Happy days: MMCDC lands $85 million in fed tax credits
Good news for economic development in the area, and across Minnesota -- the Midwest Minnesota Community Development Corp. in Detroit Lakes has been awarded $85 million in federal New Market tax credits.
The MMCDC is the only entity in Minnesota to receive an allotment of tax credits this year, and this third allotment follows the successful administration of $35 million in tax credits in 2004 and $80 million in tax credits last year.
The MMCDC has used its tax credit allocation to support a wide array of projects across the state, including a $20 million allocation (the MMCDC's self-imposed maximum) to an ethanol plant near Fergus Falls.
It has helped finance renovation and new construction in an aging downtown section of Duluth, helped support Barrel O' Fun's expansion into baked potato chips, and supported the construction of a new Aloft Hotel near the Guthrie Theater in Minneapolis.
In an unusual move designed to help smaller projects closer to home, the MMCDC allocated $10 million in tax credits to be used for projects as small as $250,000, said MMCDC President Arlen Kangas.
"That way the benefits can go to smaller borrowers," he said.
Those borrowers are as diverse as the White Earth Sah-Kah-Tay nonprofit wild ricing group, Kenney's Candy Co. in Perham, Morrison Eye Care, the "In Their Own Words" veteran's museum in Perham, the Holmes Center Inc., Perham Fleet Supply, Bagley Foods, and a New York Mills clinic.
Larger projects include a major hospital and clinic expansion in Park Rapids and a major expansion for Seward Co-op Grocery & Deli, a natural foods cooperative in the Twin Cities.
It's a complex program, but in general terms, here is how it works: The tax credits are "sold" to private investors, usually bigger corporations, that can reap 39 percent of their investment from tax credits (over seven years) by backing a successful project in a low income area.
A corporation would pay MMCDC $1 million, for example, and would receive a certificate good for a negotiated amount in tax credits -- up to $390,000 on a $1 million investment. The corporation profits from its investment if the project is a success.
It's up to the MMCDC to make sure the projects succeed.
"Our responsibility is to make investments in projects that have an impact on a community and a good chance of paying the money back," Kangas said.
MMCDC collects fees for successfully matching investors, lenders and developers with qualified projects -- and because it is responsible for making sure the project is in compliance with the tax credit program.
Those fees, which can be substantial, are used by MMCDC to pay for projects that can be difficult to fund in other ways, such as projects on Indian reservations, said Julia Nelmark, an investment analyst for MMCDC.
The U.S. Treasury Department administers the New Markets Tax Credit program, which has provided $16 billion in allocations over the seven-year life of the program, Nelmark said.
To qualify for the tax credits, MMCDC has had to show that it can line up suitable projects relatively quickly -- the Treasury Department likes to see the credits distributed within 18 months -- and that it can pick projects that are winners.
The MMCDC competes for the credits against big national entities seeking funds for projects in areas like New Orleans, the Gulf Coast, Chicago and New York City, Nelmark said.
"The program is competitive in that they've had eight to 10 times as many requests as have been funded," she said.
"We are the only allocation in Minnesota -- we get a lot of interest from people all over the state," Kangas added. "Our advantage is that we are a rural group, and the Treasury Department would like to see more tax credits going to rural areas."