Commentary: Texas’ Fair Share of Federal Investment Still in Reach
AUSTIN AMERICAN STATESMAN
SUBSCRIBER CONTENT: May 20, 2015
by By Rick Hayes and Jim Stanislaus – Special to the American-Statesman
The Texas Legislature need look no further than just across Interstate 35 for validationthat the federal New Markets Tax Credits program has a positive impact in economicallychallenged communities. However, our state lawmakers are on the verge of missingan opportunity to leverage similar investments that would create jobs and improvecommunities across Texas.
What’s missing from the economic powerhouse known as Texas is a state New MarketsTax Credit program to fully leverage the existing program at the federal level.
Since its inception, the federal NMTC program has consistently spurred revitalization ofeconomically distressed communities, created jobs and in the case of commercial projectshas generated more than enough revenue to offset borrowed tax dollars. In the nonprofitworld, the tax credits have leveraged private capital that otherwise might not invest.
As an example, Texas Community Development invested $5 million to cover a significantportion of the cost of Lifeworks’ new Youth and Family Resource Center in East Austin.The facility increased community access to counseling, education, workforce and socialservices that would otherwise have required traditional finances, undermining its capacityto serve. In addition, the project created or retained 32 construction jobs and 144permanent jobs as of last fall.
Similarly, the federal NMTC program is responsible for projects across Texas, includingDynamo Stadium in Houston, Incarnate Word Eye Center in San Antonio, Settles Hotel inBig Spring, East Texas Physicians Alliance in Palestine and Santana Textiles in Edinburg.
However, without a state program to help capture our share of federal dollars, Texas isfalling far short of our potential. While Texas boasts the world’s 12th largest economyand leads the nation in many economic indicators, we lag behind in access to capital forbusinesses, particularly in underserved areas, and we rank 45th when it comes to percapita new market tax credit investment, at $34.98 per citizen.
Conversely, states that have established their version of the program including Florida,Ohio, Mississippi and Missouri, have leveraged the federal program to now boast percapita investments up to seven times higher. Investments are more likely to occur whereboth federal and state tax credits are available in order to maximize available dollars.
According to a report released this month by Dr. Simon Mak of SMU’s Cox School ofBusiness, Texas currently participates in only 3 percent of total federal NMTC funding,thus making us “an officially underserved state.” Therefore, the report says, “the federalprogram is proactively seeking and encouraging more investment opportunities in Texas.”
The federal New Markets Tax Credit Program was enacted in 2000 to spur revitalizationof economically distressed areas. The investments can only be made in low-income areaswith at least a 20 percent poverty rate or where the median family income is at or below 80percent of the median. Tax-paying investors receive a credit against federal income taxesfor qualified investments.
In the final days of the 84th Texas Legislature, lawmakers still have time to pass legislation thatwould create a Texas New Markets Tax Credit program. A state new markets tax credit programwould expand investments to include banks in addition to insurance companies and emphasizesinvestment in rural communities by granting access to these funds equitable to their metropolitancounterparts. Tax credits would be spread over seven years with no credits until the third year. The legislation has the support of industry organizations, including the Texas Association of Manufacturers and Texas Association of Business.
A state program also aligns with Gov. Greg Abbott’s stated intention in Forbes Magazine “to domore to build an even stronger business environment” and “take Texas to the next level for business recruitment”. Supporting a vehicle for greater capital investment in Texas has great benefit across socioeconomic boundaries, makes political sense on both sides of the aisle and is essential to remaining competitive long-term. Passage should be a priority before the Legislature adjourns. Hayes is CEO of Waveland Ventures LLC and Stanislaus is managing director of Petros Partners.
Viewpoint: How to bring more capital to Texas startups
AUSTIN BUSINESS JOURNAL
May 22, 2015
by Jim Stanislaus
While Texas leads the country in many economic indicators, we lag behind other states in access to capital for our businesses — particularly in rural and other underserved areas of the state.
The Texas Legislature can play an important role in creating and keeping jobs in Texas rather than having companies funded by outside interests and moving elsewhere.
A recent report by Dr. Simon Mak of the Southern Methodist University Cox School of Business examined Texas deals funded by the Federal New Markets Tax Credit program. The report concluded that the total potential economic activity driven by a Texas New Markets Tax Credit program could create approximately 5,000 jobs and attract additional private capital to Texas at a rate of 4 to 1, driving further job growth. Dr. Mak’s study notes that the return on investment multiplier is even greater in rural Texas.
Access to capital is critical to the long-term business success of entrepreneurs. A dynamic economy should include multiple sources of capital to retain our best small businesses in Texas and ensure continued job growth.
A public private partnership such as the New Markets Tax Credit program can provide capital to areas of the state that otherwise may not have access to it, and help ensure our long-term economic competitiveness. It brings the best of both worlds preserving the independence of private investment decisions in Texas, while smartly deploying available government incentives.
Other states are becoming more aggressive in the incentives they offer for job creation. Florida and at least twelve other states have already enacted State New Markets initiatives. Today, Texas ranks 43rd in Federal New Market Tax Credit investments, in part because we lack a state New Markets Tax Credit initiative to attract outside capital. Investors are deploying capital in states with initiatives to match those at the federal level. As a result, Texas is missing out on growth investments, especially in rural and other underserved areas.
To stay competitive long-term, state lawmakers should pass programs that advance economic development and access to capital for Texas entrepreneurs. An innovative program like a Texas New Markets Tax Credit program does just that and would be an excellent step in this direction. Texas lawmakers have an opportunity to make it happen now.
Jim Stanislaus is a cofounder and managing director at Petros Partners, a Texas based investment and advisory firm focused on growth stage small business investments.