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?
