🔒Federal tax-credit program could help finance Hartford grocery store, $18M Boys & Girls Club clubhouse

Connecticut nonprofits have seen a decade-long decline in state financial support, as lawmakers grapple with continued budget deficits.

But some financiers and officials perceive a potential bright spot, at least for nonprofits trying to put together financing for major capital projects like new buildings.

New Markets Tax Credits (NMTCs) are a little-known federal incentive that have pumped major dollars into Connecticut over the past 15 years.

The U.S. Treasury, which oversees NMTCs, says it has allocated more than $360 million worth of the credits that ultimately ended up seeding construction and real estate projects, many of them by nonprofits, in low-income areas throughout Connecticut, according to federal data.

That portfolio includes the ongoing redevelopment of the formerly vacant Swift Factory in Hartford and a new headquarters for the Bristol Boys and Girls Club.

But, while that may seem like a lot of money, Connecticut actually punches below its weight in the NMTCs program. And there are still plenty of nonprofits crossing their fingers that they can obtain the tax credits to fill crucial project financing gaps, including the Hartford Boys and Girls Club, which is fundraising to build a new $18-million clubhouse in the city’s South End.

The tax credits could also be the answer for a long-awaited downtown Hartford grocery store.

The state ranks 39th in the country for the amount of NMTC investments per low-income resident, with Hartford — one of the poorest cities in the country — being particularly underserved, according to an analysis by the Connecticut Health and Educational Facilities Authority (CHEFA), which is making a play to increase the state’s share of the multibillion-dollar New Markets Tax Credits pie.

“There’s an underutilization of New Markets Tax Credits in Connecticut,” said CHEFA Managing Director Michael Morris.

An NMTCs primer

The structure of New Markets Tax Credits transactions can be complicated, to say the least.

“Just when you think you fully understand it, you really don’t,” said Michael Suchopar, CEO of the Bristol Boys and Girls Club, who stayed patient through an NMTCs financing that helped pay for his club’s new headquarters that opened in 2014.

The Treasury each year allocates about $3.5 billion worth of tax credits to intermediaries called Community Development Entities, or CDEs, which in turn solicit investors — often banks — for equity and loan investments.

CDEs then seek out specific projects to finance.

As long as a development is in a qualified low-income census tract and complies with various other requirements, the investor would earn a tax credit equal to 39 percent of its investment over a seven-year period.

For the project developer, NMTCs are often a low-interest financing method that sometimes doesn’t even require all of the principal to be repaid.

Depending on the scenario, NMTCs investments can produce a return of about 30 percent for the investor or bank, according to Michael J. Andreana, an attorney at Pullman & Comley who has worked on a handful of NMTC deals.

NMTCs are similar in some ways to the more recent federal Opportunity Zone program.

The latter is a vehicle for delaying and reducing taxes on capital-gains income, and is seen by some as having greater potential appeal to investors.

NMTCs haven’t been without controversy. A 2014 report issued by then-U.S. Sen. Tom Coburn (R-Maryland) called NMTCs “just another tax code giveaway with little available evidence to demonstrate its effectiveness … .”

Coburn, who unsuccessfully urged Congress to let the NMCTs program expire, also said the tax credits do more to “line the pockets of the well-off” than help the poor.

Swift Factory redevelopment

Among the several dozen Connecticut projects financed through New Markets Tax Credits is the $34-million redevelopment of the Swift Factory, expected to wrap in the coming year, bringing sorely needed food-related jobs to residents in the distressed section of north Hartford.

The 82,000-square-foot building will soon house a wholesale facility for Bear’s Smokehouse BBQ and an indoor hydroponic operation run by FreshBox Farms, as well as a kitchen incubator, and office and community health space.

“This project would not have been feasible without the New Markets Tax Credits,” said Patrick McKenna, senior project manager of Community Solutions, the nonprofit redeveloper of the Swift Factory. “We felt it was kind of the only option we had to get the capital together.”

Conventional commercial lenders may have been uninterested in a project located in a “severely distressed” census tract that will command below-average rents, he said.

But U.S. Bank, which is among the largest NMTCs investors in the country, ultimately invested in the CDEs that provided the Swift project financing.

Community Solutions was able to pair the credits with state historic preservation tax credits, as well as other loans, financing and grants from the state and federal governments.

It took years to put the whole package together, and a lot of that had to do with the complexity of NMTCs, which Community Solutions had not used before.

The Bristol Boys and Girls Club had a similar experience dealing with NMTCs, which contributed several million dollars toward financing the nonprofit’s $10-million clubhouse.

Suchopar said dealing with the program’s complexities was worth it because the new facility has allowed the club to expand programming and serve more children and families.

“Us being able to build this new facility positioned us for another century,” Suchopar said. “It makes a difference for our future.”

CHEFA’s $63M foray

The quasi-public Connecticut Health and Educational Facilities Authority (CHEFA) is known best for issuing bonds that help finance major capital projects for Connecticut hospitals and colleges.

CHEFA’s leadership recently decided to leverage the agency’s relationships with area nonprofits by enrolling in the New Markets Tax Credits program as a Community Development Entity. There hasn’t been an active Connecticut-based CDE in over a decade.

The designation gives CHEFA a shot at receiving a tax-credit allocation, and related equity investments from banks and others that want them.

CHEFA would then dole out that money largely to nonprofit capital projects worth at least $5 million, said Dan Kurowski, program manager for CHEFA’s recently formed subsidiary, CHEFA Community Development Corp.

CHEFA recently submitted its first application to the Treasury, asking for $63 million in credits that could back seven projects worth a combined $70 million.

Those projects include:

• The Boys and Girls Club of Hartford’s proposed $18-million clubhouse at the corner of Meadow and Ledyard streets in southeast Hartford.

• Hartford Community Loan Fund’s plan to bring a supermarket and nearby nutrition counseling office to North Hartford, an $18-million project coined the Healthy Hartford Hub.

• Community Mental Health Affiliates’ $8-million acquisition and renovation of a headquarters building in New Britain.

• Odyssey Community School in Manchester’s $5.5 million building acquisition and expansion.

Rex Fowler, CEO of Hartford Community Loan Fund, said the credits would be a critical source of financing for the long-pursued Hartford supermarket.

Without the tax credits, he said it “doesn’t mean the project can’t happen, it just means we need to find an extremely low-cost or free source of capital, grants, or foundation investments, or something else to replace it.”

CHEFA won’t know if its application is successful until next year.

“These credits are incredibly challenging to obtain,” said Andreana, the Pullman attorney. “It’s very competitive for CDEs to get the credits and then it’s competitive as to how those credits are applied.”

There’s additional uncertainty because Congress hasn’t renewed the program beyond the next round of allocations, though it has saved NMTCs from expiring a number of times over the years.

CHEFA’s executive director, Jeanette Weldon, is hopeful.

“We are trying to build on CHEFA’s successful track record of providing financial assistance to nonprofits in the state,” Weldon said. “That’s the sector we were created to serve, and we have a lot of expertise we can bring to the table.”