The Granite Park sports park in Fresno is one of a number of projects funded in part by a New Market Tax Credit. Image contributed

In a humble Downtown Fresno office overlooking Fulton Street’s recent reawakening, TJ Cox oversees the distribution of tens of millions of development dollars throughout the Central Valley.

With recent news about the Rowell Building and owner Lance Kashian & Company’s struggle to secure a New Market Tax Credit, it’s an opportune time to explore the financing instrument’s role in Fresno redevelopment.

Approved by Congress in 2000, the New Market Tax Credit (NMTC) began as a way to attract private investment to low-income areas of the country. Banks often avoid approving loans in these areas due to the risk involved, so the federal government — through the Treasury Department — sought to subsidize certain projects.

“Originally, all this program was supposed to be was an inducement that the bank would make a loan to a project and they would get a tax credit for making that loan,” said Cox, president of the Central Valley NMTC, LLC, a Community Development Entity that this year qualified for $50 million in tax credits from the Treasury. “The program evolved into what it is now when investors began looking for ways to monetize the loans.”

This monetization allowed for easier access to bank financing. And since its inception, the program has evolved into a trading game that uses tax incentives to turn credits into cash for lenders to loan on low-interest, borrower-friendly terms.

The money that ends up in the hands of health clinics, parks and even ice rinks takes a long voyage from the Treasury to Community Development Entities (CDEs) to banks, and finally to project leads in the form of low-interest loans that in many cases would be inaccessible to borrowers.

There are two CDEs that operate statewide, but only one has funded projects in Fresno. Then there’s Cox’s Central Valley NMTC, which has a specific focus on Central Valley projects.

The process begins with CDEs who apply to the treasury department for the credits, which are then sold to banks at a discount, according to Cox. If a CDE gets $50 million in tax credits, banks that pay millions in taxes to the federal government each year can buy those tax credits for less than face value. It turns into a 39-percent tax credit distributed over seven years. In the case of $1 million in tax credits purchased by the bank, after seven years the actual credit will total $1.39 million.

“If you’re Chase or someone that owes a billion dollars worth of taxes, you get an appetite for a billion dollars worth of tax credits that you can buy for $850 million,” said Cox.

Additionally, banks like to buy NMTCs because it qualifies as community investment, which federal regulators require of financial institutions. Every year, banks have to provide money toward low-income or revitalization projects.

Now that the CDE has turned the tax credit into cash, it finds qualified projects — defined within census tracts that would be considered low-income — to provide low-interest loans to applicants to start building projects including health clinics, shelters, shopping centers, manufacturing facilities, etc.

The money raised by the tax credit will typically cover between 20-25 percent of the project cost, and can often provide the necessary equity to secure either a traditional loan, grant money or investment that is leveraged to gain access to the subsidy. The CDE divides these two funding sources—an “A” loan and a “B” loan. The loan is written on a 7-year term. At the end of the term, the debt is turned into equity that is then transferred to the borrower. The borrower then essentially owns his or her own debt.

For projects in low-income census tracts, that kind of fundraising is exactly what they need to get started. Since 2015, United Health Centers of the San Joaquin Valley has used the program to build clinics in Sanger and Fowler, and to remodel two other clinics in Mendota and Parlier.

Central Valley NMTC has awarded loans to four health clinics across the Central Valley in Fowler, Sanger, Mendota and Parlier since 2012. In the case of Fowler, the clinic run by United Health Centers is the city’s only federally qualified clinic, providing access to affordable health care for an entire community.

The location in Fowler serves almost 2,000 people a month between its medical, dental, optometric and chiropractic services, according to Justin Preas, deputy CEO at United Health Centers of the San Joaquin Valley.

“The low-cost financing is very hard to find. It’s very affordable,” Preas said.

“This is money that is basically given as a part of the project. It is money that is forgiven —that we don’t have to pay back,” Preas added. That money, according to him, allows his company to invest in other costs, like equipment.

The program’s flexibility allows for a wide-variety of projects.

Granite Park, Gateway Ice Center, Maya Cinemas and others all received funds by the Central Valley NMTC, according to its website. The Northern California Community Loan Fund (NCCLF), which has an office in Fresno, funded the Vallarta supermarket on Clinton Avenue with a $6 million dollar loan, according to Daniel Hlad, director of communication at NCCLF.

Since its inception in 2011, Central Valley NMTC has distributed $65 million in awards to projects. The NCCLF has funded almost $20 million since its first loan in the Central Valley to Coalinga in 2013.

For the most part, the billions of dollars that go into New Market Tax Credits are self-regulated. Each year, the Treasury comes out with new credits, and because the approval process is so competitive, the effectiveness of the loans and how many jobs it creates or the services provided is the determining factor in securing future money, according to Cox.

“It’s so competitive in the application—because I’m competing against these 300 other people for credits— they want to know what your impacts have been,” said Cox. The application process asks for specific reporting on job creation, services provided as well as how fast CDEs get their money out.

In 2017, 230 CDEs applied for $16.2 billion in tax credits, according to Jeff Wells of Opportunity Fund in San Jose, a statewide CDFI that secured $40 million in credits this year. What the Treasury ended up allotting was $3.5 billion to 73 of those entities to cover the United States.

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Local projects funded by New Market Tax Credits

West Hills Community College District Multi-use Sports Complex, $10.5 million

Mendota and Parlier health clinics, $9.5 million

Fresno Rescue Mission Rescue the Children Campus, $7 million

First 5 Fresno County, $8.2 million

Sanger and Fowler Health Clinics, $9.5 million

Maya Cinemas North America Heritage Theatre, $13 million

North Fork Bioenergy Plant, $6 million

West Hills Community College, $9.5 million

Central Valley Community Sports Foundation Granite Park, $1.6 million

Gateway Ice Center, $500,000

CVNMTC Grant Al Radka Park, $40,000

Vallarta Foods, $5.8 million

Source: Central Valley NMTC, LLC; Northern California Community Loan Fund