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Round of U.S. tax credits hold promise for new investment here

New Market Tax Credits are about to enlarge the mark they have already made on Mississippi.

Born in the Clinton administration, the tax credits distributed through the Treasury Department have helped fund downtown Jackson projects such as the renovations of the King Edward Hotel and the Standard Life building as well as dozens of other commercial and residential projects in economically distressed areas around the state. At the start of 2010, 60 projects with an investment of $276 million had been completed with the tax credits awarded through the Community Development Financial Institutions Fund.

This year, 19 financial entities around the country that are designated to allocate tax credits worth $706 million have included Mississippi on their project target list. Two of those are Mississippi based — SECDE Ventures of Madison and MuniStrategies in Jackson — and have designated Mississippi for the entirety of the $81 million in tax credits they will be allocating for projects.

The two prevailed in nationwide competition to become what is known as Community Development Entities, or CDEs. The Treasury Department designated 99 entities from among about 300 applications.

SECDE Ventures has authority to allocate $53 million and MuniStrategies $28 million. The federal credits of 39 percent the two will administer are awarded on the portion of a project’s cost deemed to be a Qualified Equity Investment (QEI).

The leveraging SECDE Ventures and MuniStrategies are set to do will include the State of Mississippi’s New Market Tax Credits. Mississippi allows a state credit equal to 24 percent of the Qualified Equity Investment.

The federal tax credit of 39 percent of the total cost of the investment is claimed over a seven-year allowance period. In each of the first three years, the investor receives a credit equal to 5 percent. For the final four years, the value of the credit is 6 percent annually.

Mark Willson, SECDE Ventures CFO, said the firm will do equity and debt product offerings to projects it thinks can generate sustainable long-term employment. These can include manufacturing plants, healthcare facilities and major commercial developments, he said.

“We will identify the projects we believe are worthy,” he said.

The arrangement will work this way:

An investor will buy, say, $10 million in tax credits at 80 cents on the dollar. With the tax credit worth 39 percent of $10 million, the investor ends up with a tax credit of $3.9 million for which it paid $3.1 million (80 cents on the dollar).

The result is that a project in an economically distressed community lands a $3.1-million investment it likely would not otherwise get, Willson noted.

In most instances, a project will already be taking shape when SECDE Ventures steps in, Willson said. “The project needs to have a lender lined up for the financing. We just bridge the gap.”

This is SECDE’s first time around as a CDE, but it plans to apply for the designation yearly.

MuniStrategies has been a Certified Development Entity since 2006, but this is the first year it will be administering the tax credits, said Alan Lange, president.

“We’ve worked with the University Park Project (a mixed-use project on the Jackson State campus) by helping to identify federal and state tax credit investors. We also worked on the Unity Homes project (closed in 2010) and provided guidance on the state tax credit investment structure,” Lange said in an email.

Lange said MuniStrategies typically works with developers who have projects on the drawing board are looking for help for tax advantaged loans and investments for their “capital stack.”

MuniStrategies based its application to the Treasury Department on assisting rural “green” renewable energy companies and mixed-use facilities in low-income communities.  “My partner, Mark McCreery, and I are both very interested in agribusiness and renewable energy opportunities because Mississippi has such an agriculture-centered economy and hence there are lots of opportunities to build that capacity,” Lange said.

Both SECDE Ventures and MuniStrategies say they will use the tax credits to provide attractive lending and investment terms to developers who do projects in economically distressed localities. The idea, Lange said, “is to help developers make these projects happen in lower income communities, where the lending/investment environment is more challenging,” Lange said in his email.

Whitney New Markets Fund, an investment arm of Whitney National Bank in New Orleans, is a veteran of the post-Katrina GO-Zone program, for which it allocated $50 million in federal tax credits. This year it’s authorized to allocate $53 million in New Market Tax Credits and will concentrate on businesses that are operating in rural markets in Louisiana and Mississippi and on businesses and organizations that provide goods and services to residents in low-income communities, said Scott D. Scheffy, assistant vice president.

He said the Whitney Fund is particularly interested in providing gap funding for large projects undertaken by non-profit organizations. It recently took part in a Mississippi non-profit organization’s building of a jobs training center and headquarters building, he said.

A typical scenario for help from the Whitney Fund would involve a non-profit that has a campaign underway to raise $5 million for a project. “Say they’ve got $3 million; they could use the New Market Tax Credit as well as traditional bank credit” to close the gap, Scheffy said.

Whitney National Bank has typically been the investor that buys the tax credit allocated by the Whitney Fund, according to Scheffy.

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