More than $45 million in tax credits, allocated by the National New Markets Fund, The Innovative Fund, Dakotas America, and SunTrust Community Capital, will go toward funding a 250,000-square-foot, $200 million expansion of Swiss Krono’s plant in Barnwell, South Carolina. … The expansion is expected to create 500 construction jobs and 105 permanent jobs at the plant. …. “Swiss Krono is grateful to receive the benefit of new markets tax credits, allowing us to grow the commitment we made to this area over a decade ago,” said Erik Christensen, president and CEO of the company’s U.S. subsidiary. “This investment will set us up to continue that support for decades to come.”Read the whole thing
By Paul Anderson
Today, the White House released its annual Economic Report of the President. The report included a sidebar on "Distressed Communities and the Tax Cuts and Jobs Act that mentions the New Markets Tax Credit (see right) and then later goes on to describe the Invest in Opportunity Act (IOA).
While the IOA and New Markets Tax Credit (NMTC) target many of the same census tracts, no question that the NMTC and the IOA serve different but complementary purposes. Opportunity Funds will make equity investments in businesses. Community Development Entities mostly use the NMTC to provide debt to businesses and community facilities. That's why we are so excited see these programs working side by side.
We appreciate the White House highlighting the NMTC's success, but I do feel the need to correct a couple of misconceptions about the NMTC, real estate, and entrepreneurship.
First of all, we should not be too quick to dismiss the value of construction and rehabilitation projects in creating jobs and opportunity. Construction jobs - while often temporary - typically provide good pay and benefits. The construction industry - perhaps more than any other industry - offers apprenticeship and on the job training, providing an avenue for advancement. Construction spurs secondary economic activity (down the supply chain) that is easy to identify and measure. While an increase in construction income and the resulting macroeconomic boost to the economy may be temporary, real estate investment creates or improves a tangible asset that will serve a community for decades to come.
White House Comment on Distressed Communities and the Tax Cuts and Jobs Act
"The Federal government has an active set of policies to encourage investment and job creation in distressed communities, including Empowerment Zones, Enterprise5 Communities, Renewal Communities, and New Market Tax Credits (NMTC). The NMTC—arguably, the most successful of these programs—is structured to induce “patient” capital, providing substantial investment incentives if assets are held over a full seven years. As a result, although the majority of NMTC recipients would not have otherwise invested in the benefiting community, real estate has been the investment of choice, both because real estate returns are naturally long-run and because these investments clearly complied with NMTC regulations (Bernstein and Hassett 2015). But real estate is likely not the most effective tool for job growth, and the program is reportedly difficult for entrepreneurs to navigate."
Purpose of NMTC-Financing (2003-2016)
|Purpose of Loan or Investment||Total (2003-2016)||Percentage (2003-2016)|
Secondly, it is a misconception that the NMTC almost exclusively finances construction. While a majority of NMTC projects (roughly 65%) involve some sort of construction or rehabilitation, most NMTC real estate projects also involve the provision of working capital, purchase of equipment, or other financing supporting for an operating business. When you look past the project level and trace NMTC transaction activity to the primary purpose of each financial note, the share of real estate vs non-real estate is about even (see table to the right).
Finally, while it is true that the NMTC does not often provide direct financing to entrepreneurs, the program has been used to capitalize small business loan pools supporting emerging businesses and startup. And increasingly, the NMTC is financing projects that support the entrepreneurial ecosystem. In 2016, according to NMTC Coalition survey data, about 6% of projects financed were business incubators, creative office space, and other physical infrastructure that helps accelerate the development of small businesses, support aspiring culinary entrepreneurs, or foster social enterprise. Below find a few of the many examples across the country.
Supporting the Entrepreneurial Ecosystem
The Highlander Accelerator, Omaha, NE
The Highlander Accelerator in Omaha, Nebraska, rejuvenated the blighted former site of a failed 23-acre public housing complex demolished in 2009.
The Accelerator offers rents 50 percent below the market rate to facilitate a carefully selected mix of nonprofit and commercial tenants that maximize impact on the educational opportunities, health, and well-being of disadvantaged neighborhood residents. The facility includes over 17,500 SF for Whispering Roots (right), a nonprofit aquaponics organization that will produce fish and leafy greens in a high-tech “closed loop” system.
Studebaker Innovation Center/Renaissance District, South Bend, IN
Adaptive reuse of a former Studebaker automobile manufacturing facility (built between 1923 and 1946) into office, education, incubator, advanced manufacturing and training space. Created 634 full-time equivalent jobs and 131 construction jobs.
An Interview with Andrew Wiand, Executive Director of enFocus, at the Renaissance District
Rocky Mountain Innosphere, Fort Collins, CO
Supporting Culinary Entrepreneurs
The Findlay Kitchen, an Incubator in Cincinnati
Union Hall – A Dynamic Center of Gravity for Entrepreneurs in Cincinnati, OH
LA Prep Commercial Kitchen Incubator
R House: Baltimore's Emerging Chefs
BOOM! Health Project Includes Workforce Training Cafe
Enterprise Community Partners and Chase financed a mixed-use project in the Bronx that includes, among other things, a café called BOOM!Café, which will double as a community space and workforce training center on the ground floor. BOOM is working with Catalyst Kitchen, an incubator of food service social enterprises based in Seattle, to establish a training program and business model for the café.
Last month, to mark National Small Business Week, Congressman Xavier Becerra (D-CA), Chairman of the House Democratic Caucus, joined Treasury Secretary Jack Lew at the NMTC-financed L.A. Prep in Lincoln Heights.
The L.A. Prep project involved the acquisition and renovation of 56,000 square foot former warehouse into an incubator for small food producers who have outgrown their startup spaces. The project moved forward thanks in part to $16 million in NMTC allocation from Los Angeles Development Fund and UrbanAmerica. Capital Impact Partners provided $11 million in leveraged debt, with $5.1 million in equity provided by U.S. Bancorp CDC. Civic Enterprise, real estate development firm focused on revitalizing emerging urban neighborhoods, developed the project.
“Two-hundred jobs created: 50 tenants and one-third minority-owned businesses at L.A. Prep & L.A. Kitchen,” said Congressman Becerra. “I’m so proud we have places like this in the district, setting small business owners up so that they can get access to capital and help create more jobs for people across our district and beyond – not to mention, nutritious and delicious food!”
All L.A. Prep tenants receive: an exclusive production space; on-site access to everything a growing food-making business needs: flexible cold, dry and frozen storage; a demonstration kitchen; co-working space and more; a staffed warehouse to assist with receiving and logistics. L.A. Prep partner and co-founder Food Centricity, a business accelerator focused on early and growth stage food companies, provides business support and other key services to help the tenants succeed.
Tenant Spotlight: L.A. Kitchen
L.A. Prep’s largest tenant is the social enterprise L.A. Kitchen, which offers culinary training programs for at-risk individuals.
L.A. Kitchen is the vision of Robert Egger, founder of the award-winning D.C. Central Kitchen. The idea is this: L.A. Kitchen collects or purchases surplus fruits and produce from farms and wholesale companies in the region. These products fuel a 15-week, culinary arts job training program, preparing at-risk foster youth and older adults transitioning out of incarceration for jobs in the culinary field, helping reduce systemic patterns and become productive members of the Los Angeles community.
Photos from Secretary Lew and Congressman Becerra’s visit:
On Friday, October 16th, Educare of California at Silicon Valley (“ECSV”) and Opportunity Fund will celebrate the recent opening of a new Educare facility in San Jose’s Santee neighborhood. The new school, which is more than 7 years in the making, will provide year-round early childhood education and care to 160 children. The project would not have been possible without the support of several local foundations, U.S. Bank, and the expired federal New Markets Tax Credit (NMTC) program. This is the seventh Educare facility financed by the New Markets Tax Credit program nationwide, which has financed more than a thousand community facilities in low-income areas across the country. In fact, the NTMC is one of the most effective federal tools available to finance new or upgraded facilities for nonprofit service providers, schools, hospitals, nursing homes, daycare centers, job training centers, nursing homes, and other community facilities. If Congress does not act to extend the program, low income communities could lose out on more than an estimated $1.7 billion in desperately needed capital for these projects.
The NMTC Has Financed More than 1,000 Community Facilities
A Decade Financing Community Facilities
Between 2003 and 2012, the NMTC financed 1,403 daycare centers, schools, facilities for nonprofit service providers, community centers, healthcare clinics, and other important amenities. Below is a breakdown by category:
Nonprofits in low income areas experience financial challenges in maintaining or constructing adequate facilities. Unlike for-profit entities, they often have thin cash flows and uncertain revenue sources, mostly generated from government contracts, private foundations, or individual giving. Their geographic location presents financing challenges, and some small nonprofits lack the skills and expertise internally that are needed to manage a large-scale facility construction project.
The NMTC has been extraordinarily important to local communities, and the nonprofit sector in particular, filling the financing gap and making community facility renovation, expansion, and construction possible. Beyond filling the financing gap, CDEs often offer loans with flexible terms and conditions, below market interest rates, and other features not offered in the conventional lending market.
Opportunity Fund and Educare Celebrate Opening of New School in San Jose
The project would not have been possible without the federal New Markets Tax Credit Program
Educare is a national initiative to close the “achievement gap” facing many low-income children, through early childhood education, family services, research, and teacher training. The new San Jose facility is the flagship Educare School in California, located in a San Jose school district with a minority population of more than 90 percent and an unemployment rate nearly twice the national average.
ECSV is a collaborative project among 16 public institutions and private groups who provided financial support, including FIRST 5 Santa Clara County, the Franklin-McKinley School District, East Side Union School District, the Santa Clara County Office of Education, the Health Trust, the Silicon Valley Leadership Group, and the David and Lucile Packard Foundation.
Despite the generous support of private foundations, the project faced a funding gap, so in the summer of 2014, U.S. Bank and Opportunity Fund turned to the NMTC to provide financing for construction of the new $14.8 million, 28,000 square-foot facility.
"Opportunity Fund was thrilled to support the construction of Educare’s beautiful new facility, which will provide early childhood education to 160 of the community’s most vulnerable children,” said Jeff Wells, Director of Opportunity Fund's New Markets Tax Credits program.
Opportunity Fund and US Bank
This is the fifth Educare site that U.S. Bank subsidiary U.S. Bancorp Community Development Corporation has financed. Opportunity Fund has financed more than 900,000 square feet of new or rehabilitated non-profit community facility spaces. Those facilities serve more than 500,000 low-income clients. (Learn more).
Opportunity Fund is just one CDE among nearly 100 receiving allocation awards in the last round of NMTC allocation in June. Without a Congressional re-authorization, before the end of the year, organizations like Opportunity Fund and countless others will be unable to finance these projects in areas underserved by conventional lenders.
NMTC-Financed Community Facility Case Studies
Status of the NMTC
The NMTC expired at the end of 2014, but it can still be extended. The New Markets Tax Credit Extension Act of 2015 (HR 855), introduced by Reps. Tiberi (R-OH), Neal (D-MA), and Reed (R-NY), would extend the NMTC indefinitely and increase the allocation level. Senators Blunt (R-MO), Schumer (D-NY), Daines (R-MT), and Cardin (D-MD) introduced S. 591, which is nearly identical to its House counterpart.
- S. 591, introduced by Senators Blunt (R-MO) and Schumer (D-NY); and
- H.R. 855, by Representatives Tiberi (R-OH), Neal (D-MA), and Reed (R-NY).
WHEREAS, the New Markets Tax Credit, between 2003 and 2012, generated $31 billion nationwide in direct investments to businesses, which created approximately 750,000 jobs, at a cost to the federal government of less than $20,000 per job, and these New Markets Tax Credit investments leveraged over $60 billion in total capital investment in businesses located in communities with high rates of poverty and unemployment;It also urges support for a permanent extension of the NMTC, which expired last year:
NOW, THEREFORE, BE IT RESOLVED, that The United States Conference of Mayors does hereby support the “New Markets Tax Credit Extension Act” (S. 591 and H.R. 855), which would make certain the New Markets Tax Credit continues to be available as a financial tool for economically distressed communities, spurring investment and revitalizing areas that need it the most.Today, at 3:30pm Pacific Time, the Metro Economies Committee will convene to discuss the resolution. Rosie Rios, Treasurer of the United States, will give remarks entitled “Using New Market Tax Credits and Other Federal Tools to Promote Economic Growth in Local Communities”. The Department of Treasury administers the NMTC program through the CDFI Fund.