Certified Community Development Entities (CDEs) in Arkansas as of April 2011

Following up on my previous post, here are the 16 CDEs in Arkansas, organized by community:

Arkadelphia

• South Arkansas Community Development
• Southern Bancorp Bank
• Southern Bancorp Capital Partners
• Southern Bancorp, Inc.

Bentonville

•  Neighborhood Revitalization Development Corp.

College Station

•  College Station Community Federal Credit Union

Fayetteville

• Bank of  Fayetteville Community Ventures, Inc.
• Bankshares of Fayetteville Community Development Company, Inc.
• Community Resource Group, Inc.

Fort Smith

• Forth Smith Regional NMTC Facilitators, LLC

Little Rock

• ADFA Certified Development Corporation
• Heartland Renaissance Fund, LLC
• Pulaski Enterprise Community Alliance, Inc.

Marianna

• Employ America, LLC

North Little Rock

• Argenta Community Development Corporation

West Helena

• First National Bank of Phillips County

New Markets Tax Credit Program: Becoming a Community Development Entity

As I’ve previously discussed, the Community Development Entity (“CDE”) is the central investment mechanism of the New Markets Tax Credit Program.  Under the NMTC Program, certified CDEs apply the U.S. Treasury Department for an award of tax credits, solicit investments, and make loans and investments into qualified businesses and projects.  An organization becomes a CDE by applying to the U.S. Treasury Department.  The U.S. Treasury Department has certified hundreds of CDEs since the inception of the NMTC program, including 16 in Arkansas.

To become a CDE, an organization must meet three basic qualifications:

First, the organization must be legally organized under the laws of the state in which it is incorporated and be a domestic corporation or partnership for federal tax purposes.  In other words, the organization must exist and have a federal tax ID.  No surprises here.

Second, the CDE must have a primary mission of serving or providing investment capital for low-income communities or low-income persons.  The key part of this requirement is that the CDE must demonstrate that at least 60 percent of its products and services are directed to or will be directed to low-income persons, to individuals, businesses, or organizations that serve low-income persons, or to residents of low-income communities. 

Activities that meet this requirement include:

• investing in, lending to, or providing technical assistance to businesses located in low-income communities or owned by low-income persons
• investing in or providing loans to support commercial properties that are located in low-income communities
• lending to low-income persons or residents of low-income communities
• investing in, lending to or providing technical assistance to organizations engaged in activities that promote community development in low-income communities or for the benefit of low-income communities.

Third, the CDE or proposed CDE must designate a “service area” and maintain accountability to the residents of the low-income communities in that service area.  A CDE meets this requirement if at least 20 percent of its governing or advisory board is representative of the low-income communities within the designated service area.  In other words, board members must either reside in a low-income community within the designated service area, or otherwise represent the interest of residents of the low-income communities within the service area – for example, by owning a business in the community.

The deadline for submission of CDE applications for the current round of NMTC awards is June 22, 2011.  A link to the CDE application can be found here: http://www.cdfifund.gov/what_we_do/programs_id.asp?programid=5

Sustainability Law 101: The New Markets Tax Credits Program

The New Markets Tax Credits Program is a key, if somewhat unheralded, incentive for investment in the sustainasphere.  Found in Section 45D of the Internal Revenue Code, the NMTC Program rewards investment in low-income communities with federal income tax credits.  In simple terms, investors in “Community Development Entities” get a federal income tax credit equal to 39% of the investment.  The credit is claimed over seven years at a rate of 5% of the investment for the first three years and 6% of the investment for the remaining four years.  All told, the NMTC credits have an estimated present value of about 30% of the investment.

Here are the basic elements of the program: 

• The NMTC credits are awarded by the U.S. Treasury Department to certified “Community Development Entities,” or “CDEs.” 
• A CDE must meet various criteria, but the basic qualification is that the CDE must have the primary mission of community development. 
• The CDE is the entity that applies to the Treasury Department for an allocation of credits.
• $3.5 billion in credits will be allocated in 2011, and it is expected that several hundred CDEs will compete for allocations ranging from several thousand dollars to several million dollars.
• Once a CDE receives an allocation of new markets tax credits, the CDE solicits investments.  Investments must be in cash. 
• The CDE uses the capital raised to make equity investments and loans to “qualifying businesses.” 
• Eligible businesses include for-profit retail, manufacturing, and service businesses and non-profit businesses. 
• Residential rental housing is expressly excluded from NMTC eligibility and, while a NMTC can be combined with other federal tax benefits, it cannot be combined with low-income housing tax credits or tax-exempt bonds.

Some see the prohibition against NMTC investment in residential rental housing as limiting the utility of the NMTC program, particularly as current economic conditions seem to devalue home ownership and affordable housing communities experience constant 100% occupancy.  But Arkansas cities and communities are becoming increasingly focused on revitalizing long neglected downtowns and business districts.  State and local governments are slowly, but steadily, “greening” municipal buildings.  And the state, under Governor Beebe’s stewardship, has done a remarkable job of attracting major out of state and foreign renewable and clean energy businesses to the state.  Effective, and, in some instances, creative, use of the NMTC program can and should facilitate all of these activities.

(Department of Things to Come: CDEs will be discussed in more detail in a future post.)

The Practice of Sustainability Law and the “New Normal” for Lawyers, Part I: “Is There a Dark Side to Green?”

Earlier this year, University of Arkansas Professor of Law Carl Circo wrote and published an article called, “Is There a Dark Side to Green?”  The alarm raised by Professor Circo is that lawyers claiming expertise in sustainability law may be doing so for the wrong reasons.  As Professor Circo writes,

Green building literature often uses such pejorative phrases as “greenwashing,” “green marketing,” and “the sustainability bandwagon” to suggest that not everyone who promotes sustainable construction does so with entirely pure motives.  How common is it, and how objectionable, for professionals, including lawyers, to claim special expertise to garner more business as much as to advance sustainability?  For that matter, even a law professor might elect to write on green buildings in part because it is relatively easy to get a good law review placement for a green building article. 

My first impulse is to demur.  So what?  There are undoubtedly numerous businesses that have jumped on “the sustainability bandwagon” not out of an abiding sense of social responsibility, but to take advantage of an ever-growing market for sustainable products and services.  For example, consider the owner of an auto dealership who does not believe that auto emissions contribute to global warming – indeed, who does not believe in global warming at all.  But the dealership nonetheless markets and sells at a profit hybrid and energy efficient cars.  Do the owner’s personal beliefs somehow change the character or benefits of the product sold?  (Which is not to say that denizens of the sustainasphere would not find this proposition offensive or the owner morally corrupt.) 

But the bigger logical failure of Professor Circo’s premise is that he equates sustainability law with more traditional legal practice areas like corporate law, contracts, securities, real estate, environmental law, municipal finance, and construction law.  Sustainable law is not a traditional practice area.  True, certain issues – green leasing and the law governing net metering come to find – resemble traditional practice areas.  But few lawyers, if any, are going to be able to have a thriving law practice devoted solely to writing green leases or advising clients regarding compliance with net metering schemes. 

Much has been written recently on the “new normal” for lawyers, law firms, and law practices.  Much of this pontificating focuses on the shift from hourly rates to alternative and incentive based billing methods and on documenting the emergence in changes in how law firms operate – from a new emphasis on client service to identifying new ways to compensate and reward lawyers.  Likewise, a lawyer will probably not have a philosophical attachment to a bond issue, while a true sustainability lawyer will bring specific public policy and value judgments to the representation.

In a recent article in the American Bar Association Journal, Paul Lippe wrote, “In the New Normal . . . lawyers recognize law as a system of information and management, where the challenge is to impact the outcome for lots of distributed actors in a complex system where law is only one part.”  That’s pretty dense, but what it means is that if Lippe and his ilk are right, the future practice of law will be much more about relationships driven and defined by client values and goals and much less about having a body of specialized knowledge and charging an hourly rate that reflects that amount of gray in a lawyer’s hair and that is the highest the market will bear for access to that knowledge.

Because “sustainability” is both a process and a value-shaped result, the practice of sustainability law reflects this new normal.  It is far more than recognizing that the commercial lease of a LEED-certified building will need to contain numerous specialized provisions, or that certain tax credits or financing incentives may be available for “green” projects that are not available for “traditional” projects.  It is about practicing law in a way that lines up with the client’s values, and that means law offices that adhere to a “triple bottom line” philosophy and that follow other sustainable practices.  The simple fact is that if a lawyer wants to hold themselves out as practicing sustainability law, they are not only going to need the specialized knowledge to preach the practice, but also the dedication to practice the practice.

I want to make it clear that I do not know Professor Circo, and that I appreciate him giving voice to this issue under the masthead of a respected university publication.  And, criticism aside, the question he raises is a good one: how does one find and hire a true sustainability lawyer – that is, one who has not simply “jumped on the bandwagon” to garner business but who is invested in the process and the result?  Stay tuned for Part II….

(Department of Citation: “A Professional Renewal: Why Great Lawyers of the New Age May Be ‘System Designers’”, by Paul Lippe, June 8, 2011, can be read here: 

http://www.abajournal.com/legalrebels/article/professional_renewal_in_the_new_normal/)

(Department of I’m Not Picking on You: I have absolutely nothing against bond lawyers!  Several of my law partners practice municipal finance, and my father-in-law is a former bond lawyer.)  

New Markets Tax Credits: 2011 Allocation and Competition Announced

This past Friday, June 3, 2011, the U.S. Department of the Treasury, Community Development Financial Institutions Fund released its 2011 Notice of Allocation for the New Markets Tax Credit (“NMTC”) program.  There will be $3.5 billion in new markets tax credits available in 2011, and the Notice of Allocation serves to officially open competition for those credits. 

The NMTC program is designed to attract private investment to underserved, low-income communities.  In broad strokes, the NMTC program provides a tax credit to corporate or individual taxpayers who make qualified equity investments in designated “Community Development Entities” (known as “CDEs”).  The CDEs invest the capital raised into projects and businesses in the targeted communities.  In exchange for the investment, the investor gets a tax credit of 39% of the investment in the CDE.  The credit is allocated over a seven-year period.

The 2011 allocation of new markets tax credit is part of a recent extension of the NMTC program, and there are numerous CDEs in Arkansas poised to take advantage of the investment generated by the tax credits.  The NMTC program is also a significant tool for the Arkansas Sustainasphere, as the low-income and underserved communities that are the target of the program are the very places ripe for sustainable investment and development. The 2011 Arkansas General Assembly generally failed to pass much in the way of sustainalaws – such as the Property Assessed Clean Energy (PACE) Act and the Arkansas Clean Energy Act.  Those sustainalaws that did pass, primarily the Arkansas Central Business Improvement District Rehabilitation and Development Investment Tax Credit Act, have a limited reach and are probably under funded.  Given these deficiencies, look for savvy investors and developers to take advantage of the 39% tax credit for their community redevelopment projects, particularly in places like Little Rock, Helena, and Fort Smith.

The deadlines for the NMTC program are rapidly approaching.  CDE certification applications are due June 22, 2011, and NMTC program applications are due July 27, 2011. 

More information about the NMTC program can be found at www.cdfifund.gov/what_we_do/programs_id.asp?programID=5.