The new markets tax credit (NMTC) was introduced in 2000 as a vehicle to stimulate investment in qualified low-income communities. It’s a credit on equity investment claimed over a 7-year period (5 percent over the first 3 years and 6 percent over the next 4 ). A "low-income community" is basically a census tract with a poverty rate of at least 20%, or with median income of up to 80% of the area or statewide median, whichever is greater.
The NMTC is allowed for a percentage of a qualified equity investment in a qualified community development entity (CDE). A CDE is a domestic corporation of partnership, certified by the Dept. of Treasury, which is organized to provide investment capital for low-income communities or persons and which allows residents of the community to be represented on the entity’s governing board.
At its best, NMTC provides an important tool in the development of low-income housing and retail facilities in areas where both are needed. But as with every deduction or credit, the potential for abuse exists. And so it is perhaps no surprise that with a minimal investment of time, we found some NMTC projects which raised our (high-arched, well tweezed) eyebrows. We’re not saying these projects are abusing NMTCs, but we are wondering if this is what was really intended. We’ve also come up with a few suggestions which might help to curb any potential abuses.
White Stag Building Redevelopment is a project in the Old Town China Town part of downtown Portland, OR built with a $28.5 million NMTC allocation. It consists of three historic buildings, all of which were built before 1910. The White Stag building, named for former tenant White Stag clothing, had been vacant for many years. It’s connected to the Bickel and Skidmore buildings which now form a single complex. It houses several University of Oregon programs, as well as United Fund Advisors, which describes itself as providing “a broad suite of traditional and innovative investment banking services that provide triple bottom line returns to our client partners.” United Fund Advisors is involved with 10 NMTC projects.
What White Stag doesn’t house are low-income families, retail operations at which low income families shop, or significant employment for low income workers. The Univeristy describes the space it is occupying in the building as including “six classrooms, new event space for up to 250 people, a new library for architecture and journalism programs, a shared computer laboratory, and a new university book store and Duck Shop, which will also feature a café.” Yes, the building is green (it has a Leadership in Energy and Environmental Design Gold Certifcation), has won design awards and certainly spiffs up a blighted part of the city, but are we convinced that this really meshes with the true objectives of the NMTC?
Liberty Station is a mixed-use residential and commerical project located at the former Naval Training Center in San Diego built with a more than $14 million NMTC allocation. Even in the current economic climate, prices of Liberty Station townhomes and single family homes generally range from $500,000 (for approximately 1,000 sf of living space) to in excess of $1 million. Liberty Station has more than 170,000 square feet of retail shops, grocery stores (Trader Joe’s, Vons), no fewer than 11 beauty and wellness merchants, 19 fast food and fine dining restaurants, and office space. It has two hotels, a golf course, and a waterfront park. It may provide some employment to displaced workers, but what it doesn’t have is low income housing or retail establishments geared to low income individuals.
Indeed, the city of San Diego requires redevelopment areas to reserve 15 percent of homes for people of low and moderate incomes, or else provide twice that amount of affordable housing elsewhere. However, Liberty Station contains no affordably priced homes, so the redevelopment agency was required to set aside tax revenue to provide housing elsewhere in the city for the kinds of people the NMTC was supposed to be assisting. (see: www.sandiego.gov/ntc/housing/affordable.shtml).
It would appear that the only way this sort of project, located in an otherwise upscale neighborhood of prime real estate, would qualify for NMTC would be based on census figures which used the former military base residents in computing income for the area. We’re not aware of anything which requires that census figures be modified for redevelopment on former army and navy bases, and that may be a rather disturbing blind spot in the law. Excluding the median income of former military personnel from closed army bases would certainly seemed to be called for in light of the desirable locations of several of these closed bases.
The Sheraton Duluth Hotel in Duluth, MN was built with a $16.5 million NMTC allocation. It includes a 147 guest room hotel on 6 floors, on top of which the plans call for 35 market rate condominiums, and an adjoining Plaza ballroom for the hotel adjacent to the Greysolon Plaza senior housing project. So what exactly did the community gain for the $16.5 million? Well, a pretty hotel which will form part of a larger complex which may revitalize a part of downtown, arguably 83 permanent jobs (though there’s no indication these are only going to low income workers) and renovation of 150 existing units of senior housing. Oh, and the hotel will offer discount rooms for visiting doctors. But there appears to be no non-senior low income housing, and no low income community retail.
Without some demonstrable enhancement of housing or retail for low income communities it is questionable whether this kind of project should be authorized. Overall, NMTCs should require something beyond general revitalization, and its potential handmaiden—gentrification-- of downtown areas.
We’d like to identify other projects which are benefiting from NMTC allocations, particularly closed bases, to gain a better understanding of, and insight into, the issues before recommending concrete action. And if we’re wrong about all this, or missing some important benefits which projects like the ones described above provide- we want to hear that too!