Miami seeks entrance into New Market Tax Credit Program that would provide for private investments in low-income areas
By Yudislaidy Fernandez
Miami is applying for a federal tax credit program designed to bring more business and economic growth into the city's low-income communities.
The New Market Tax Credit Program provides tax credits for private investments in areas that suffer from "slum and blight."
Through the program, investors use the newly created Miami Economic Development Fund LLC, a "community development agency" that serves as a vehicle to make the investments.
The program can be used through such vehicles as equity, debt, a mix of the two, and grants to be invested in all types of businesses with a few exceptions — no rental-only housing, financial institutions or businesses like liquor stores, golf courses and tanning salons, according to documents detailing the federal program.
The Miami Economic Development Fund is to be affiliated with the city, which owns 99% of it and the Community Redevelopment Agency 1%, because one requirement was to include an agency that focuses on development in those areas.
"The main purpose is to get private investments into local areas and more job creation," said city Chief Financial Officer Larry Spring. The city commission on July 24 approved creation of the community development entity needed to qualify for the program.
City administrators are to act as members of the created limited liability company, including Mr. Spring, Senior Advisor for Economic Development Lisa S. Mazique, Director of Community Development George Mensah and Mayor Manny Diaz, who sits on the development fund's advisory board.
But at the meeting, commissioners agreed the city must closely oversee the program to make sure small businesses benefit.
"I realize small businesses could benefit greatly from these tax breaks, but we need to have clear parameters of what we want them to do," Chairman Joe Sanchez said.
Mr. Sanchez asked that a report on the program to be sent to all commissioners periodically.
Mr. Spring assured them the "allocations can only be used to support businesses in those areas." Eligible areas are to include Overtown, Little Haiti, Little Havana and Allapattah.
He said the city plans to reach out to qualifying communities to alert investors and business owners of the program's benefits.
If Miami's application is approved, it would be the first time the city has participated in the 6-year-old federal program, Mr. Spring said. "We are ready to move forward with it."
Florida has not taken full advantage of the program, with only about 2% of total allocations going to community development entities in the state, he said.
Since the program began, it has awarded $16 billion in tax credits, according to documents.
This fall, the tax credit program is to award another $3.5 billion to community development entities around the country such as the one Miami hopes to create.
President Bush has asked Congress to extend the program through 2009; it was set to expire in 2008.
Mr. Spring said the program, through the created community development entity, gives the city legal right to attract investors in tax credits. "We take investors' cash and redeploy it back into low-income areas by providing grants to businesses and business owners," he said.
Individual or corporate investors can claim a 39% tax credit based on the amount of their investment for a 7-year credit allowance period, according to the documents.
For the first three years, investors can claim a tax credit of 5% per year, totaling 15%, and credits equaling 6% for each of the remaining four years, totaling 24%.
Investors must adhere to terms of the program's tax credit provisions or risk Internal Revenue Service recapture of the credits.
Mr. Spring said the city is to hire consultants to ensure Miami follows the rules and regulations set by the Treasury Department to help prevent such risks.
Participants must provide the Treasury annual reports detailing how the tax credit monies were invested in low-income communities.
Last year, the Treasury dispersed about $5 billion to entities in the program, with most funds going to support real estate developments and businesses in low-income areas such as charter schools, pharmacies, shopping centers and performing arts centers, according to the documents.
The city has letters of commitment from the community development arms of several banks interested in participating, Mr. Spring said.
US Bancorp pledged to make qualified equity investments of up to $125 million into Miami's Economic Development Fund and Bank of America is willing to make one or more loans of up to $35 million and equity investments of up to $15 million, according to the banks' letters.
Capmark Finance Inc. is to provide a combination of debt and equity financing of up to $125 million and Wachovia Bank agreed to make equity investments of up to $75 million in the city's community development entity, according to the letters.
Mr. Spring said the city hopes to get a response on its application to the tax credit program by September.
If approved, he said, the next step would be to complete agreements with banks and move ahead.