Hanover
The single-store market in northern Grafton County is only seven years old and serves a community where the median household income is about 35 percent below the state average.
Lower income means less consumer spending, which can make it a tough sell when businesses try to persuade institutions to lend them money. Despite having 5,500 members and projecting solid growth, the Littleton Co-op was looking to get only enough financing to build a bare-bones expansion in floor space.
Then Ed King, the co-op’s general manager, heard through the market’s original financier, Woodsville Guaranty Savings Bank, about an unusual financing program available through Mascoma Savings Bank that provides a federal tax break to corporations and wealthy individuals in exchange for capital investment. Called a “new markets tax credit,” the federal program run by the U.S. Department of the Treasury is designed to spur investment and jobs creation in economically disadvantaged areas.
This spring, the Littleton Co-op will open a $6.9 million, 9,500-square-foot expansion that includes not only more floor space but also a cafe, an outdoor pavilion for events and energy-saving solar panels. Over the next five years, the 75-employee co-op is looking at hiring an additional 30 employees and increasing its annual expenditure on locally sourced foods to $3 million, up from $1.9 million currently.
The expansion was nearly entirely financed through the sale of specialized tax credits by Mascoma Community Development, a unit of Mascoma Savings Bank, formed to attract investment in difficult-to-finance projects that face a hard time raising capital because they are in disadvantaged markets.
“We probably would not have been able to do the scope of this project without the (new market tax credit) funds,” King said. “It made monies available that otherwise might not happen. We can maximize our property.”
Mascoma’s involvement with the federal financing program is unique among northern New England banks: It is the only state-based bank in New Hampshire, Vermont or Maine qualified by the Treasury Department to sell — or “allocate,” in the parlance of the industry — the tax credits aimed at supporting projects that lead to business expansion and job creation.
Mascoma Community Development was formed in 2013. Last year it received a big boost when it was allocated $55 million in the tax credits by the Treasury to entice investors.
The buyers of such tax credits typically are national banks such as U.S. Bancorp, PNC, Chase and Wells Fargo, but can include insurance companies, hedge funds or wealthy private investors looking to reduce their federal tax liability.
“This is way to expand the bank’s mission in helping underserved and distressed communities,” said Dick Jennings, managing director at Mascoma Community Development.
In June, Mascoma raised $10 million through the sale of tax credits to U.S. Bancorp to support the acquisition and expansion of a structural steel facility in Berlin, N.H., by Capone Iron Corp., a family-owned Massachusetts steel fabricator. The facility had been idle and vacant since the former owner closed it in 2011, resulting in the loss of 150 jobs. The Berlin project, which calls for a 17,000-square-foot expansion to the existing 30,000-square-foot facility, is expected to lead to about 30 new jobs. “Projects have to have a high community impact to qualify,” Jennings said.
Last month, Mascoma received a second $50 million new market tax allocation from the Treasury and is now scouting for projects to benefit from the award.
The bank has been involved in a total of 11 new market tax credit projects to date that have attracted about $144 million in equity investments. Past projects have included the redevelopment of the Brooks House office complex in Brattleboro, Woodbury Armory in Burlington and the Marriott Autograph Hotel in Portland, Maine.
The complex nature of the new market tax credit transactions can make them time consuming to arrange, Jennings said, “but it’s a powerful program and can do amazing things.”
He said one of the challenges is educating municipalities and regional economic development corporations about the advantages of the program and how it can provide a source of financing that they might be unaware of.
Under the program, investors in new market tax credits may claim tax credits equal to 39 percent of their investment over a seven-year period. For example, a $10 million investment in a qualified project would generate $3.9 million in tax credits that could be applied against the investor’s federal income taxes.
Generally, the new market tax credit provides 20 percent to 25 percent of the financing “stack” in the project, with the balance coming from a combination of conventional loans, other public financing sources, and other equity investors. The Littleton Co-op expansion financing package included $600,000 raised from co-op members, King said.
Mascoma Community Development earns fees from placing the tax credits with investors and, in addition Mascoma Savings Bank, can become a lender to the project.
The Treasury’s tax credit program has been around since the early 2000s, and some $42 billion in credits has been invested in low-income communities since inception through fiscal year 2016, according to the Treasury’s Community Development Financial Institutions Fund, which oversees the program. Although the credits can be applied only to projects in census tracts that are economically distressed, some critics contend the tax credit buyers are the same handful of banks and question whether they are being applied to a worthy project.
Nonetheless, entities such as Mascoma Community Development can make the difference between a project happening or not happening at all, said Seth Harrop, managing director of new markets tax credits at Baker Tilly Capital, a Madison, Wis.-based consulting firm that advises on tax credit transactions nationally.
“There are some transactions that couldn’t be done with conventional financing because they wouldn’t meet conventional debt coverage ratios,” Harrop said. “It’s a real advantage for businesses that require extra help.”
King, the general manager of the Littleton Co-op, said that even though the new markets tax credit financing was complex — “yeah, lots of lawyers” — it provided the market with access to capital that otherwise would be available only to a wealthier business.
“It leveled the playing field,” he said.
John Lippman can be reached at 603-727-3219 or jlippman@vnews.com.
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An earlier version of this story incorrectly described some of the details of the tax credit program.
