Tucson CitizenTucson Citizen

City seeks federal tax credits to boost downtown development

Allocation would be from stimulus funds

Though the city would not release a map of the New Markets Tax Credit zone, officials said it roughly followed the border of the city's infill district, which stretches from 22nd Street north to Grant Road between Stone Avenue and the freeway.

Though the city would not release a map of the New Markets Tax Credit zone, officials said it roughly followed the border of the city's infill district, which stretches from 22nd Street north to Grant Road between Stone Avenue and the freeway.

Tucson’s downtown may soon find itself in yet another special district with yet another advisory board and another set of irregular, tendrilled boundaries that, loosely defined, mean “to be improved.”

That means development incentives.

If the city’s application for an allocation of New Markets Tax Credits that was due to the Department of the Treasury on Wednesday is approved in October, downtown real estate deals could get sweeter and small businesses’ tax burdens could ease, adding to the list of other benefits prospective downtowners are offered.

The intention of the federal economic stimulus-bolstered program is to help low-income communities by either serving them or providing them with investment capital.

But according to a 2008 report for the Treasury Department and the Federal Reserve Bank in San Francisco, historically almost two-thirds of the money goes to developers, often from outside the area targeted.

That arrangement may actually create more jobs, but there’s not enough data to know for sure, said Lauren Lambie-Hanson, the report’s author.

In fact, there’s little impact information on the 9-year-old widely acclaimed program because of the Treasury’s effort to minimize already copious red tape and how closely the department guards the information it does collect, Lambie-Hanson said.

There also are no explicit requirements that the projects result in job creation, local hiring or developing under-represented or low-income entrepreneurs. The idea is that real-estate improvements could affect area residents through lower rent payments or more services, Lambie-Hanson wrote.

Under the program rules, investors can receive up to 39 percent of their investment in the form of an income tax credit spread over seven years, though a local firm that has used the program said fees eat away at that figure.

The fees are embedded in the program’s complicated structure, funneling money through a “community development entity” that negotiates with investors to trade the tax credits for cash, stock or another investment in the allocating organization.

About one-third of U.S. Census tracts qualify for the tax credits. The requirement is that the area have at least a 20 percent poverty rate, or 80 percent of the area median income.

Tucson’s proposed district boundaries include the infill incentive district, roughly between Sixth Street, Sixteenth Street, Euclid Avenue and Interstate 10, with extensions tracing Oracle Road and Stone Avenue, Barr said.

City officials did not make a draft map available.

The accountability of the nonprofit that would allocate Tucson’s share would be ensured by an advisory board, said Gary Molenda, CEO of Business Development Finance Corp., which would likely administer the program.

A draft of the application shows the advisory’s board makeup as Glenn Lyons of the Tucson Downtown Partnership and Bill Holmes of Wells Fargo, and three members of the Rio Nuevo district board: Anne-Marie Russell of the Museum of Contemporary Art, Roman Soltero of Tucson Unified School District and Jeff DiGregorio of Royal Elizabeth Bed & Breakfast Inn.

At least one board member didn’t know he was on the board. DiGregorio said last week that he had heard of the program but didn’t realize he would necessarily be on the oversight board.

Lyons also said he’d discussed the tax credits but wasn’t sure about the board’s final form. Others didn’t return calls.

Assistant to the City Manager Jaret Barr, who helped coordinate the application, said the board members represent low-income communities because they live within the proposed district, not necessarily because they work directly with low-income people.

“Those people are on many boards,” Barr said of the directors of downtown nonprofits that deal directly with low-income groups.

Staff of Primavera, Chicanos Por La Causa and the Tucson Urban League, all nonprofits that serve the downtown’s poor, said they didn’t know about the program.

The federal program was to award $3.5 billion this year but the stimulus act added another $1.5 billion.

If the city gets a piece of the $5 billion, part of that money will likely go to Phil Lipman, who built the Ice House Lofts and Barrio Metallico.

Lipman’s wife, Pamela Sutherland, said Barr had assured them that their planned office-and-loft space development at Sixth Street and Sixth Avenue, called Tucson Blueprint Lofts, would be included.

“This is exactly the kind of program Tucson needs right now,” said Sutherland, an attorney.

She said the project fits because it’s ready to go, as promoted in the stimulus package, and because of its location.

“It’s in an area that is in need of restoration, and it’s one of the gateways to downtown,” she said.

One Tucson company has already taken advantage of the program, though not through the as-yet-approved city district.

Madden Media executives learned about the credits during negotiations to buy the 101-year-old MacArthur building downtown from the city.

The self-described “tax credit pioneers” have been working with a Wells Fargo branch in southern California to get their share.

“It’s over-the-top complicated,” said Mike Hudak, partner and publisher of the tourism media company. “All we’ve gotten so far is heartburn.”

But it’s still a great opportunity, Kevin Madden said. He just hopes the city-backed allocations would be simpler to navigate for business owners.

Source: New Markets Tax Credit Coalition and the city of Tucson



If Tucson’s application makes the cut, New Markets Tax Credits would be the newest addition to the city’s array of incentives for companies to invest downtown.

Rio Nuevo Director Greg Shelko said companies can also take advantage of permit waivers and the terms of the Infill Incentive District, which relaxes rules for complying with city code as long as safety is not compromised.

Developers can also negotiate for other benefits to be outlined in a pre-development agreement, he said.

Downtown is included in the federally designated Empowerment Zone, which makes available a mix of tax credits and work-force training incentives for businesses in the zone that hire employees who live in the area.

Enterprise Zone benefits are also on the table. To qualify for these tax credits, businesses also have to hire from within the zone and meet certain wage and health benefit levels.

Madden Media executives said solar tax credits added to the allure of moving into the MacArthur building, now in renovation.


How It Works

The New Markets Tax Credit Program was designed to stimulate investment and economic growth in low-income urban neighborhoods and rural communities by offering a seven-year, 39 percent federal tax credit for Qualified Equity Investments made through investment vehicles known as Community Development Entities. These entities use capital derived from the tax credits to make loans to or investments in businesses and projects in low-income areas.

The tax credit was enacted in December 2000 as part of the Community Renewal Tax Relief Act. The original authorizing legislation provided $15 billion in New Markets Tax Credit authority between 2000 and 2007 It was extended to 2013 in 2007. The program for 2009 was bolstered with $1.5 billion in federal stimulus funds, giving it $5 billion to award this year.

If Tucson is awarded an allocation, it would most likely be administered by the Business Development Finance Corp.

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