Tax credit program could support Marshals Museum

The Fort Smith Housing Authority is preparing to establish itself as a Community Development Entity to bring the development potential of New Markets Tax Credits to the region.

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.

“Now that’s just an example. … We’re not there (in the process) yet and nothing has been approved,” Pyle said.

Also, the NMTC must be the funding of last resort.

“This is a ‘but for’ program. ‘But for’ the credits, the project would never get off the ground,” Pyle explained to The City Wire during a recent interview.

Pyle says it will take up to three months to get the CDE created, adding that CDEs are the easy part. The more intense and important part is creating a development plan that has community support. Pyle said the CDE project applications approved are those that can show an extensive and open process in obtaining community input and support.

“For the CDE to have any credibility with it’s application, you have to have a plan that has buy in from the community,” Pyle said.

Most of the northern section of Fort Smith and the southern half of Van Buren down to the portion of Crawford County north of Barling are in areas eligible for NMTC-supported projects. (See the map below.)

Pyle and others are scheduled to present the CDE and NMTC info to the Fort Smith board of directors at a May 11 study session.

“A working group has been meeting approximately monthly since January exploring the opportunities these tax credits provide for economic development for our city and region.  The members of that group are Richard B. Griffin, Sam T. Sicard, Rusty Myers, Mat Pitsch, Cheryl Garner, Gary Campbell, Jim Dunn, Jayne Hughes, Ray Gosack, Dennis Kelly, Steve Clark (consultant), Mitch Minnick (FSHA) and Norman McLoughlin (consultant),” Pyle noted in an e-mail to the city board and staff.

In addition to the U.S. Marshals Museum being a possible NMTC candidate, Pyle said officials with Sparks Health System are interested in the program. The hospital system, owned by Naples, Fla.-based Health Management Associates and expected to spend $20 million on capital expenditures in 2010,  is interested in building a doctor’s building to help with patient service and physician retention and recruitment.

Pyle said the Fort Smith Housing Authority will spend up to $75,000 to push the process through the first application round. The local CDE should begin the public input process in mid-summer, Pyle said.

Jim Dunn, director of the U.S. Marshals Museum; Richard Griffin, chairman of the FSHA; Mitch Minnick, a FSHA employee; and Pyle plan to attend a national NMTC conference May 5-7 in Miami.

The federal Community Development Financial Institutions Fund provides the following info on the program funding history: “Throughout the life of the NMTC Program, the Fund is authorized to allocate to CDEs the authority to issue to their investors up to the aggregate amount of $26 billion in equity as to which NMTCs can be claimed, including $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.”

Other details of the program include:
• The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period.
• In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually.
• Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.
• Those involved in creating or governing a CDE may not benefit from funds disbursed through the NMTC program.

The Treasury reports that for every of $1 in “foregone tax revenues” from the NMTC produces about $12 of private investment in the low income areas.