The U.S. Department of the Treasury announced the latest round of funding from its New Markets Tax Credit program on Friday, slating at least an additional $400 million for economic development projects in areas of Louisiana, Alabama and Mississippi affected by Hurricanes Katrina and Rita. Twenty-three organizations, whose combined 2007 tax credits are worth nearly $1.4 billion, plan to leverage at least some of those credits to finance projects in Louisiana. Nationally, 61 groups with plans to serve 45 states received the equivalent of $3.9 billion from the program.
Looking for a tool to lure investment to low-income communities, Congress authorized the New Markets Tax Credit in 2000. To earn the credit, investors must supply capital to community groups spearheading various revitalization projects in low-income areas. In return, investors earn credits against their federal income taxes worth 39 percent of their total investment over a seven-year period.
The idea is to encourage entrepreneurs to sink money into ventures, typically real estate projects, that would otherwise be considered unattractive or financially risky.
"The tax credit increases investors' yield where ... the underlying project would not normally have a market-rate of return," said Michael Johnson, managing director of Advantage Capital Community Development Fund, which received $28 million worth of New Markets Tax Credits this year.
Advantage, a New Orleans-based venture capital firm, has received $258 million worth of such credits since the program's inception, using the savings to invest in a variety of Louisiana projects.
In New Orleans, Advantage used the credit to finance the development of a Home Depot in Mid-City and a Sun Ray Grill restaurant in the Warehouse District. The company also invested in a rubber recycling plant in Vidalia, a surgical supply company in Kenner and a car-racing track in Monroe, among other projects.
In Louisiana, more than 16 projects financed by the tax credits have been completed since the program's inception, according to the Treasury Department. All but two of those projects are in Orleans Parish. One of those ventures is a 30-bed hospital building on Napoleon Avenue in Uptown New Orleans, part of Ochsner Health System's renovation of the former Memorial Medical Center. The community development arm of Capital One bank, Capital One Community Renewal Fund LLC, used $25 million from the program to offer Ochsner a low-interest loan that helped finance the project.
"In many ways, it acts as a bridge," said Kimberly A. Reed, director of the Treasury Department's Community Development Financial Institutions Fund, which administers the New Markets Tax Credit.
The $350 million expansion of the National World War II Museum in New Orleans is counting on the benefit of the tax credit. The museum plans to soon finalize an agreement with one or more organizations that would use the tax credits to help finance the expansion, which could begin by the end of the year.
"Without the tax credit, it would be much more difficult financially to get this project going, especially with rising construction costs," said Beckie Mackie, the museum's chief financial officer.
By reducing expenses, the tax credit helps jump-start developments, Reed said. And the sooner new developments and businesses come on line, the sooner surrounding communities reap the economic returns, she said.
"I think people have to draw the connection between tax credits ... and community development projects that create jobs," said Deputy Secretary of the Treasury Robert M. Kimmitt, who visited New Orleans with Reed Friday to announce the New Markets Tax Credit awardees.
Source: Times Picayune