Milwaukee area misses out on first round of tax credits

Milwaukee area misses out on first round of tax credits
Although vast portions of the city of Milwaukee and other parts of urbanized southeast Wisconsin are eligible for a new tax credit program from the US Department of Treasury, major economic development entities here did not file applications for the first round of the tax credits.
The New Markets Tax Credit (NMTC), a product of President Bill Clinton’s 2001 fiscal year budget, is designed to stimulate investment in low-income communities. The program provides a 39% tax credit to investors who make equity investments in community development entities (CDEs) pre-approved by the Department of Treasury.
In turn, the CDEs make investments in or loans to businesses in low-income communities. Investors receive the credit over a period of seven years.
To former US Rep. Tom Barrett, now a partner with Milwaukee law firm Reinhart Boerner van Deuren, the fact that southeastern Wisconsin organizations did not come out in force to apply for the tax credits was surprising.
“The federal government has set aside $2.5 billion for these tax credits,” Barrett said. “Here in Wisconsin, a lot of people complain that we don’t get enough federal dollars back, and here is a perfect vehicle for getting these federal dollars. … I think it is a program that we should be working to make part of the economic development landscape for southeastern Wisconsin.”
While representatives of some economic development entities say they avoided filing an application for the tax credit, others say they were caught unaware.
“This has been a program that has been undercover, as far as PR (public relations),” Kenosha Area Business Alliance President John Bechler said.
According to Milwaukee Economic Development Corp. (MEDC) President Patrick Walsh, MEDC is considering getting involved with other entities to apply for the credit in subsequent rounds.
Because CDEs are responsible for documenting that their investments stay in low-income Census tracts, the eligible agencies may be avoiding using the program, according to one local CDE executive.
Investors in CDEs risk forfeiting not only future tax credits, but tax credits they have already received if the investments of the CDE fail to remain invested in low-income enterprises for seven years.
This will force stringent underwriting, but according to some experts, could result in a loan and investment portfolio comprised entirely of higher-risk ventures.
“The NMTC has a recapture provision for investors that is fairly stiff,” said Carol Maria, vice president of lending initiatives with the Wisconsin Women’s Business Initiative Corp. (WWBIC) “The administrative cost of making sure that an investment is made in a qualified business is difficult. It is a fairly cumbersome program that small entities like WWBIC would have a difficult time administering.”
Shirley Lanier, president of another CDE, Legacy Bank, Milwaukee, said that as a small and relatively young bank, Legacy lacks the staff and financial resources necessary to mount an application and manage a program according to regulation.
“We are certified by the Department of Treasury,” Lanier said. “I really think that, from my perspective, you need to attract investors before you apply. This is not as attractive as regular low-income housing tax credits.”
Lanier also said the requirement that investments be made in low-income areas may result in accumulation of a high-risk loan or investment portfolio.
Barrett said some concern over the recapture provision is understandable.
According to Barrett, problems could result for CDEs and investors “if the mix of investments does not meet the low-income threshold if the money does not actually go into low income neighborhoods. The uncertainty arises simply because the program is so new,” Barrett said. “Once we have definitive rulings from the Treasury, that is going to make it clear.”
May 16, 2003 Small Business Times, Milwaukee