Mass. CDCs Applaud Tax Credit Program – Next City
The Equity Factor

Mass. CDCs Applaud Tax Credit Program

Massachusetts State House in Boston (Photo by Daniel Schwen)

In the 1970s, led by activist Mel King and others, the state of Massachusetts set up three taxpayer-funded organizations that formed a bedrock for community development in the state. Two of them focused on lending to community development organizations for large affordable housing or economic development projects. The third, known as the Community Economic Enterprise Development (CEED) program, provided annual grant funding on a competitive basis to support core functions and staff for community development corporations (CDCs).

The three organizations, while imperfect, essentially worked in tandem to pull out more chairs at the development table. CEED supported the community organizing to inform and envision projects that the other two organizations financed. While those two financing organizations are still around, and there are other sources of funding available for community development projects, CEED was eliminated in 2002. The upside? Scrapping CEED eventually led to another tax credit program that has been a boon for CDCs. Last month, CDC reps visited the capitol to tell lawmakers just how much of a boon.

Of the ax falling on CEED, “It resulted in a lot of soul searching,” recalls Joe Kriesberg, president and CEO of the Massachusetts Association of Community Development Corporations (MACDC). “We had done a poor job of communicating what our value add was, and why CDCs were a distinct form of nonprofit, what the community-based piece was really all about, and why that was so essential.”

Kriesberg explains how they had lobbied for funding along thematic lines, such as small business development, housing development and workforce development. They succeeded, but it came with a downside. Other, more specialized organizations began to compete with the CDCs.

“It turns out that being a community-based, place-based, comprehensive organization puts you at a competitive disadvantage when you’re competing in functional silos,” Kriesberg says. What’s more, “while this funding system allowed them maybe to run a program they wanted to run, it did not help build their overall strategy for a comprehensive resident-led community development. It certainly didn’t fund organizing,” he adds.

Unsatisfied with this state of affairs, in 2013 MACDC fought for and passed the Community Investment Tax Credit (CITC), through which the state now allocates a limited number of tax credits to participating, state-certified CDCs. (They passed statewide CDC certification in 2012 in anticipation of this program.) Tax credits are worth 50 cents in state tax rebates for every unrestricted dollar donated to each CDC. In 2014, the first year CITCs were allocated, CDCs raised $4.7 million using the program; last year, CDCs raised $8.3 million.

“Hopefully this year, we’ll crack $10 million,” Kriesberg says. In 2014, 610 out of 1,014 CITC donations came from individuals, making up 41 percent of total dollars raised through the program in that year. Financial firms, construction firms, insurance companies and smaller businesses also took advantage of CITCs to support CDCs in Massachusetts.

Connecting new donors to CDCs was a key point in MACDC’s advocacy for the program. Overall, 58 percent of CITC dollars in 2014 came from new CDC donors.

This map shows counties containing CDCs participating in the CITC program. (Credit: Massachusetts Department of Housing and Community Development)

The Massachusetts Department of Housing and Community Development (DHCD) awards the tax credits to CDCs on an annual competitive basis. In order to compete, CDCs must first be state-certified, which requires strong evidence of community leadership. Certified CDCs then submit a “community investment plan,” essentially a strategic or business plan laying out what they aim to do in the next few years, while also detailing how they have engaged the community in coming up with the plan. DHCD evaluates and ranks the plans based on potential impact and level of community engagement, then allocates tax credits to each CDC based on the ranking. It’s not a perfect system for handing out tax credits, according to Kriesberg, but money is only part of the story.

“It’s about having stronger, more effective organizations that can deliver bigger and better impact for the community,” says Kriesberg.

Dorchester Bay Economic Development Corporation (DBEDC) has received $235,000 in cumulative CITC allocations over the past three years, meaning they have the potential to raise $470,000 using the tax credits. While they haven’t raised that amount yet, they did just hold their most successful annual fundraising event ever, raising more than $200,000 last week.

“It really encourages individual, private engagement and creates a source of funding so we’re not as dependent on the federal tap or foundation money,” says DBEDC CEO Perry Newman, about the CITC program. “It also allows us to be nimble, to react to situations not necessarily within the cycle of a grant application, it allows us to innovate.”

With an annual budget of $4 million, DBEDC was founded in 1979, working in an area of Boston where approximately 36 percent of the population falls below the federal poverty level, and 57 percent are African-American and 19 percent are Latino.

To get CITC support, DBEDC involved over 100 residents in working groups around central issues — jobs, quality of life, safety and transportation — to come up with its community investment plan. The plan includes $123.5 million in affordable housing projects, and $29.5 million in economic development projects including a kitchen incubator, food truck commissary, and a new food co-op expected to create 25 worker-owners. DBEDC is also a federally certified community development financial institution, with capacity to make small business loans up to $5 million. Their plan anticipates making 47 small business loans by the end of 2016, bringing their loan portfolio value up to $8,500,000.

The CITC dollars, being unrestricted, help grease the wheels for all the above, and in more ways than one. The program’s unrestricted dollars give DBEDC the ability to staff up as needed, right when the moment calls for it. The reliable, independent cash flow also means a lot to potential investors and partners, helping DBEDC punch above its weight.

“It can convince entities awarding projects that Dorchester is a reliable, stable, ready-for-prime time developer,” Newman explains. “Thirty-something years experience as an organization helps as well, but so does the balance sheet.”

The CITC is due to expire at the end of 2019, but according to The Salem News, MACDC will ramp up efforts before then to press the legislature for an extension.

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

Oscar is a Next City contributing writer, and was a Next City 2015-2016 equitable cities fellow. A New York City-based journalist with a background in global development and social enterprise, he has written about impact investing, microfinance, fair trade, entrepreneurship and more for publications such as Fast Company and NextBillion.net. He has a B.A. in Economics from Villanova University.

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Tags: bostoncommunity development corporations