Know Before You Go
The five most relevant public finance programs you should know about are Property Assessed Clean Energy (PACE) financing, Opportunity Zones, Historic Tax Credits, New Markets Tax Credits, and Tax Increment Financing. Following are updated details on each of these programs:
- PACE Financing. More than 30 states and the District of Columbia have passed PACE-enabling legislation to provide low-cost loans for energy efficiency upgrades or installations repaid through special property tax assessments. Applicable to energy retrofits, renovation or new construction projects, PACE loans lower the cost of capital, cover up to 100 percent of the energy efficiency project costs, and are usually available with a 20-year fixed-rate and a high loan-to-value (LTV) ratio.
- Opportunity Zones. As part of the Tax Cuts and Jobs Act, thousands of economically distressed communities across all 50 states, D.C., and U.S. territories were designated as Opportunity Zones. The Opportunity Zones program offers federal tax incentives for investing unrealized gains in Qualified Opportunity Funds, which are investment vehicles created specifically for this purpose. Benefits can include tax deferral, tax reduction, or even permanent tax exclusion.
- HTC Program. The longstanding federal Historic Tax Credits program provides a 20 percent tax credit for certified rehabilitation of properties listed on the National Register of Historic Places. Modifications under the Tax Cuts and Jobs Act include spreading out the credit over five years and eliminating a 10 percent credit for old, but not certified-historic, buildings.
- NMTC Program. The New Markets Tax Credit program is a 39% federal tax credit used to encourage investment in low-income census tracts. Competition for the credits is fierce. Project sponsors must demonstrate that their projects have a high level of community benefit, including job creation and retention, community services, and positive impact on the environment.
- Tax Increment Financing (TIF) Districts. Designated by municipalities, TIF districts incentivize economic development and public improvement projects in blighted areas by providing some or all of the new tax revenue generated by the project to the developer as upfront capital or over time. It is important to note that the Tax Cuts and Jobs Act made upfront TIF proceeds taxable income for private developers unless the new development will be owned by a government entity or was part of an approved master plan before the Act took effect. The change will significantly affect the viability of some projects and may require creative new approaches to incentive strategies by municipalities and developers.
Editor's Note: Area Development’s Indianapolis Consultants Forum featured a presentation on tax credits and incentives in the financing package by Brad Elmer, CFA, Managing Director at Baker Tilly Capital. The preceding were some key ideas from Elmer’s presentation and subsequent sit-down interview as compiled by Jennifer Harris, Area Development contributor, Akrete, Inc.