A Healthy Marriage

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NMTC and health centers

“New Markets Tax Credits are coming of age,” says one experienced dealmaker. “Or, maybe it’s more accurate to say people are growing more sophisticated in their use of NMTCs.”

One prime example is the relationship between NMTC and hospitals, clinics and other projects focusing on health. “Federally Qualified Health Centers (FQHCs) have become more closely associated with NMTCs,” says Allison Coleman, Chief Executive Officer of Capital Link, a Boston-based, nationally active nonprofit founded in the late 1990s to help facilitate construction of health centers for underserved communities.

An example she cites what NMTC can contribute: Asian Health Services, in the heart of Chinatown in Oakland, California, acquired and renovated the historic Silver Dragon restaurant building, transforming it into a 15,000-square-foot clinic with ground floor community meeting rooms. The $10.5 million capital project indirectly leveraged a $5.1 million HRSA capital development grant with $2.8 New Markets Tax Credits (NMTC), generating, among other things an estimated $2 million savings in funding costs that were lower thanks to the NMTCs.

“We have seen an increase in health center New Markets deals in the last several years,” adds Will Lanier of Financial Services for the Nonprofit Finance Fund, a community development financial institution (CDFI) headquartered in New York City, which has provided $575 million in financing and access to additional capital to projects for hundreds of organizations nationwide.

NMTC-FQHC closeness is rooted in law. Legislation enacting NMTCs emphasizes benefits to “low-income communities,” which is akin to laws—passed decades earlier— specifying that FQHCs must benefit “a population that is medically underserved…regardless of ability to pay.”

Coleman, one of the founders of Capital Link, estimates that as of today about 100 community health centers have benefitted or are benefiting from NMTCs. Some projects date back to the early 2000s, the first years of NMTCs.

“Utilization of NMTCs for FQHCs will continue,” says Coleman, “in part because medical care has been moving towards an emphasis on cost savings through primary care, a trend being fueled by the Affordable Care Act, which has added almost five million new patients with ability to pay, and more than 40,000 new full-time staff to community health centers.”

The Affordable Care Act, Lanier points out, allocated $11 billion for community health centers, including a large amount for the construction of new facilities, to be given out in the form of grants from the Health Resources and Services Administration (HRSA).
Elaine DiPietro, vice president of New Markets Tax Credit program at the Columbia, Maryland- based Enterprise Community Investment, points out that “many FQHCs were also able to leverage grants from the federal government that they received under the American Recovery Reinvestment Act after 2009.”

NMTC can be crucial, DiPietro explains, because it “can be used to fill financing gaps caused because a health center either does not qualify for or cannot afford conventional debt financing. Financial resources are limited but demand is growing so many health centers are using NMTC to expand their facilities so that they can serve more patients while keeping financing costs low.”

Close your eyes, put your finger anywhere on a map of the U.S., and you’re likely to land near a medicine-and-health-related project that utilizes NMTCs.

Included among these are many projects spawned by provisions of the Tax Relief and Health Care Act of 2006 designed to guarantee that rural communities receive NMTCs to address what U.S. government studies describe as “higher rates of age-adjusted mortality, disability, and chronic disease [and] less access to doctors and healthcare providers” in many rural areas.

Financing projects focused on health care, of course, has unique circumstances and needs. DiPietro emphasizes that “the other sources of financing for health centers differ significantly from the ongoing income streams in projects like affordable housing, so the structuring can be different. The underwriter needs to understand the income sources, payment cycles and potential changes in demand in a health center. Health centers, moreover, often have to get by with the bare minimum in order to meet patient needs while also keeping debt levels and operating costs as low as possible.”

But in medicine-and-health related projects, as with other uses of NMTCs, clearly evident is the dramatic contribution NMTC has made. This holds true no matter how large the overall project and how minimal the NMTC.

Coleman, who had been arranging the financing of community health centers for more than a decade before the advent of NMTCs, says, “New Markets are especially important because they allow many projects to go ahead that would not otherwise be funded. It can be particularly difficult to pull together financing for community health centers, which do not have a wealthy donor base from which they can expect support.”

A key question, of course, is What role does “health” play in evaluating projects that are candidates for NMTCs?

“While health per se is somewhat of a consideration,” says Coleman, “the biggest driver is actually the people health centers serve, that are predominantly low-income. Also, job creation in low-income communities is a big plus; especially since health centers tend to hire a fairly large proportion of their staff from the communities
they serve.”

Lanier cites as a typical NMTC-assisted deal the construction in 2011 of a new, six-story building in the Bronx, located in a severely distressed census tract and federally-designated Medically Underserved Area – it was a project of the Urban Health Plan, FQHC, which has used the new building to allow for hundreds of thousands more patient visits each year—and to create hundreds of new, high-paying jobs, many going to members of the surrounding community.

Such figures are impressive, but in the competition for scarce NMTCs, health benefits are a claim that can be broadly made. A project that is primarily affordable housing or commercial office space may feature a food-market offering fresh produce, and a dentist’s office, eye clinic or other specialized health services.

And so the maturing of NMTCs continues: Born in bipartisanship—especially the ideas of Robert F. Kennedy in the 1960s and Jack Kemp in the 1980s—and forged in repeated life-or-death congressional battles for renewal, New Markets Tax Credits are becoming an increasingly versatile tool.