Commentary: Texas’ Fair Share of Federal Investment Still in Reach

May 20, 2015
By Rick Hayes and Jim Stanislaus – Special to the American-Statesman

The Texas Legislature need look no further than just across Interstate 35 for validation that the federal New Markets Tax Credits program has a positive impact in economically challenged communities. However, our state lawmakers are on the verge of missing an opportunity to leverage similar investments that would create jobs and improve communities across Texas.

What’s missing from the economic powerhouse known as Texas is a state New Markets Tax Credit program to fully leverage the existing program at the federal level.

Since its inception, the federal NMTC program has consistently spurred revitalization of economically distressed communities, created jobs and in the case of commercial projects has generated more than enough revenue to offset borrowed tax dollars. In the nonprofit world, the tax credits have leveraged private capital that otherwise might not invest.

As an example, Texas Community Development invested $5 million to cover a significant portion of the cost of Lifeworks’ new Youth and Family Resource Center in East Austin. The facility increased community access to counseling, education, workforce and social services that would otherwise have required traditional finances, undermining its capacity to serve. In addition, the project created or retained 32 construction jobs and 144 permanent jobs as of last fall.

Similarly, the federal NMTC program is responsible for projects across Texas, including Dynamo Stadium in Houston, Incarnate Word Eye Center in San Antonio, Settles Hotel in Big 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 is falling far short of our potential. While Texas boasts the world’s 12th largest economy and leads the nation in many economic indicators, we lag behind in access to capital for businesses, particularly in underserved areas, and we rank 45th when it comes to per capita 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 per capital investments up to seven times higher. Investments are more likely to occur where both 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 of Business, Texas currently participates in only 3 percent of total federal NMTC funding, thus making us “an officially underserved state.” Therefore, the report says, “the federal program is proactively seeking and encouraging more investment opportunities in Texas.”

The federal New Markets Tax Credit Program was enacted in 2000 to spur revitalization of economically distressed areas. The investments can only be made in low-income areas with at least a 20 percent poverty rate or where the median family income is at or below 80 percent of the median. Tax-paying investors receive a credit against federal income taxes for qualified investments.

In the final days of the 84th Texas Legislature, lawmakers still have time to pass legislation that would create a Texas New Markets Tax Credit program. A state new markets tax credit program would expand investments to include banks in addition to insurance companies and emphasizes investment in rural communities by granting access to these funds equitable to their metropolitan counterparts. 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 do more 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.

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