Thursday, January 31, 2013

Rethink Real Estate: All about the New Markets Tax Credit

The Ely Walker building in St. Louis, MO was redeveloped with the help of the New Markets Tax Credit. Photo by Nick Findley via Flickr.
Earlier this month, Smart Growth America released Federal Involvement in Real Estate, a survey of over 50 federal programs that influence real estate in some way. This post is the first in a series taking a closer look at some of the programs included in that survey. Today’s post looks at the New Markets Tax Credit.
New Markets Tax Credit allows individual and corporate investors to receive a credit against their federal income tax return in exchange for making an investment in a specialized financial institution called a Community Development Entities (CDE). Congress created the credit in 2000 as a way to attract private capital to businesses in economically challenged communities. Authorized under the Community Renewal Tax Relief Act of 2000, the program has appropriated billions of taxpayer dollars to promote investment in these areas that are often overlooked by traditional financing sources.
New Markets Tax Credits are awarded to CDEs through a competitive process regulated by the Community Development Financial Institutions Fund, a program within the U.S. Department of the Treasury. To qualify as a CDE, an organization must demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons, and maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity. The Community Development Financial Institutions Fund is authorized to allocate $3.5 billion to CDEs nationwide.
Once a CDE receives its credit allocation, private investors who make qualified equity investments are eligible to claim the New Markets Tax Credit. Typical investors include banks, major corporations, venture capital firms and other investment funds. In order to claim the credit, a CDE must use at least 85 percent of an investor’s funds to make a qualified low-income community investment (QLICI) in an approved business for a seven-year period.
QLICIs must be invested in a qualified active low-income community business. In order to qualify, the business must be located in a low-income community; must generate a substantial portion of its revenue from activity in a low-income community; and services performed for the business by its employees must be performed in a low-income community. QLICIs can be used for commercial, industrial, and mixed-use projects, or to purchase loans from other CDEs in low-income communities.
The Community Development Financial Institutions Fund defines a low-income community as a U.S. Census tract with a poverty rate of at least 20 percent, or an area in which the median family income does not exceed 80 percent of the statewide median income. In 2010, approximately 39 percent of the nation’s Census tracts containing 36 percent of the population qualified for these investments.
The New Markets Tax Credit program benefits communities and investors alike. It allows investors to claim a tax credit equal to 39 percent of their investment for up to seven years. At that rate, an initial investment of $1 million could result in a total tax credit of $390,000 over seven years.
Since its creation, the New Markets Tax Credit has been used to finance charter schools, supermarkets, healthcare facilities and a variety of other businesses that have spurred economic development in underserved communities across the country. Many would not have been possible without the program.

Thursday, January 10, 2013

Exploring the economic benefits of walkable, sustainable development along the Keystone Corridor with PennDOT

Coatesville, PA is home to a station on the Amtrak Keystone Line. Photo by the Chester County Planning Commission.
The 104-mile long Keystone Rail Line that runs from Philadelphia to Harrisburg, PA, has played a significant role in shaping the towns around its 12 stations. Now, new investments in the line are creating opportunities for development along the corridor.

In 2006, the Pennsylvania Department of Transportation (PennDOT) and Amtrak completed a $145.5 million infrastructure improvement program to increase train frequency and service reliability along the Keystone Corridor. These improvements have the potential to attract new development – and new economic growth – to the areas around stations along the rail line.

On December 4, 2012, PennDOT invited a delegation of LOCUS members that included CEOs and senior executives from leading real estate firms in the northeast region to Coatesville, PA, to discuss best practices for leveraging transit-oriented development (TOD) to revitalize communities. Coatesville was an appropriate backdrop for the meeting because the city shares challenges in attracting new residents and businesses with other cities on the Keystone line. PennDOT and Coatesville leaders hope to address these challenges by investing in rail infrastructure.

David Sciocchetti, the Development Advisor for the Chester County Economic Development Council, acknowledged that investment in rail infrastructure isn’t the only tool needed to restore vibrancy in cities like Coatesville. His comments, which began the daylong meeting, emphasized that the best way to attract riders along the line is to plan for the entire area around stations, rather than just the station itself.

Consultant Rick Robyak, who is working with PennDOT to redevelop the stations on the Keystone line, also echoed the need to use a holistic approach in developing property around the stations. He encouraged meeting attendees to identify how municipalities and PennDOT could work with the private sector to produce the greatest return on the public’s investment. According to Robyak, PennDOT wants to give the private sector the opportunity to guide the redevelopment project in such a way that it creates economic opportunity for both the city and the developer.

The morning’s presentations were followed by an afternoon tour of the current Coatesville Amtrak station. The train station is located at the edge of the city’s commercial district, but lacks adequate pedestrian connections to the commercial core. The current station will likely be repurposed for an alternative use because it does not meet standards set by Amtrak or the American with Disabilities Act. Facilitators from the Coatesville Redevelopment Authority pointed out a possible site for a new station currently considered “blighted” under property codes. Despite the challenges to relocating the Coatesville station and redeveloping others along the line, the LOCUS delegation agreed that more walkable, sustainable development would be a key part of any plan to boost the local economy.

Overall, PennDOT and Coatesville leaders’ commitment to working with the private sector to see strong rail culture return to areas along the Keystone Corridor will undoubtedly help achieve their vision of bringing much-needed economic revitalization to the corridor.