Oregon leverages New Markets Tax Credits

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ZeaChem's Boardman plant is among the Oregon projects to benefit from New Markets Tax Credits.

New Markets Tax Credits are sprucing up Old Town, putting new buildings in depressed areas and freshening up historic landmarks like the White Stag block. They’re also supporting long-established social service programs, new renewable energy projects, rural communities and businesses in low-income areas of Oregon.

But New Markets Tax Credits have their detractors.

Abuse of the credits, intended for low-income communities, made national headlines in February, with particular attention to Portland. Critics say New Markets Tax Credits are too accessible to developers who target low-income areas for luxury projects. Handled poorly, they say the credits have the potential to siphon money from social services to generate profits for banks and financial markets.

“We think the NMTC program has done some wonderful things for rural communities and for natural resource sectors that have very poor access to financing, especially in this environment,” said Bettina von Hagen, CEO of Ecotrust Forest Management, which makes new markets transactions for Ecotrust.

Since 2003, Ecotrust has used $122 million in New Markets Tax Credits to leverage business investments in rural Oregon with an eye toward the forest products industry.

New Markets money secured through Ecotrust also helped finance ZeaChem’s pilot facility for cellulosic ethanol in Boardman, mill upgrades at Ochoco Lumber in John Day and land purchases in Garibaldi and Bandon, where the land is then managed to enhance environmental and social outcomes. In total, the projects, when finalized, create 3,287 permanent jobs and 249 construction jobs in economically distressed areas.

“What it does for us is it allows us to consolidate into two facilities from eight previously,” said John Worstell, vice president of operations for Farwest Steel, which received $48 million in New Markets Tax Credits to consolidate operations in the Port of Vancouver. “Right now we’ve got material and trucks going every which way, so for efficiency, time to market and reduction of cost, it achieves all those goals.” The project is also predicted to add 120 jobs within five years, once efficiencies in production help increase output.

New Markets Tax Credits are deployed by a variety of banks and foundations in Oregon and southwest Washington. The Albina Community Fund is currently evaluating projects for its $10 million tax credit allocation. Enterprise Cascadia has used its $83 million to support renovations at Clatsop Community College, build a wellness center to serve tribal members in southwest Washington, provide loans to 13 businesses and assist 13,965 low-income families through investments in social service agencies, as well as divert waste and protect land. Out-of-state lenders also deploy credits in Oregon, as Wells Fargo did for the Central City Concern clinic at Broadway and Burnside.

The majority of New Markets Tax Credits deployed in the state have come from one of two funds managed by United Fund Advisors: the Portland New Markets Fund One LLC and the National Community Fund One LLC. Combined, they’ve received $352 million over 10 years, most dispersed in state.

“I would say that Oregon out of the gate, or Portland more specifically, out of the gate, was one of the stronger regions taking advantage of New Markets Tax Credits and in large part that was due to us,” said Cam Turner, a principal at United Fund Advisors. “We got involved very early on and were very active in bringing new markets to Portland.”

The funds have made sprawling investments in Portland and its surrounding infrastructure, funneling money to everything from permanent homes for the Union Gospel Mission, Head Start, the Community Transition School and the Blanchet House, to the work at Far West Steel in Vancouver. Other transactions built a new Mercy Corps headquarters in Old Town, a medical building in the Gateway area and solar installations on industrial buildings in Northeast. A $50,000 set aside went to roughly 25 local small businesses, ranging from tailors, food cart vendors, cobblers and restaurants. And a unique project at Martin Luther King Jr. Boulevard and North Killingsworth Street provided low-cost commercial space for sale, securing retail in an area with high retail turnover.

Critics say some of the projects, however, have no direct benefit to the poor.

In its first $100 million allocation in tax credits, the Portland Development Commission selected the projects for which United Fund Advisors managed funding. In that round of credits, Gerding Edlen received $29 million to subsidize construction of the 12W building at 431 S.W. 12th Ave. Intended to bridge the gap between Portland’s business district and the now-bustling Pearl, the mixed-use green building now houses 17 floors of tenants who pay above market rates for rent, including for penthouses that rent for up to $6,100 a month and offer room service from Jake’s Famous Crawfish and other restaurants.

Gerding Edlen also received $10.5 million for its mixed-use development The Civic, authorized by the PDC, and runs its own community development entity, which received $24 million to renovate the Gerding Theater, 128 N.W. 11th Ave.

“It’s supposed to be for people who don’t have enough money for the whole project. … These are not people that can’t get money,” said Jody Wiser, executive director of Tax Fairness Oregon, who said the tax credits are primarily used by businesses that can hire lawyers to position them for good deals. Pointing to 12W, she said, “The building in no way serves low-income people unless you count the people that are working in the parking lot.”

Neither Gerding Edlen Development nor PDC responded to questions about the 12W building or other projects.

A January review of the federal program by the Government Accounting Office suggested Congress should simplify its structure, and collect more data on outcomes.

However, Colin Rowan, principal at United Fund Advisors, cautioned that evaluating successful economic development requires a broad view.

“In looking at new markets, you have to step back and say, ‘What is the intended outcome of the program?’ And it’s to stimulate economic investment in low-income communities,” he said.

Rowan notes the 12W building lured Zimmer Gunzul Frasca as an anchor tenant, and employees and residents now support a retail culture that “had a great ripple effect in the immediate community.”

Lee van der Voo, lvdvoo*at*gmail.com, is a freelance writer for Sustainable Business Oregon.