New Market Tax Credits could help solve downtown vacant property problem

by Andrea Salina Fleming for the State Journal

One thing that most small communities in West Virginia aren’t short of is abandoned and blighted properties. Some larger cities, like Fairmont, Wheeling, Bluefield and Huntington, have several vacant commercial properties in or around their downtown vicinities that could use some TLC. Not only are these properties vacant and not up to code, but they are also very old and dated. The million-dollar question that gets asked by developers is, “How do we fund this?”

The typical answer in the past has been to subsidize these types of larger projects with traditional financing mechanisms, such as loans. But more recently, tax credits, particularly New Markets Tax credits (NMTC), have been the buzzword at many community and economic development forums as a means for buying down the cost of redevelopment. The federal New Markets Tax Credit program has proven itself to be an effective way to drive much-needed investment capital and commercial development into distressed communities across the country. Credit allocations help attract and grow small businesses, revive blighted manufacturing sites, build new health centers, develop grocery stores within food deserts, launch new schools and child-care centers and attract and retain skilled workers in low-income areas. All of the above are high priorities in efforts to attract new businesses and families to our state. Locally, community development organizations, economic development entities and private investors need to get serious and collaborate around utilizing this virtually untapped resource in West Virginia. The process of obtaining NMTC is complicated, extremely competitive, and the proposals take a great deal of creativity to package, but it is well worth the effort if a project is awarded the credits.

So how does the NMTC program work? Essentially, Community Development Entities (CDEs) are delegated NMTC allocation authority from the Community Development Financial Institution (CDFI) Fund that must be capitalized by third-party investors and lenders. The proceeds are used to fund investments in qualifying businesses or commercial real estate developments. Often, these proceeds are structured as low-interest, convertible loans. Then the CDEs search for these qualifying business and real estate developments to provide NMTC-subsidized financing, which is a very competitive process. Feeling like a deer in headlights yet? Don’t worry. I was, as well, at this point in the informational session I attended. It is, however, a feasible way to redevelop properties in low-income areas.

For example, the Fairmont Community Development Partnership (FCDP) owns a vacant building within a qualifying Census tract. A bonus is that the former YMCA building in Fairmont, Marion County, also qualifies for federal and state historic tax credits.

The increase of the state historic tax credit from 10 percent to 25 percent by the Legislature is certainly a step in the right direction. That decision will help West Virginia’s stock of historic buildings have more potential for renovation. If you couple this credit with the federal historic tax credit, you’ve bumped to 45 percent in tax credits toward a project. Tack on NMTC, and voila! You’ve managed to finance well over half of the project, which can limit the amount of traditional gap financing a developer has to take on.