City gets $20M in Federal Tax Credits
By DENICE THIBODEAU | GoDanRiver.com
Danville has been awarded $20 million through the federal New Markets Tax Credit program — credits the city will use to attract business development projects that promise new jobs to the city.
Linwood Wright, a consultant with the Danville Office of Economic Development, said the program benefits larger development projects.
“Although tax credits generally require a significant amount of effort on the part of the developer, the net benefit of such credits often allows projects that might not otherwise be economically feasible to be successfully implemented.”
Wright said the local program is not ready for applicants as yet — this is the first allocation the city has received — but an announcement will be released soon telling developers how to apply for the tax credits through the local “community development entity” set up to handle the transactions.
The River District is a perfect fit for tax credit projects, Wright said.
“Our hope is that the tax credits can be utilized for key project in the River District,” Wright said.
Wright said the federal tax credit program is difficult to explain, but basically this “money” is not actual cash — developers apply for the credits and then have to sell them to individuals who can use them to reduce how much federal income tax they play.
Naturally, those individuals are not going to pay full price for the tax credits — it would be no benefit to them to buy $1 million in credit for $1 million, Wright pointed out. So the developer and the purchaser negotiate, and the CDE (community development entity) gets a fee that pays costs to manage the CDE and a dividend it is expected to invest in future projects.
“For Danville to have and to control its own New Markets Tax Credit allocation is extremely valuable,” Wright said.
By the time the dust settles, Wright said, the developer tends to get about 25 percent of the face value of the tax credits awarded in cash to use for its project — the developer gets cash, the CDE makes enough to invest in other projects and individual investors get a federal income tax break.
“Usually, large projects funded with tax credits apply for them from two or move community development entities,” Wright said.
Wright thanked U.S. Sens. Mark Warner and Tim Kaine and U.S. Rep. Robert Hurt for their help in securing the allocation for Danville — one of only 87 designated CDEs to receive the credits in this application cycle. A total of 310 CDEs, in 32 state and the District of Columbia, applied.