Why tax credits work – they’re a different kind of money
By Caitlin Jones
1 min read
Tax Credit Advisor, November 2010: Investment tax credits -low-income housing, new markets, historic – are a different kind of money with three beneficial features that no appropriated government program can duplicate: risk transfer, collectible recapture, and outcome-based compliance. Mix them together with market dynamics, in a financial ecosystem that supports equity syndication, and the result is market synergy for public benefit.
1. Risk transfer. Any government program faces the performance-risk challenge – how do you know the recipient will do what it has promised?
In appropriated programs, government pays out money before the property is completed – sometimes before it is even begun. With investment tax credits, the government issues a coupon – a tax allocation – that can be cashed only upon performance (completion and qualifying occupancy). The difference is a complete transfer of performance risk during the all-important development phase. Read More…
