Hartford Business Journal

www.HartfordBusiness.com • November 11, 2019 • Hartford Business Journal 19 By Matt Pilon mpilon@hartfordbusiness.com C onnecticut nonprofits have seen a decade- long decline in state financial support, as lawmakers grapple with continued budget deficits. But some financiers and officials perceive a potential bright spot, at least for nonprofits trying to put together financing for major capital projects like new buildings. New Markets Tax Credits (NMTCs) are a little-known federal incentive that have pumped major dollars into Connecticut over the past 15 years. The U.S. Treasury, which oversees NMTCs, says it has allocated more than $360 million worth of the cred- its that ultimately ended up seeding construction and real estate projects, many of them by nonprofits, in low- income areas throughout Connecti- cut, according to federal data. That portfolio includes the ongo- ing redevelopment of the formerly vacant Swift Factory in Hartford and a new headquarters for the Bristol Boys and Girls Club. But, while that may seem like a lot of money, Connecticut actually punches below its weight in the NMTCs program. And there are still plenty of nonprofits cross- ing their fingers that they can obtain the tax credits to fill crucial project financing gaps, including the Hartford Boys and Girls Club, which is fundraising to build a new $18-million clubhouse in the city's South End. The tax credits could also be the answer for a long-awaited down- town Hartford grocery store. The state ranks 39th in the coun- try for the amount of NMTC invest- ments per low-income resident, with Hartford — one of the poorest cities in the country — being par- ticularly underserved, according to an analysis by the Connecticut Health and Educational Facilities Authority (CHEFA), which is mak- ing a play to increase the state's share of the multibillion-dollar New Markets Tax Credits pie. "There's an underutilization of New Markets Tax Credits in Con- necticut," said CHEFA Managing Director Michael Morris. An NMTCs primer The structure of New Markets Tax Credits transactions can be complicated, to say the least. "Just when you think you fully understand it, you really don't," said Michael Suchopar, CEO of the Bristol Boys and Girls Club, who stayed patient through an NMTCs financ- ing that helped pay for his club's new headquarters that opened in 2014. The Treasury each year allocates about $3.5 billion worth of tax cred- its to intermediaries called Com- munity Development Entities, or CDEs, which in turn solicit inves- tors — often banks — for equity and loan investments. CDEs then seek out specific proj- ects to finance. As long as a development is in a qualified low-income census tract and complies with various other requirements, the investor would earn a tax credit equal to 39 percent of its investment over a seven-year period. For the project developer, NMTCs are often a low-interest financing method that sometimes doesn't even require all of the prin- cipal to be repaid. Depending on the scenario, NMTCs investments can produce a return of about 30 percent for the investor or bank, according to Michael J. Andreana, an attorney at Pullman & Comley who has worked on a handful of NMTC deals. NMTCs are similar in some ways to the more recent federal Oppor- tunity Zone program. The latter is a vehicle for delay- ing and reducing taxes on capital- gains income, and is seen by some as having greater potential appeal to investors. NMTCs haven't been without controversy. A 2014 report issued by then-U.S. Sen. Tom Coburn (R- Maryland) called NMTCs "just an- other tax code giveaway with little available evidence to demonstrate its effectiveness … ." Coburn, who unsuccessfully Continued on next page >> Filling the Financing Gap CT nonprofits stake capital wish list on little-known tax-credit program Patrick McKenna, senior project manager at Community Solutions, said the nonprofit's redevelopment of the Swift Factory in north Hartford likely would have never happened without New Markets Tax Credits. HBJ PHOTO | STEVE LASCHEVER

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