New Markets Tax Credit Program
Monday, May 11, 2015
By Dave Kleiber, Capital Link
Editor's Note: Dave will be presenting on health center financing at the Spring Primary Care Conference May 16-19 in Portland, OR
What is the New Markets Tax Credit Program and why would I use it?
HRSA recently announced a new set of capital grants to be awarded this fall called the Health Infrastructure Investment Program or HIIP grants. While capital grant opportunities are always welcome, the HIIP grants are limited to a maximum of $1,000,000 which is substantially lower than previous rounds of HRSA capital grants. This means that health centers will either have to propose relatively small projects which are likely to have relatively small impacts, or they will need to leverage these awards with other sources of capital in order to propose a more substantial project. Sources of additional financing include health center cash, other capital grants, loans and New Markets Tax Credit (“NMTC”) equity.
Since 2000, health centers all over the country have been taking advantage of this unique and beneficial financing program. NMTCs were designed to stimulate private investment in low-income communities, the boundaries of which frequently overlap with the service areas of FQHCs. The attraction of using a NMTC structure is that approximately 20% of the health center’s total capital project cost is provided by an investor, and their investment becomes the health center’s equity at the end of the seven-year tax credit period. In effect, the NMTC portion of the investment does not need to be repaid.
That’s the good news. The bad news is that NMTC structures are extremely complex and can be intimidating for health center boards and staffs. However, as demonstrated by the many successful FQHC NMTC projects completed in the Northwest, any qualifying health center can work through the intricacies of the program details and realize the benefits.
Long documents have been written about the intricacies of structuring a NMTC transaction, but I am not going to go that far into the weeds here. You can find a useful summary description of the NMTC program on Capital Link’s website (http://www.caplink.org/resources/publications) as part of our Spotlight on Capital Resources series. We will also be doing a review of the program at the NWRPCA spring conference in Portland on Saturday, May 16, in a session entitled: Financing Health Center Expansions through Public-Private Financing. We’ll be highlighting the recently closed NMTC transaction for Neighborcare’s Meridian Center for Health and describing what role NMTC’s played in that project.
To determine whether your capital project could benefit from the use of NMTC’s, here are a few parameters and criteria to consider:
· Your total project costs (including land, construction costs, equipment, soft costs and capitalized interest) should exceed $5 million for the benefits of the program to be significant enough to offset the high cost of closing these transactions. That said, there is one NMTC-hybrid program run by the Local Initiative Support Corporation called the “Healthy Futures Fund” that may be able to advantageously close deals under $5 million. Contact me for more information on that.
· Your project should be located in a census tract that exceeds certain poverty statistics and qualifies as “Highly Distressed.” You can always call me or any Capital Link Project Consultant to test the address of your project, or you can go to the website of this industry accounting firm www.novogradac.com, page down to the NMTC Mapping Tool, and test it yourself.
· You do not need to apply for credits directly from the Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund). Instead you need to find a Community Development Entity (CDE) that has already been awarded credits and has promised the Treasury they will work in your area and on your kind of project. You can go the CDFI Fund’s website to see what CDEs have still have credits, or Capital Link can help you find one or more interested CDEs.
· Timing is key. There are very few tax credits available right now (unless your project is rural), but the next round of awards is next month (June 2015). If your project will be ready to break ground by the fall, you may be able to secure an allocation from an interested CDE. If not, you may want to plan for next spring when (hopefully) the next round of credits will be announced. That will entail getting your project in several likely applicants’ pipelines – again we can help you with that.
I could go on and on, but I promised to stay out of the weeds. Unfortunately, if you go forward with a NMTC transaction, you won’t have that luxury. If you have questions please contact Capital Link and we can help.
Capital Link is a non-profit organization dedicated to assisting community health centers in accessing capital for building and equipment projects. From market feasibility and program, staff and facility plans to comprehensive financing assistance, Capital Link provides extensive technical assistance to health centers to strengthen their abilities to plan and carry out successful capital projects For more information, visit www.caplink.org.
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