[ Above from left: Don Oglesby; Bernie Mazyck ]
South Carolina Association of Community Economic Development unlocks millions in funding for community development
Towards the end of the year, tax credits are a big deal, particularly when they can be leveraged as incentives to invest in local economic and community development. But for years, certain state entities had trouble not only marketing that incentive – a 33 percent tax credit – but they couldn’t guarantee that the investor would receive that credit at all.
“We’ve never been able to talk anybody into giving an investment at all because there’s no guarantee,” said Homes of Hope president and CEO Don Oglesby, whose organization is certified as a community development corporation, or CDC. “We have been able to give the tax credit for years, but … there was no monitoring agency that would do the math.”
For years, this lack of certainty deterred potential investors, who wanted to be sure that their investment would help with their tax burden. All in all, the lack of a monitoring agency could have cost CDCs – as well as certified community development financial institutions – tens of millions in funding since legislation passed.
But this year is different. This year, the South Carolina Association of Community Economic Development (SCACED) took a front seat with tracking secured investments, recording the amount of eligible credit left and actively marketing CDCs and CDFIs to potential investors and contributors.
So far, their work has paid off, said SCACED president and CEO Bernie Mazyck. Before this year, the highest level of claimed tax credit clocked in at $378,668 in 2011. In December, SCACED tracked that number at $404,250, even with a month left to go in the year.
“There’s a level of confidence and a level of credibility that this effort has brought to this program,” said Mazyck, who played a key role in getting the legislation passed in 2000, as well as its two renewals since then. “There’s transparency, there’s accountability in the program, and that seems to have increased the confidence of the investors in this program.”
Bang for their buck
Oglesby, whose organization provides affordable housing for low-income families and individuals in Greenville, said the association’s administrative efforts have already made a substantial difference in the ability to secure funding, adding he has had three lunches about potential investment already.
“Right now we don’t know what the results are, because all we’ve done is present the idea to investors, but the response has been great,” he said. “To me, it’s a great tool to say we don’t depend on the federal government as much as we used to. We can give them the bang for their buck, and get a return.”
Passed in 2000, the act allowed qualifying investments and contributions in CDCs and CDFIs to receive a 33 percent tax credit towards state tax liabilities, with a tax credit limit of $1 million annually. This means certified CDCs and CDFIs could attract as much as $3 million in tax credit-eligible funding per year, limited to $750,000 for each of the 25 state institutions.
But if all the CDCs and CFDIs in the state reached their limit for the year, there wouldn’t be enough tax credits to go around, falling short by $5 million in credits, Oglesby said. “You had no guarantee that other agencies had already given their credits away,” he said.
Oglesby said the extra funding would allow Homes of Hope to “double up” on their projects, going from 35 to 40 houses annually to 70 or 80. “We want it to go into Greenville and not other parts of the state. There’s a lot of good that could be done.”
“This tool is absolutely critical”
Deborah McKetty, executive director for Community Works Carolina, said the credit played an important role in getting institutional investors on board, particularly a bank that she is working to secure. “What really cinched the decision for them was the ability to get the tax credit,” she said. “This tool is absolutely critical.”
CDCs and CDFIs wouldn’t have the time or resources to track credit utilization on their own, said McKetty, and SCACED’s role also helps connect them with investors they otherwise might not have come across.
“We had an investor from Charleston, for example,” she said. “They ended up having a tax liability for their company, so they were seeking tax credits.”
Another reason the credit may have been underutilized in recent years is that the industry and investment community weren’t prepared for it, she added. “The tax credit was there before we were ready to use it as an industry, and we’ve finally caught up with Bernie’s vision,” she said. “We’ve evolved in the community to not only take the grant resources we have and turn around to reinvest it, but actually being able to reinvest it for people who really want their dollars to work more locally.”
The act has been renewed twice already, and SCACED, CDCs, CDFIs and other economic development partners are gearing up to get it renewed once more. The legislation sunsets June 30, 2015, said Mazyck, who noted that the bill has already garnered support from both sides of the aisle.
“We have a slightly different General Assembly now than we did five years ago,” Mazyck said. “It’s just going to be a matter of educating everyone to the value of this tool that attracts private capital into communities that traditionally don’t get that capital.”
McKetty said Community Works Carolina will likely secure $175,000 of its $250,000 annual tax credit limit, but predicts maxing out next year if the legislation is renewed. Some CDCs and CDFIs have already maxed out this year, according to McKetty.
“If you look at the numbers, it looks like it’s been underutilized, but we just didn’t know how to use the tool,” she said. “The numbers don’t tell the whole story.”