Fort Smith board readies to endorse federal tax credit program

The Fort Smith Board of Directors is expected to forward with an ordinance establishing the Fort Smith Housing Authority as a Community Development Entity (CDE) to bring the development potential of New Markets Tax Credits to the region.

Ken Pyle, director of the FSHA, presented broad details of the program during the board’s Tuesday (May 11) study session. The board members were supportive of the concept, with the only concern raised being that of the CDE having power of eminent domain.

New Markets Tax Credits were created by Congress in December 2000 for the purpose of funding commercial, retail and residential projects in low-income regions. They are administered by the U.S. Treasury Department.

While complex in the doing, the concept is relatively simple. The federal program gives qualified applicants (CDEs) tax credits equal to 39% of the project cost, and those credits are then sold to investors or an investor group to raise money for the project. Typically the cost to administer the grants results in between 20%-25% of the project cost supported by the investment funds.

For example, if Project A is a $20 million new commercial development, the proceeds from the sale of NMTC could pay up to 25% of the cost. Closer to home, the NMTC could help build the U.S. Marshals Museum in Fort Smith, Pyle said. If $40 million is needed to build the museum and the fundraising effort hits $30 million, the credits could be used to meet the necessary funding goal.

Pyle stressed that the NMTC program is not another housing program.

“This is about economic development. This is not about low-income housing,” Pyle explained to the board, adding that the program helps provide the “last line of funding” for commercial, retail or housing projects that have exhausted options for conventional financing.

The program could also help finance the estimated $40 million needed for the planned U.S. Marshals Museum.

Jim Dunn, director of the U.S. Marshals Museum, listed two clear advantages the NMTC could provide the museum. He said having access to the NMTC would be a “wonderful selling tool” if he is able to tell a potential donor that “your contribution can be leveraged to provide us an additional 20%” toward the museum construction and operation.

Also, Dunn said the NMTC program would likely “accelerate the capital campaign” and allow for a ground breaking sooner rather than later.

The board is expected to consider in early June an ordinance approving establishing the Fort Smith Housing Authority as a Community Development Entity.