November 30, 2015

CEI uses tax credit program to funnel capital into distressed local economies

Photo / Tim Greenway
Photo / Tim Greenway
Charlie Spies, CEO of CEI Capital Management LLC, says the New Markets Tax Credit program is a key incentive to make investments in distressed local economies.

Recent New Markets Tax Credit projects in Maine

Farnsworth Real Estate Inc., Rockland

Federal or state New Markets tax credits used: CEI Capital Management LLC allocated $10 million via the Maine New Markets Capital Investment program. Another $7.75 million in federal New Markets Tax Credit funding was allocated by Massachusetts Housing Investment Corp., a Boston nonprofit that specializes in financing affordable housing and community development.

Date: March 2015.

Description: Funding will pay for improvements to various facilities owned by the Farnsworth Art Museum, including the historic Olson House in Cushing that is depicted in Andrew Wyeth's iconic painting "Christina's World." While the Farnsworth has a significant endowment, the majority of its donations are restricted, leaving the museum with few resources to maintain its many facilities.

Key benefits: Financing will help the Farnsworth address roof problems, aging and inefficient heating, ventilation and air conditioning systems, Americans with Disabilities Act compliance issues and other capital improvements. Some funds will be used to expand the Farnsworth's free arts education program, "Stories of the Land and its People," in local public schools.

St. Croix Tissue Inc., Baileyville

Federal or state New Markets tax credits used: CEI Capital Management allocated $20 million via the federal NMTC program, $11.67 million via the Maine NMCI program.

Date: December 2013.

Description: Funds the installation of two new tissue paper-making machines, facilitating vertical integration with the adjacent Woodland Pulp mill, which will be supplying pulp and utilities to the new mill that is slated to be fully operational by mid-2016.

Key benefits: The investments will create an estimated 60 to 80 new full-time jobs and help preserve 320 jobs at Woodland Pulp. Funding also supports the development of a workforce training program and is expected to create 200-plus indirect jobs as well.

Mölnlycke Manufacturing U.S. LLC, Brunswick

Federal or state New Markets tax credits used: CEI Capital Management allocated $10 million via the Maine NMCI program in 2013 and $14 million via the federal NMTC program in 2011.

Dates: November 2013 and December 2011.

Description: Most recent allocation funds the purchase and installation of medical manufacturing equipment at the company's Brunswick Landing facility. Earlier investment helped finance construction of a 79,000-square-foot facility for the Swedish-owned wound care manufacturer in Brunswick.

Key benefits: Supports 54 jobs at the Brunswick facility and paved the way for additional expansion of Mölnlycke's existing facilities in Wiscasset.

Source: CEI Capital Management LLC

As CEO of CEI Capital Management LLC, a subsidiary of the Brunswick-based nonprofit community development corporation Coastal Enterprises Inc., Charlie Spies says his single-minded focus is to drive capital into "very distressed" local economies, both in Maine and beyond.

His primary tool is the New Markets Tax Credit, a program launched by the federal government in 2000 that's designed to stimulate investment and economic growth in low-income communities typically overlooked by conventional investors. The program attracts investors to those low-income areas by offering a 39% federal income tax credit over a seven-year investment period. The tax credits are allocated by Community Development Entities like CEI Capital Management that seek allocations in a highly competitive process.

Maine launched its own initiative in 2012, the New Markets Capital Investment program, which is modeled after the federal program and is overseen by the Finance Authority of Maine.

Spies says both programs have proven to be an important financing tool in Maine, in part because the New Markets program can leverage additional investment from other sources, helping swing projects that otherwise might never get off the ground. "I'm not sure where Maine stands now, but three years ago, it was fourth in the nation, per-capita, in the use of New Markets tax credits," he says.

Since 2004, CEI Capital Management has placed $913.4 million in combined federal and state New Markets Tax Credit investments into 87 projects from Maine to Hawaii. In June, it was awarded $55 million in a new federal allocation and its aggregate total makes it the largest Community Development Entity among those qualified by the U.S. Treasury Department to allocate the tax credits. Almost one-third, or $274 million of its combined NMTC investments, helped to finance 22 projects in Maine.

Together, according to CEI Capital Management's tally sheet, the Maine projects have:

  • Created or preserved 1,717 permanent full-time jobs
  • Created 460 construction jobs
  • Developed 367,384 square feet of property
  • Protected 577,713 acres of land
  • Capitalized $3 million of targeted loan funds, $700,000 of employee training and $340,000 of educational programs
  • Developed 22 units of affordable housing.

A December 2014 report compiled by economist Charles Colgan determined that for every $1 million of New Markets tax credits claimed in Maine, an estimated $1.56 million will be returned to the state's general fund. Additional data shows that for every $1 million in credits claimed, an additional $3.43 million in private capital investment was brought to Maine.

Future uncertain?

Despite those successes, Spies acknowledges the state's New Markets program will be tapped out once it reaches its $250 million cap, while the federal program's future depends on several bills now making their way through Congress. He isn't pushing the panic button just yet.

"Right now there are two pieces of legislation to make the federal New Markets program permanent, one's in the U.S. House and one's in the U.S. Senate," he says. "The president has it built into his budget. We're working hard right now on the federal level to get the program extended, at the very least. There does seem to be quite a bit of support for it. So, at a minimum we're hoping it will get extended. And it would be wonderful if it's made permanent."

On the state level, Spies says legislation doubling the aggregate cap for the state New Markets program from $250 million to $500 million wouldn't be introduced until 2017 at the earliest, since the second session of the 127th Legislature that begins in January is intended to deal only with the most urgent pieces of legislation.

"Once it's consumed, it's consumed," he says of the $250 million cap on state New Markets allocations. "We've used roughly $31 million of our allocation, so we have roughly $10 million left. We hope someday this program will expand … You can use it as a standalone financing tool on some projects, or you can twin it with the federal program and increase the amount of support that goes into the project, which allows you to do projects that otherwise would be even harder to accomplish."

Helping 'shallow economies'

Spies started out in forestry, worked in the woods awhile and then joined an environmental consulting company. He got his MBA by going to school a night, went to work for a bank and then became a natural resources lender for the Finance Authority of Maine, where he eventually became its executive director. He joined CEI Capital Management in 2006.

Those experiences, he says, helped shape his understanding of the challenges small rural states like Maine face as they struggle to build upon many disparate "shallow economies": Whether it's a paper mill charting a new course to survive in the face of global competition, a fishing town whose fleets disappeared with the declining shoals of offshore herring, or a Navy town losing its air base and with it 6,000 jobs, he says the common denominator when a local economy depends chiefly on one major employer is its vulnerability when things begin to go south.

"At FAME, you do a lot of different things and you can't help but be aware of the changing rural economies and how when one piece of that starts to deteriorate everyone is affected," he says. "It's not a deep pool. The supply chain is tied to that primary employer and when that employer is struggling, the pieces of the puzzle start to come apart. We see that in the high unemployment rates of those areas where mills have shut down; an obvious example is the paper industry."

There is a distinct advantage to Maine that CEI Capital Management is a national player in the federal New Markets program, he says.

"We decided to expand and seek a national license because we thought it will help us be more competitive in this very competitive field," he says. "On balance, we felt it should help us bring more allocations to Maine, because we'll be able to qualify for larger awards overall. It also helps us diversify risk."

Spies says there's probably no better example than the Mölnlycke Health Care manufacturing plant at Brunswick Landing of the overall effectiveness of combining the federal and state New Markets tax credits to begin to rebuild a shallow economy that had just lost its major employer.

"When the Brunswick Naval Air Station closed in 2011, we lost 6,000 jobs," says Spies, who lives in Brunswick and had been involved in the early redevelopment efforts. "There's no question the Navy was the economic driver of our local economy. It was a huge payroll [to lose]."

Working closely with the Midcoast Regional Redevelopment Authority, CEI Capital Management allocated $14.26 million in federal tax credits in December 2011 to help build a 79,000-square-foot manufacturing plant for Mölnlycke, a global leader in wound care products. Two years later, it allocated an additional $10 million through the state program to install state-of-the-art equipment in that building. More than 50 new jobs were created, providing an early boost to MRRA's redevelopment efforts.

"Mölnlycke had the opportunity to expand production facilities in Finland and they were also looking at other sites in the United States and Asia," he says. "In part, their decision to come here to Maine was based on how we were able to put together a financing package to locate at Brunswick Landing. We talk a lot about manufacturing in Maine and the loss of manufacturing jobs. Well, we now have at Brunswick Landing a state-of-the-art globally competitive company right here. I feel really good about that."

The bottom line: The New Markets tax credits are doing their job, both in Maine and beyond, says Spies.

"The projects are diverse, they're impactful, they're helping different segments of Maine's economy," he says.

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