

“I’ve been in housing for 20 years,” Ennis reflects. “You could get money for housing, but you could never get money to build stores or community centers … For building neighborhoods that are woven together … It’s really a very good program.”

The Equity Factor is made possible with the support of the Surdna Foundation.

Cassie Owens is a regular contributor to Next City. Her writing has also appeared at CNN.com, Philadelphia City Paper and other publications.

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