Where (tax) credit is due

By Dick Hughes  

MARCH 23, 2011 3:07 p.m. (0)

Greenville and Spartanburg aggressively are taking advantage of a federal tax credit program to support several high profile developments that would not be possible or would be limited without it.

In its 10th year, the New Markets Tax Credit program was enacted by Congress to stimulate lending for commercial and industrial development in areas designated by census data as having poverty rates of at least 20 percent or populations earning 20 percent less than surrounding median family income.

Large chunks of Greenville and Spartanburg, notably their downtowns, qualified under the 2000 census.

When income from the 2010 census is compiled and published, probably sometime next year, some census tracts where development qualified based on 2000 data will no longer qualify.

“With all the residential development that has gone on in downtown Greenville, the likelihood of downtown Greenville qualifying is fairly remote, but until those numbers are published we won’t know,” said Charles Chamberlain, who administers the program for Carolina First Bank.

Under the program, a borrower typically saves $2 million to $2.3 million for every $10 million in project costs. Tax credits are allocated to financial institutions in exchange for lowering financing cost by 39 percent.  The banks are compensated by using credits against federal taxes over seven years.

A borrower’s cost effectively is reduced by as much as 50 percent, said Chamberlain,

“The New Market program in general is just gap financing,” said Corey Buchanan, program manager of Greenville New Markets Opportunity, which was established as a Community Development Entity (CDE) to apply for and administer the program by the U.S. Treasury.

Buchanan and Chamberlain said the tax credits won’t make a bad project good.  They still have to be financially viable and creditworthy and, as Buchanan put in describing a hypothetical $10-million project, the developer “is still responsible for raising $8 million in additional capital” to make it work.

Finding projects to fund with tax credits in the Upstate as well as nationwide became difficult during the recession.

“In tough economic times where banks have shut the door on commercial lending, it makes it difficult to find that other 80 percent,’ said Buchanan.

Chamberlain said the economy “just recently started to pick up” and he has “closings lined up that will take me now until June,” including a manufacturing plant expansion in the eastern part of the state, and Buchanan said GNMO will close “in a couple of months” on $18 million in tax credits for a major project in Greenville, using the last of GNMO’s allocation.

In Greenville, tax credits were used for The Children’s Museum, the Courtyard Marriott Hotel and office building called Main @ Broad, the Next Innovation Center, the Mc Bee shopping center and RiverWalk, the apartment and office building just under way.

In Spartanburg, the program financed the South Church Plaza, the parking deck for the University of South Carolina Upstate’s graduate business school, the home of the Edward Via College of Osteopathic Medicine, downtown airport renovation and the Wofford College Village of shops and dorms to open this fall.

Spartanburg City Manager Ed Memmott said the projects would not have happened without NMTC.

“It’s been a very beneficial program.  We have had some good fits.”

Bob Keasler,  vice president of operations at Wofford, said $15 million in tax credits arranged through the Carolina First “certainly were beneficial to get the funding” for the college’s three-story building with 20 dorm rooms,  a dining room, café/deli,  administrative offices, classrooms and meeting space.

Nancy Whitworth, Greenville economic development director, said the tax credits provide “valuable and needed assistance” to move projects forward that otherwise would not have been built with conventional financing alone and which created jobs, enhanced quality of life and spawned other investments.

In the case of the Children’s Museum, the program “allowed that project to be undertaken at a level that is one of the finest in the country,” she said.   It is considered NMTC’s crown jewel.

The Children’s Museum of the Upstate, which opened in 2009, received a tax credit allocation of $19.2 million from GNMO.  Buchanan said the tax credits permitted the nonprofit museum group to build and equip a much more ambitious facility than they could have with conventional financing alone.

GNMO and Carolina First are the only South Carolina-based entities designated for new market tax allocations.

Carolina First received $260 million in tax credit allocations in three rounds in 2007, 2008 and 2009. It has $70 million yet to be deployed, most of which is restricted for use in rural areas.

GNMO received $89 million in a 2006 allocation and has used all but the $18 million committed to another Greenville project.

Both are unique in the state.  GNMO was the first CDE in South Carolina to receive an allocation, and Carolina First’s CDE is the only one based in South Carolina that has a statewide service area.  It added North Carolina and Florida to its coverage area in 2009.

Neither GNMO nor Carolina First applied for allocations in the $3.5 billion awarded for 2010 three weeks ago by Treasury because they still had unused allocations.  In addition, Carolina First has not yet received approval to participate from TD Bank, the Canadian bank that took it over last year.

Buchanan said GNMO’s board will decide whether to apply for a 2011 allocation before Treasury calls applications later this year, though “it is safe to say that Greenville will be seeking some kind of allocation.”