Tax credits aid blighted areas: Help open to firms targeting Center Township projects

July 25, 2005

Federal tax credits supporting roughly $6 million in economic development projects are still available for small-business owners considering expanding or locating in Center Township.

The funds are administered through the New Markets Tax Credit Program, which was established by Congress in 2000 to help revitalize blighted areas.

In Indiana, the locally based Urban Enterprise Association Inc. helped secure tax credits that can fund $50 million worth of projects, including $12.5 million in Marion County.

The tax credits already are supporting about half of the $12.5 million in local projects, leaving credits available to help fund about $6 million in other projects.

Here's how it works: Each tax credit covers 39 percent of the cost of a project. The borrower pays only the below-market interest rate during the first seven years of the loan. The investor in the project, which could be the lender, receives the 39-percent credit to include in the loan to offset the risk.

The loss of manufacturing jobs in the state makes projects in that sector a top priority for the funding, said John Gootee, director of business development for the UEA.

"[The credit] makes it possible for literally anyone to get in the game," he said. "When you bring equity to the table, you bring bankers to the table, and that's powerful."

Besides manufacturing, other sectors the UEA is targeting include distribution, high technology, office, retail and community facilities.

The UEA reviews applications and selects projects, while partner Community Bankers Association of Indiana lends the money through its members. The locally based CBA has 115 members, 44 of which are participating in the program.

"The reason we went forward with it is because of the economic situation Indiana finds itself in," said Joe DeHaven, president and CEO of the CBA. "We want to give our banks another tool in which they could help with economic development in their communities."

The value of a project must be at least $2.6 million to be eligible for a tax credit, unless a few deals can be bundled together to total that amount. In that instance, the same bank must be used as the lender for all of the projects.

The UEA was launched in 1990 by the Indiana Department of Commerce. The CBA first approached the UEA about partnering on the tax credit program three years ago. While the two entities were submitting their application, the government changed some of the program's rules. That delayed the funding until early this year, and by that time, some of the companies that had originally applied for the funds no longer wanted them. They had either undertaken projects without the assistance or had postponed their plans due to economic hardships, Gootee said.

The federal government doles out the funds each year through a community development division in the Department of the Treasury. Projects can be undertaken in areas, such as Center Township, where the poverty rate exceeds 20 percent.

Frank Hoffman, a partner at the local Krieg DeVault LLP law firm, drafted the application for the UEA and the CBA. Compared with other states, Indiana fared well, Hoffman said.

Bank of America, for instance, received the largest allocation, $58.5 million in tax credits to fund $150 million in projects. The money, however, is to be split among nine states. Indiana alone received funds to support $75 million in projects.

Besides the affiliation between the UEA and the CBA, another involving House Investments and the Indiana Association of Community Economic Development netted tax credits to fund $25 million in development. House Investments is a locally based real estate investment company.

That affiliation helped the locally based Greater Educational Opportunities Foundation get the funds to build its new charter school near the intersection of 25th Street and Capitol Avenue. The foundation, directed by Kevin Teasley, operates the charter school, which is relocating from its former address at Union Station. After outgrowing the downtown space, the organization borrowed $7 million to construct the school, and another in Gary.

"We were looking to build our own school with an affordable way to finance it," Teasley said. "Charter schools don't have much credit, so they are a good fit for the New Markets Tax Credit."

Tax credits to support $20 million in improvements were allocated for secondtier cities, such as Evansville, Fort Wayne and South Bend. Rural areas received credits to undertake $17.5 million worth of construction.

DeHaven said the CBA is the only banking association in the nation involved in the program. Banks will use the interest paid on the loans during the first seven years to start a loan pool.

"We will use it to help our banks do those deals that need a little more equity," he said. "It's a very unique concept for our industry. We are kind of a pioneer."

To be eligible for the annual funding, participants need to show 40 percent of the money will be deployed by the end of the year. Hoffman is confident that won't be a problem and will reapply for the next round of funding in September, he said.

The federal government will distribute $3.5 billion in tax credits this year and so far has provided $8 billion in assistance since the program's inception in 2000.
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