There’s a bill parked in the House Ways & Means Committee called the New Markets Tax Credit (NMTC) Extension Act for 2015. Over at the Senate Chamber, a companion piece awaits introduction. The president likes NMTC; his budget and the legislation both call for NMTC to be made permanent. As is, it has been re-upped every two years since 2007.
NMTC, at its core, enriches rich folks. Even as the latest extension legislation snoozes in Ways and Means, connected opportunists are pursuing NMTC like lions stalk Springbok.
The program was called the Community Renewal Tax Relief Act when President Clinton signed it December 21, 2000. It was sort of a Clintonian Yellow Brick Road. Its purpose was to inject the spirit of economic development into communities that were statistically impoverished at the 25% level.
That’s supposedly still its purpose. A website called ‘Enterprise’ accurately defines NMTC’s logistics. NMTC is administered by the Treasury Department. Treasury’s Community Development Financial Institutions Fund (CDFI) awards allocation authority to Community Development Entities (CDEs). CDE’s, in turn, use the qualifying loan or equity investment in a project or business called a Qualified Active LOW-INCOME Community Business.
But the devil is in the details. As far as what you might have thought the bill stood for; fancy buildings and businesses with decent jobs in stressed neighborhoods, plus parks and recreation builds; well, there were just enough of those to claim a modest patina of legitimacy, but there were also projects that didn’t remotely qualify. The authors of the legislation were sneaky in their wording. Money was to go to COMMUNITIES that qualified under poverty guidelines, not necessarily into specific poor neighborhoods.
That was a welcome loophole enabling lenders to fiscally water projects that didn’t come close to meeting the intent of the bill. Fancy hotels, big Christian non-profits, questionable qualifiers that employed a single individual, but made money hand over fist, all won the day. And from 2003 to 2012, some 60 billion-loan dollars went to businesses, propped up by NMTC with half that total coming directly from NMTC-qualified money.
Now we get to the good part. The folks who actually made a killing in ancillary businesses and tax credits with what, on paper, was supposed to be a legit feel-good project. Of course, apologists and defenders of NMTC cite job numbers in the jillions with enormous growth everywhere. That’s interesting. In the nearest NMTC city in my home state of South Carolina, the average salary and poverty levels have barely budged since the decade of program involvement. Unemployment numbers fluctuate from time to time, but still exceed the national average.
Conversely, certain investors and banks have done fabulously well with investor tax credits of 39% over a 7-year period and great loan deals from banks that are gifted with a ridiculous 50% tax credit, the same reduction as some borrower’s costs. One bank in particular, headquartered in Canada, has captured most of South Carolina’s loan business.
New Market Tax Credit projects made up 42% of my nearby cities’ long-term debt according to their FY 2014 budget. NMTC transaction costs are roughly 15-20% of the Qualified Equity Investment (QEI). There are consulting firms (that have grown like kudzu on steroids since NMTC’s inception), the aforementioned CDE is either a domestic corporation or partnership with a 4% “allocation” fee (wink, wink, nudge, nudge). There are lawyers and consultants galore. The money has to flow from investors to the projects through CDE’s; then there’s something called a CDE AMF; another 5% skim.
The referenced Carolina city and its government feature a bunch of “Economic Development” groups; a city Economic Development Director, the Chamber, the Economic Futures Group, a community college, all with paid staff along with the City Attorney’s office. Can’t they do some of this stuff?
Let’s take an objective look at some of these projects for the “poor.” Wofford College is a good place to start. It’s a darn nice local center of higher education. The school population is around 1,600 students. A total of $15 million in loan tax credits was arranged. The loan funding (less the $15 mil for the feds) will build 20 dorm rooms, classrooms, a couple of places to eat and other stuff small colleges could use.
Wofford has an endowment approaching $200 million. Grants and gifts added another $67 million during a recent five-year period. And there’s always number one benefactor, former pro footballer and Hardees co-founder, Jerry Richardson. He owns the Carolina Panthers and brought their summer training camp facilities to his Alma Mater’s campus. Jerry’s worth about $1.1 billion and, I’m sure, would willingly part with a portion of that stash to fund anything the college really wants or needs. We hear there were 32 jobs created. That’s good. What were they? Short-term construction? Long-term, near-minimum wage dead-enders?
For our Baptist friends, there’s the $10 million in tax credits for investor/donors to the right-leaning Upward Star Center “Our Mission: Promote the Discovery of Jesus Through Sports”, AKA Upward Sports, AKA Upward Unlimited, the latter, the parent “non-profit.” A check of Upward Unlimited’s latest 2012 EO 990 numbers through Citizen Audit, shows the six top honchos making $134,682 – $271,700. From 2007-2011, this outfit has plumped up its bottom line to over $145 million. Nonetheless, Upward wants a 120,000 square foot sports complex/Sunday school and NMTC is going to make sure they get it.
Then there’s the work on a big, ‘ole fancy parking garage, including $15 million in three promissory notes with a ground lease of a buck a year for 22 years. The project is for the benefit of the USC Upstate Business School, an homage to a filthy rich local businessman whose name graces the facility. He could finance the garage out of pocket change. Then, of course, the state might want to kick in for a state institution. And like most NMTC projects, there’s a mind-boggling basket of hedging, swapping, exchanges, blended components, reserve accounts, pre-funding and an exorbitant $617,500 in “project management fees.”
Add some NMTC tax credit “investor” morsels for sprucing up a big ‘ole fancy hotel, plus a big ‘ole fancy building for a new school to train D.O.’s (Doctors of Osteopathy). Neither would appear to bring in a deluge or even a trickle of ongoing high-paying jobs.
And how about those project dollars flying over to the Airport Facilities Corporation? Now there’s a king-sized city payback that began in 2010 with interest only for 6 years, then principal and interest extending to February 16 of 2049. That’s only 39 years of local Hospitality tax money to repay whomever renovates and constructs a terminal and T-hangers, not to mention expanding office space, meeting rooms and the pilot’s lounge. And we all know how poor and needy pilots are. Permanent jobs? Not many!
The hospitality fee is an additional tax on local restaurant meals. The law states the proceeds can only go to projects that attract tourists. More dissembling of intent. No, for the most part, NMTC is a confusing numbers-spinning, big-boy game with little oversight or enforcement of the supporting legislation.
That’s my NMTC story, what’s yours?
Raised rural & small town, then lived in N.Y., Chicago & LA. Widely traveled. Returned from world wandering to pursue media life of anchorman/reporter and major, medium and small market talk radio. Highly active in politics. Once worked as orderly & security in Mens Lock Ward for the Criminally Insane at a state institution. Much more rational population than current Teapublicans. Great concern for country run by and for the extreme wealthy. The inhumane current running through this country has no precedent in modern history.
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