While the extension of low-income housing tax credits to developers puts implementation and management in the hands of private industry, the projects born of them — including the Hotel Clovis project — ultimately involve taxpayer funds.
“The government is financing (the project) essentially but it’s technically true that the government’s not going to own it,” said Larry Tunnell, a professor at New Mexico State University specializing in taxation.
In 2009 the New Mexico Mortgage Finance Authority allocated a $1,055,077 annual tax credit from the IRS to prospective Hotel Clovis developer Stephen Crozier, chief executive officer of Tierra Realty LLC, for renovation of the building to create low-income housing.
City officials say Crozier has procured an investor who committed $9 million to the estimated $12.8 million project in exchange for use of the credits.
When a developer is awarded IRS tax credits for a low-income housing project, an investor joins the project often as a limited partner and fronts capital for the project, Tunnell said. The investor then gets to claim the credit each year against their tax debt — just as a parent might claim child care costs to reduce their tax.
In the end, the investor will have received credits of $10.5 million that they did not have to pay to the IRS — money that does not go into tax rolls.
“They’re still getting a lot of their investment back, just in tax benefits,” Tunnell said.
“Absolutely (the Hotel Clovis project is taxpayer funded) … it’s just funded through the tax credit rather than straight through expenditures.”
The developer’s profit comes from renting the housing units.
But the project doesn’t come without risk for the developer and investor, he said, because the property must be managed for the 10-year period in accordance with the program requirements and, if it isn’t, often those credits can be “recaptured” or have to be paid back.
Part of the reason tax credits are used rather than direct payment by the government is to give incentives and put the process in the hands of private industry.
Tunnell said it also keeps the government from having to pay actual money for projects and keeps it from having to engage in direct management of housing projects.
“To me it’s one of those things where everybody can claim something happened. They can claim that they created low-income housing … then some other people can claim they invested in the community and the builders get money,” he said.
“I hate to be too be skeptical, because it does serve a need.”
Clovis Mayor Gayla Brumfield said she sees the project as a partnership between government and private industry.
She said the scenario is no different than farmers, corporations and even individual households getting tax breaks.
“It’s a private, public partnership at its best… I do not view it that it’s a taxpayer-funded project,” she said. “Yes it is a tax credit project, and in my opinion it’s a win-win. … There are tax breaks that everybody gets.”
Brumfield said while the tax credits may pull money out of federal tax circulation for the time they are used, the hotel project, when completed, will place up to $16,000 on local property tax rolls.
The latest quote to demolish the building — which she said she sees as the only option if Crozier doesn’t develop it — is $2 million which would have to be paid by the community.