[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE FIELD HEARING ON
THE IMPACT OF NEW MARKET TAX CREDITS,
THE SBIC PROGRAM, AND 504 PROGRAM
ON URBAN COMMUNITIES
=======================================================================
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 11, 2007
__________
Serial Number 110-13
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
JUANITA MILLENDER-McDONALD, STEVE CHABOT, Ohio, Ranking Member
California ROSCOE BARTLETT, Maryland
WILLIAM JEFFERSON, Louisiana SAM GRAVES, Missouri
HEATH SHULER, North Carolina TODD AKIN, Missouri
CHARLIE GONZALEZ, Texas BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington MARILYN MUSGRAVE, Colorado
RAUL GRIJALVA, Arizona STEVE KING, Iowa
MICHAEL MICHAUD, Maine JEFF FORTENBERRY, Nebraska
MELISSA BEAN, Illinois LYNN WESTMORELAND, Georgia
HENRY CUELLAR, Texas LOUIE GOHMERT, Texas
DAN LIPINSKI, Illinois DEAN HELLER, Nevada
GWEN MOORE, Wisconsin DAVID DAVIS, Tennessee
JASON ALTMIRE, Pennsylvania MARY FALLIN, Oklahoma
BRUCE BRALEY, Iowa VERN BUCHANAN, Florida
YVETTE CLARKE, New York JIM JORDAN, Ohio
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Kevin Fitzpatrick, Minority Staff Director
______
STANDING SUBCOMMITTEES
Subcommittee on Finance and Tax
MELISSA BEAN, Illinois, Chairwoman
RAUL GRIJALVA, Arizona DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana STEVE KING, Iowa
HANK JOHNSON, Georgia VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania JIM JORDAN, Ohio
______
Subcommittee on Contracting and Technology
BRUCE BRALEY, IOWA, Chairman
WILLIAM JEFFERSON, Louisiana DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin SAM GRAVES, Missouri
YVETTE CLARKE, New York TODD AKIN, Missouri
JOE SESTAK, Pennsylvania MARY FALLIN, Oklahoma
.........................................................
(ii)
Subcommittee on Regulations, Health Care and Trade
CHARLES GONZALEZ, Texas, Chairman
WILLIAM JEFFERSON, Louisiana LYNN WESTMORELAND, Georgia,
RICK LARSEN, Washington Ranking
DAN LIPINSKI, Illinois BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois STEVE KING, Iowa
GWEN MOORE, Wisconsin MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania VERN BUCHANAN, Florida
JIM JORDAN, Ohio
______
Subcommittee on Urban and Rural Entrepreneurship
HEATH SHULER, North Carolina, Chairman
RICK LARSEN, Washington JEFF FORTENBERRY, Nebraska,
MICHAEL MICHAUD, Maine Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana DEAN HELLER, Nevada
HANK JOHNSON, Georgia DAVID DAVIS, Tennessee
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, PENNSYLVANIA, Chairman
JUANITA MILLENDER-McDONALD, LOUIE GOHMERT, Texas, Ranking
California LYNN WESTMORELAND, Georgia
CHARLIE GONZALEZ, Texas
RAUL GRIJALVA, Arizona
(iii)
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Chabot, Hon. Steve............................................... 2
WITNESSES
Muniz, Chad, 3CDC................................................ 4
Main, David K., Hamilton County Development Co., Inc............. 7
Brown, Tony T., Uptown Consortium, Inc........................... 9
Oliver, Elizabeth, Shekinah Beauty Centers, Inc.................. 13
Kirk, Guinette, DNK Architects................................... 14
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 28
Chabot, Hon. Steve............................................... 30
Main, David K., Hamilton County Development Co., Inc............. 32
Brown, Tony T., Uptown Consortium, Inc........................... 36
Oliver, Elizabeth, Shekinah Beauty Centers, Inc.................. 39
(v)
FULL COMMITTEE FIELD HEARING ON
THE IMPACT OF NEW MARKET TAX CREDITS,
THE SBIC PROGRAM, AND 504 PROGRAM ON
URBAN COMMUNITIES
----------
WEDNESDAY, APRIL 11, 2007
U.S. House of Representatives,
Committee on Small Business,
Cincinnati, OH
The Committee met, pursuant to call, at 10:12 a.m., at the
Avondale Pride Center, 3520 Burnet Avenue, Cincinnati, Ohio,
Hon. Nydia M. Velazquez [Chairwoman of the Committee]
presiding.
Present: Representatives Velazquez and Chabot.
OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ
Chairwoman Velazquez. The House Small Business Committee is
called to order. First, I'm Congresswoman Nydia Velazquez,
Chair of the Small Business Committee.
First, I want to thank each of you for being here today on
a rainy day. For me, it has been quite a rewarding experience.
This is the first time in four years that we do a Congressional
field hearing. And I am very grateful to the ranking minority,
Mr. Chabot, Congressman Steve Chabot, and his staff for putting
this Congressional field hearing together.
It is important for members of Congress to get out of the
Beltway and come here and see how the legislation and the
actions that we take in Washington have a direct impact in the
lives of the community that we represent.
And I am very impressed with what I have seen so far.
There's no question that it provides a different perspective.
And as I said, I want to thank Mr. Chabot for this opportunity.
Being from New York, I can certainly understand the
challenges facing entrepreneurs in urban areas, like
Cincinnati. Such obstacles, like the high cost of labor and
advertising, skyrocketing energy costs, and competition, can
all make it difficult for entrepreneurs to be successful.
That being said, urban areas need a system when it comes to
the growth and prosperity of small businesses. Creating
incentives for people to invest in urban communities and
enabling entrepreneurs to thrive is critical.
While many areas may flourish when the country is
experiencing economic growth, the truth is, not all communities
benefit. For those places, the New Markets Tax Credit can be
very helpful.
The New Markets Tax Credit was created to make loans and
capital investment opportunities in under-served areas. Most
importantly, it provides an incentive for people to invest in
urban markets, like Cincinnati, where urban revitalization is a
top priority. This is not only benefit to small firms, but the
community as a whole.
While creating incentives for people to do business in
urban markets is important, it is equally essential to ensure
small businesses are receiving the financing tools they need.
Entrepreneurs are the country's economic drivers and job
creators. However, accessing the capital they need to
successfully grow a business is always challenging.
This is where the Small Business Administration's loan
programs, such as the SBIC and the 504, step in to help small
businesses and, therefore, communities. The Small Business
Investment Company program was created to give small businesses
access to the long-term capital required for growth. SBICs
provide equity capital, long-term loans, debt equity
investment, and management assistance to small businesses,
particularly during their growth stage.
The SBIC 504 program was also intended to spur economic
growth in under-served areas. It provides long-term fixed rate
financing to small businesses for land, buildings and machinery
equipment. It has been known to stimulate small businesses,
create jobs, and encourage investment in the community.
With small firms creating three out of every four new jobs,
and comprising over half of the nation's gross domestic
product, they can play a critical role in revitalizing urban
communities. Clearly, the New Markets Tax Credit, SBIC, and the
504 Program can work to help in urban revitalization by
stimulating job growth, investing in the community and
entrepreneurs.
Today we will hear from small business owners who have
utilized this program, as well as local stakeholders. Again, I
want to thank each one of you for coming to share your
experiences with all these federal programs, and to Mr. Chabot
and his staff for all the work that you put in putting this
event together. So, thank you. And I now recognize Mr. Chabot
for his opening statement and the introduction of the
witnesses.
OPENING STATEMENT OF MR. CHABOT
Mr. Chabot. Thank you, Madam Chairwoman. I want to, first
of all, thank you--excuse me--for taking time out of your busy
schedule in coming all the way from your district in New York
to Cincinnati here to hold a field hearing of the Small
Business Committee. I really do appreciate it.
And I think we're going to learn a lot this morning from
some of the local folks that have been involved in small
business programs and the loan programs with the New Markets
Tax Credit and the 504 Program. So, the fact that you came all
the way from your district here is most appreciated, not only
by myself, but I think all the people of the First
Congressional District in Cincinnati.
I appreciate the opportunity, I think we all do, to show
you at least a small part of how our community and how the New
Markets Tax Credits and the Certified Development Company, the
504 loan program that I referred to before, are helping these
communities like Avondale and Over the Rhine, where we were
just at earlier, and many other communities in Cincinnati.
I also want to thank all our witnesses, not only for their
testimony that they will be giving shortly, but for the
important work that they are doing in our community,
particularly in the Uptown and Over The Rhine areas. The New
Markets Tax Credit, enacted as part of the community renewal
Tax Relief Act of 2000, takes an innovative approach to address
poverty by using the tax code to enlist the support of both,
the public and private sector, making the program unique among
federal economic development initiatives.
The New Markets Tax Credit, a 39 percent credit against
federal taxes over a seven-year period, has helped spur
investment and economic development in under-served communities
all over the country, and Cincinnati, as well.
For example, the New Markets Tax Credit program is
attracting a significant amount of private capital to the
Uptown and Over The Rhine neighborhoods.
All told, the New Markets Tax Credit is responsible for
more than $100 million in private investments within the First
Congressional District, and is providing momentum to spur
redevelopment and job creation in some of Cincinnati's most
distressed neighbors.
The New Markets program was extended for two more years
last year, meaning the program will expire at the end of 2008,
unless Congress takes action to renew it. And us being here is
part of Congress seeing why we should renew that, because we're
seeing it here firsthand, how it's helped Cincinnati.
I happened to be a cosponsor of the legislation during the
last Congress to renew the program for five more years. It's my
understanding that Representatives Ron Lewis of Kentucky and
Charles Rangel from your area in New York, the chairman of the
Ways and Means Committee, plan to introduce similar legislation
in the near future. And I look forward to, once again, lending
my support, and I'm sure that the chairwoman does, as well, to
a bill to continue the New Markets program. And I'm hopeful
that such a bill will become law.
The New Markets Tax Credits are an important part of the
community redevelopment and reinvestment, as is the Small
Business Administration's Certified Development Company
program, also known as the 504 loan program. Certified
Development Companies, or CDCs, such as David Main's Horizon
CDC, are invaluable resources for America's small businesses.
Every time a business owner receives a loan from a CDC, they
are not only making a commitment to better their business, but
also to improve their community by creating jobs and helping
revitalize neighborhoods.
This type of community investment is important, and it's
one of the reasons that renewing the CDC program is critical.
As many of you may know, a number of us also co-authored
legislation, along with the chairwoman and myself and
Representative Melissa Bean, called the Small Business Lending
Improvement Act of 2007.
This important bipartisan bill would reauthorize and
strengthen the CDC program to ensure that small business owners
and communities around the country will continue to benefit
from the ability of small businesses to reinvest and grow their
businesses. The Small Business Committee unanimously passed the
Small Business Lending Improvement Act. I'm hopeful that the
full House will consider it in the very near future.
It's important that small businesses take root in
communities such as Avondale and Over The Rhine, and that small
businesses--after all, they've created 60 to 80 percent of
American jobs over the last ten years. Think of that. 60 to 80
percent of the jobs created over the last ten years have been
created by small businesses. And that's something I think we
should always recognize. They're the backbone of our economy.
We need to provide small business owners the opportunity to
thrive in Avondale and Over The Rhine and throughout the
country as a means to create jobs and strengthen communities
and improve the local economy.
I, again, want to thank the witnesses for taking their time
that we're going to be hearing from in the very near future
here, and I want to thank you all for coming this morning. And,
again, I want to thank the chairwoman for coming to Cincinnati
and having this hearing this morning. I yield back my time.
Thank you. With the chairwoman's permission, I will now
introduce--will introduce the panel, just the witness. And then
he or she will testify. And then we'll introduce the next one
after they've testified. We'll do them individually.
We'll start with Mr. Chad Munitz. Mr. Munitz joined the
Cincinnati Center City Development Corporation, the 3CDC, in
August 2006, as the executive vice president for development,
and manages 3CDC's development activities. Chad had previously
led the City of Cincinnati's Economic Development Department,
serving as the primary point of contact with the city for
developers and businesses promoting economic development
projects.
Prior to this role, Chad served as the assistant deputy
director and the governor's regional economic development
representative at the Ohio Department of Development in
Columbus, where he facilitated private sector expansion,
retention, and relocation projects within Ohio.
And before coming to Avondale for this hearing, the
chairwoman and I had an opportunity, and some of our staff
people, to meet with Chad and some of his people down in Over
The Rhine, where he showed us some of the work that's being
done by 3CDC in the Over The Rhine area. And they are certainly
doing some much-needed work down there. So, Mr. Munitz, you're
recognized for five minutes, or approximately that.
STATEMENT OF CHAD MUNITZ, EXECUTIVE VICE PRESIDENT FOR
DEVELOPMENT, 3CDC
Mr. Munitz. Thank you, Chairwoman and Congressman Chabot.
Bear with us one second here.
Mr. Brown. I'll blind you by the light.
Mr. Munitz. While Tony is being gracious, thank you for
helping me here get this focused a little bit, I'll just start
real quick with this first, just real quick to show you the
background of 3CDC.
3CDC, as the Congressman said, is the Cincinnati Center
City Development Corporation. We're a downtown development
corporation in Cincinnati that focuses on the neighborhoods:
Over The Rhine, our central business district, and then also
our riverfront. And we are truly led by our chairman, who is
the President and CEO of Procter & Gamble, A.G. Lafley, but
also the rest of the corporate community in the City of
Cincinnati.
Today I really want to talk about the effects that the New
Markets Tax Credits have had on our development that we've been
doing. Over The Rhine has been a historically disinvested
community in the City of Cincinnati. It is only six blocks from
the heart of our city, which is Fountain Square, in our central
business district, where we have over 80,000 employees that
work downtown every day.
Over the last decade, there's been disinvestment and the
loss of over 40,000 residents in Over The Rhine. And over the
last three years, since 3CDC has been formed, we've been
acquiring parcels and property in Over The Rhine to look at
doing reinvestment on a scale that actually has some momentum
and starts to change the makeup of that community.
We've only been able to do that thanks to the New Markets
allocation that we received about four years ago.
3CDC was the recipient of a $50 million New Markets
allocation. We have taken that directly to invest in property
in Over The Rhine, but also to invest in our development
efforts.
What we toured this morning, I'm going to go through this
real quickly here, we have about 93, just less than a hundred
commercial--or condominium units that we have created in Over
The Rhine in a four-block area, right at 12th and Vine, 22,000
square feet of commercial property.
It's really transformed that corner of 12th and Vine,
something it hasn't seen in decades.
Just two years ago, before 3CDC started those efforts,
there were over 270 police calls to that corner. And last year,
since we have started construction, before the units had
actually gone on-line, there's only been four police calls to
that neighborhood. So we've really turned this around, and it's
with the help of New Markets Tax Credits and small businesses.
The four development teams that are developing this are all
small business, and the actual contractors have all been small
businesses who are doing these developments of the 93 units and
the 22,000 square feet of retail. But then, also, all the
businesses that we've brought so far, we've sold about 40
percent of our commercial space, have also been young, small
business entrepreneurs who are moving back into Over The Rhine.
I really want to talk about, in a little bit more detail,
the New Markets Tax Credit itself. We are one of the poorest
rates of poverty--or highest rates of poverty anywhere in the
country that has received the New Markets allocation. We have
68 percent poverty level in the census tracks that make up our
allocation district, in the central business district and Over
The Rhine. The median family income in that district is only 12
percent of the median family income of the entire City of
Cincinnati, the metropolitan statistic area of Cincinnati.
And Over The Rhine, for the last decade, has had less than
a five percent home ownership rate, which is pretty hard to
achieve. So we're slowly doing that, and that's why the bulk of
our redevelopment has been focused on for-sale units.
We really have, we feel, a unique New Markets program that
we have set up here for the 3CDC. And what we've been able to
do is, because of the investors in the program, we provide low-
interest loans, we provide interest-free and interest-only
periods. We really take most of the risk through our fund by
having nonrecourse debt to our lenders, to the developers who
are doing this. We do not require them to have any recourse.
The only collateral on these buildings are the value of the
buildings themselves, which are actually much less than the
money we have loaned into them.
That which--again, getting into that, a lower loan-to-value
ratio that we lend out, and then being subordinated debt behind
other debt that has come into this is really the flexibility of
the New Markets program, and has allowed us to get out there
and reinvest these at a much greater rate. And it's also been
an advantage for us to bring in the small businesses into the
commercial section, but providing the tenant improvement
allowance to them, and charging very low interest rates.
3CDC is also taking advantage of the New Markets program by
combining what we have of our staff of 3CDC and the Cincinnati
Equity Fund to lower the administrative and overhead costs. So
we pass very little cost on to the fund itself or to any of our
borrowers. It also allows us to charge much lower than standard
loan origination fees and consulting fees.
And then, really quickly, which the Congress members saw
this morning, but to show the rest of the audience here what
we're doing right at 12th and Vine with these new developments
that we're having, it's about a $27 million development that's
had the $12.5 million in New Markets Tax Credits infused into
that, the rest of the money coming from another loan fund that
Cincinnati Center City Development Corporation has, and then
also some grant funds from the City.
As you can see, we've really taken some troubled properties
and reformed them. This is right there on the corner where we
have above it residential units for the art academy. There are
dorm rooms above there. And below, which used to be the Bay
Cafe, which was a very troubled carry-out, is now our sales
center for the entire development. This is an actual unit that
we walked through this morning.
Most of these buildings that we have taken were vacant and
really had squatters living in them. So we've taken these
buildings, have had to clean them out and have had to remove
all the lead and asbestos that was in those, and provide units
for sale.
Here, again, is just some more pictures of some of the
dramatic changes from before and after that we've had in our
units.
That really concludes the bulk of our testimony. I just
want to, once more, emphasize how important it is. People have
been trying to redevelop Over The Rhine for decades in this
city, and have really not been able to get the scale of
development happening that changes communities and changes
neighborhoods at a time.
And if it was not for infusion of the New Markets Tax
Credit, we would not be able to move forward with that, and,
truly, the flexible terms of that, the generousness of the
investors in the program, that really just take the federal tax
credit as a return on that investment.
And, then, since I have the honor of being here in front of
the committee, I would like to let you know, also, that we have
a new allocation request in and we're applying for another $75
million in tax-free allocations for this next round. So, thank
you very much for allowing me to be here.
Mr. Chabot. Madam Chairwoman, I will introduce the next
witness, if that's okay.
Chairwoman Velazquez. Fine.
Mr. Chabot. Thank you. Our next witness will be David Main,
who is the President of Hamilton County Development Company, or
Horizon Development. He actually started in 1983 at Hamilton
County Development Company.
While the SBA 504 loan program is HCDC's flagship economic
development lending activity, HCDC also administers the Ohio
Regional 166 loan program, the Community Reinvestment Fund, the
U.S.A. Loan Program, the Hamilton County Economic Development
Office, and the Hamilton County Business Center, a 70,000-
square-foot incubator.
Prior to joining HCDC, David served as a loan officer,
staff attorney for Citywide Development Corporation in Dayton,
Ohio; legal adviser for the Department of Community Development
in Rockford, Illinois; and commenced his economic small
business development career as the first economic development
coordinator for the City of Xenia, Ohio.
Earlier this year, David Main testified before the Small
Business Committee in Washington, D.C., as he's done, I
believe, a few times prior to that. So, Mr. Main, you're
recognized for five minutes, also.
STATEMENT OF DAVID K. MAIN, PRESIDENT/CEO, HAMILTON COUNTY
DEVELOPMENT CO., INC.
Mr. Main. Thank you. I would like to thank Chairperson
Velazquez and Ranking Member Chabot for providing me the
opportunity to give remarks concerning the effects, role and
positive benefits that the SBA 504 loan program plays in
revitalizing urban communities.
The 504 loan program is an economic development financing
tool with the purpose of promoting small business capital
investment as well as the creation of jobs and retention of
jobs and employment opportunities. As such, it finances fixed
assets, primarily real estate, though occasionally machinery
and equipment, to facilitate the expansion of growing small
businesses.
One additional virtue of the 504 program is that it
generates owner-occupied commercial real estate. Just as
residential home ownership creates stakeholders who foster
stability and commitment to local communities, business owner-
occupied real estate also promotes, and perhaps on a greater
role, stakeholder commitment and stability in such communities.
HCDC has funded numerous projects located in urban core
areas and inner-ring communities where small business concerns
have acquired real estate through the 504 program, sometimes
using our private lending partners and including New Markets
Tax Credits, and investing, not only in the acquisition of real
property, but more importantly in constructing improvements and
renovations to this real estate, as well. In addition, these
companies have added jobs and typically employed local
residents from the community. The end result is an improved
property with new commerce and business activity.
There are some noteworthy examples within the City of
Cincinnati and Hamilton County urban communities where small
businesses, some formerly renters, have acquired and improved
real estate through the 504 program. As a result, not only have
their businesses flourished, but the surrounding areas have
benefited, as well.
One such example is Baba Budan Coffee House, owned by Tony
Hamburg. Due to an urban renewal project that acquired the
building he rented for his shop near the University of
Cincinnati, Mr. Hamburg needed to find a new location for his
business. HCDC, through the SBA 504 loan program, together with
a local community-based private lender, helped Mr. Hamburg
acquire and renovate a vacant former bar near the UC campus. As
a result, not only has his business flourished with increased
revenues, but also his investment has helped spawn additional
redevelopment of and new private investment in the city block
where Baba Budan is now located.
In addition, HCDC, through the 504 loan program, also
assisted the redevelopment of two brownfield sites, financed
through the Clean Ohio Fund, within the inner-ring community of
Lockland. These sites have not only been environmentally
remediated, but more importantly returned to active productive
commercial use as two more HCDC-financed 504 projects. Premier
Food Management and Frederick's Landscaping acquired these
properties, constructed new buildings, and as a result, jobs
and commerce have supplanted vacant brownfields.
I would like to commend the committee leadership for
getting HR 1332, the Small Business Lending Improvement Act,
approved and unanimously voted out of the Small Business
Committee, particularly since there has not been a full program
reauthorization for several years. I also look forward to
working closely with the Senate to complete passage of this
important legislation.
HR 1332 represents one of the most far-reaching
improvements for the SBA 504 loan program. However, there are
certain changes which could improve 504's impact on urban
communities. One such change would be to reduce the required
small business owner occupancy percentage requirement from 51
percent for existing buildings to 35 percent, and from 65
percent for new construction to 51 percent within urban core
communities.
Within these urban areas, real estate frequently involves
multistory facilities that may be too large a structure for
many small business borrowers to occupy the 51 percent.
Nevertheless, with ownership requirements reduced to at least
35 percent of the building, the balance could be rented out to
other productive uses while the small business borrower would
still serve as the owner-occupant anchor of the facility.
From fiscal year 2001 through fiscal year 2006, HCDC
increased its 504 loan approvals by 97 percent, going from 31
loans in 2001 to 61 loans in 2006. Meanwhile, during the same
period, the 504 program nationally increased its loan approvals
by 91 percent, going from 5,195 loans approved in 2001 to 9,942
loans approved during fiscal year 2006. Notwithstanding these
increases, the SBA agency staff appears to have been cut to the
point where its capacity to continue to effectively process 504
loans in future years, as the program continues to expand, is
in jeopardy.
One solution, in addition to adding additional personnel,
would be for the SBA to establish a second 504 processing
center, preferably in the eastern half of the United States, to
handle this growing 504 loan processing activity.
In addition to the HCDC 504 loan clients who are appearing
today and the other above-mentioned 504 urban successes,
there's no doubt other examples of 504 loan activity throughout
the country that provide tangible and lasting value regarding
how the 504 loan program assists small businesses to expand,
invest, create jobs, and improve the overall quality of life in
urban communities.
Thank you for your support, and I would be willing to
answer any questions.
[The prepared statement of Mr. Main may be found in the
Appendix, on page 32.]
Mr. Chabot. Thank you very much, David. Our third witness
here this morning will be Tony Brown. Tony has served as
President and CEO of the Uptown Consortium since March of 2004,
so about three years now.
The Uptown Consortium is a nonprofit organization made up
of uptown's five largest employers: Cincinnati Children's
Hospital Medical Center, Cincinnati Zoo and Botanical Gardens,
the Health Alliance of Greater Cincinnati, TriHealth, Inc., and
the University of Cincinnati.
Mr. Brown began his career in banking in 1982. From 2001 to
March 2004, Mr. Brown served as the director of the Community
Development Financial Institutions Fund, a government-owned
corporation at the United States Department of Treasury, to
which he was nominated by President Bush.
Under his direction, the CDFI Fund made a significant
contribution to creating jobs and stimulating economic growth
in the nation's low-income communities. Mr. Brown also
successfully implemented the $15 billion New Markets Tax
Credits program. And we welcome you here this morning, Mr.
Brown.
STATEMENT OF TONY T. BROWN, PRESIDENT/CEO, UPTOWN CONSORTIUM,
INC.
Mr. Brown. Excuse me. I'm also coordinator of the AV
equipment, too.
Chairwoman Velazquez, I would like to say welcome to Uptown
Cincinnati. We are the premier cluster of neighborhoods in the
First Congressional District of Ohio, and I'm sure Congressman
Chabot would not challenge that. We'll let him debate that on
the west side.
Mr. Chabot. We love all the neighborhoods in our district.
Mr. Brown. Congressman Chabot, welcome home, and thank you
for conducting an official U.S. Housing Small Business
Committee field hearing to review economic development
programs. As the introduction stated, I am Tony Brown. I'm
president of the Uptown Consortium, and we appreciate the
opportunity to testify before you today.
Our organization is founded by four of the region's top
seven employers and the Cincinnati Zoo, which represents our
region's number one tourist attraction. The members of the
Uptown Consortium employ over 50,000 people and provide an
annual economic impact of $3 billion.
The House Small Business Committee has chosen the perfect
city to explore local efforts to revitalize neighborhoods using
small business investment programs. As you have witnessed, our
city, in just the First District of Ohio, have received over
$100 million in New Markets Tax Credits that have provided the
incentive for us to attract private capital to help revitalize
economically distressed neighborhoods, as seen in Avondale and
Over The Rhine.
Similar to Chad, I would like to focus my comments around
the New Markets Tax Credit program, as it has been the primary
tool that we're using to raise private capital. And, besides,
it's an economic development program that I know a little
something about.
As the Congressman indicated, in 2001, I was appointed by
the president to direct the CDFI fund, and I served as director
through February of 2003. During my tenure at the Fund, I
personally supervised the regulations for the first $6 billion
in New Markets Tax Credits allocated.
The New Markets Tax Credits program was designed to
stimulate investment and economic growth in low-income urban
neighborhoods and rural communities by offering, as the
Congressman highlighted, a seven-year 39 percent federal tax
credit into investment vehicles known as Community Development
Entities. These CDEs use capital derived from the tax credit to
make loans to, or investments in, businesses and projects in
low-income areas. So, for instance, a $1 million investment
into a CDE would yield for that investor a federal tax credit
of $390,000 over a seven-year period.
The New Markets Tax Credit program was enacted in December
of 2000 as part of the Community Renewal Tax Relief Act. The
original authorizing legislation provided $15 billion in New
Markets Tax Credits authority. As you know, 2008 is the last
year that Congress has authorized New Markets Tax Credit
authority. And legislation to reauthorize the program through
2013, I have been told, will actually be introduced next week
in both, the House and the Senate. The House bill will be
sponsored by Congressman Neal from Massachusetts, with
additional support, as Congress Chabot said, from Ron Lewis
from Kentucky.
In Cincinnati alone, we know firsthand that this program
works. We have been able to attract below-market sources of
private capital as the patient source of funding we need to
implement, in just the uptown area, a half a billion, $500
million redevelopment pipeline. If you simply look at the list
of investors in the Uptown Partners Fund, we can attest that
New Markets have met the purpose that Congress has intended it
to be. It has attracted private capital in low-income
communities.
As you can also see from your tour, we have--we are just
getting started. And to end this program now would have a
devastating impact on our ability to raise capital in order to
continue our efforts.
Madam Chairwoman, Congressman Chabot, your field visit to
conduct a bipartisan review of this program is commendable, and
your efforts are to be applauded. Your presence here today
clearly signals the importance of this program for the areas
you represent.
In Ohio, for instance, on a per capita basis, Ohio has
truly benefited from this program as 14 Community Development
Entities have been awarded in excess of $647 million. And in
New York, 17 Community Development Entities have been awarded
well over $1.7 billion. The U.S. Department of Treasury reports
that the New Markets Tax Credits program has accounted for an
investment of nearly $8 billion in low-income communities to
date.
I'm going to take a moment here, again, similar to what
Chad has done, to talk about how we're using the New Markets
Tax Credits program to stimulate the type of economic
revitalization of Burnet Avenue. Again, we thank you for the
tour. Our focus has been on Burnet Avenue, as well as a number
of other communities, but we're going to illustrate how we're
using New Markets Tax Credits to stimulate the revitalization
of what has been an historic African-American business
district.
We started two and a half years ago working with the
Avondale Community Council to come up with a vision for the new
Burnet Avenue north of Erkenbrecher. And from that plan, the
vision resulted in stimulating 330 new workforce housing units
and being a catalyst to invest in over 300,000 square feet of
office retail space. Clearly, that is not how Burnet Avenue
looked today, but we welcome you back in five years, and we're
sure to show you that that's what it will look like in the next
decade.
The New Markets Tax Credits program and the investors in
the Uptown Partners Fund have allowed us to take $25 million to
become the single-largest property owner on Burnet Avenue north
of Erkenbrecher between Forest and Harvey Avenue. But for New
Markets Tax Credits, we could not have assembled this land,
which makes us, if you combine the efforts of 3CDC, clearly,
the largest privately-funded urban renewal effort focusing on
neighborhood development in the country.
We are investing in the transformation of Burnet Avenue.
Our first project is allowing an African-American-owned
business to build and construct a 45,000 square-foot office
building. The Cincinnati Herald is our region's premier
publication of African-American news and culture. Through the
efforts of The Cincinnati Herald, several years ago, they went
to Children's Hospital and said, we need to clean up Burnet
Avenue. Will you help us do a 5,000-square-foot office
building? Well, that 5,000-square-foot office building has
turned into a 45,000-square-foot office building.
Through the New Markets Tax Credits program, we are in
partnership with the owners of Sesh Communications to construct
and build the Cincinnati Herald building. The Uptown Cincinnati
Development Fund is providing a mezzanine loan that has allowed
the developer to get the senior loan in order to construct the
$7 million facility.
Cincinnati Children's Hospital is committed to expand and
to bring more employees and pedestrians on the streets, and
will build a parking garage to support the additional office
space that's needed to make this activity happen. The
leadership of the Avondale community was quite clear. The
revitalization of Burnet Avenue has to be more than providing
expansion for the hospitals. The residents must benefit.
Along with this plan and this whole new design of urbanism
is to wrap the parking garage with new workforce housing. We
have assembled the entire site to start the first phase of 60
units of new workforce housing, and equally proud, you will
hear from another witness, from Guin, that the design team is
an African-American-owned business.
And then, as we jump the blocks, the second phase is where
you are now. As the community has indicated, this has to be
about transformation and empowerment, that we need to restore
the vitality of a business district that benefits African-
American businesses.
Steve Love, president of the African-American Chamber of
Commerce, he and I just recently returned from a conference on
small-business incubators to learn more about how we can
utilize small-business incubators to be a catalyst to attract
small businesses, minority businesses in this section of Burnet
Avenue.
If you look through those doors, you will see a red ribbon
on the bus stop where a lady, innocently standing waiting for a
bus, was shot by an errant bullet. The Cincinnati Police
Department would consider this block to be one of its hot
spots. We know that any revitalization must transform and
create a vision for community accountability and wealth
creation.
As we look at the acquisition of the real estate, we know
we have to come back with programs working in partnership with
the Avondale Community Council, with the African-American
Chamber of Commerce, with the Cincinnati Empowerment
Corporation, to find ways to create small businesses, look at
small-business incubators, increase the level of goods and
services to the residents in this area, create an environment
where the employees in our billion dollar institutions are
welcome to stop and shop. And we're going to do that in
partnership with the Avondale Community Council, and then we're
going to do it in a way in working with our communities so that
individuals who are now renters, can also be homeowners.
Again, I would like to thank you for the opportunity to
testify. The Uptown Consortium expresses our deepest
appreciation for the leadership of the House Small Business
Committee in making a bipartisan effort and exploring local
efforts to revitalize neighborhoods using small-business
investments.
All indications are that the New Markets Tax Credits
program is working. The program has been the catalyst to date
of nearly $8 billion in low-income communities. And over 200
CDEs across the country are using the credit to support a wide
variety of community and economic development initiatives. We
thank you for taking a firsthand look at this program and in
aiding Cincinnati's redevelopment.
We know that you both are champions in supporting the
growth of small and minority-owned businesses and ensuring
economic opportunity for the working class and poor. As leaders
in Congress, we hope you will succeed in getting other members
to join you in passing a five-year extension of the New Markets
Tax Credits program. Thank you.
[The prepared statement of Mr. Brown may be found in the
Appendix, on page 36.]
Mr. Chabot. Thank you very much, Mr. Brown.
Chairwoman Velazquez. Thank you.
Mr. Chabot. Thank you. Our next witness, our fourth
witness, will be Elizabeth Oliver, who is the owner of the--is
it pronounced Shekinah.
Ms. Oliver. Shekinah.
Mr. Chabot. Shekinah. Shekinah Beauty Center, Inc. She's a
graduate of Moore University with a certificate in cosmetology
in 1982. She spent 15 years cultivating her skill sets so that
she could catapult into a career as a salon owner. She opened
her own salon in 1997, leasing space in Sycamore Township.
Understanding the importance of real estate ownership,
Elizabeth Oliver purchased her existing property in 2002.
She is the owner/operator of the Shekinah Beauty Center, a
full-service salon and spa. She provides individualized
consultation and spa services to individuals of all
socioeconomic levels, and we're happy to have you testify on
how this has influenced your business and made it possible for
you to prosper. You're recognized.
Ms. Oliver. Good morning.
Mr. Chabot. Good morning. If you could speak up. I'm not
sure if that mic is on. Yes, it is.
STATEMENT OF ELIZABETH OLIVER, PRESIDENT, SHEKINAH BEAUTY
CENTERS, INC.
Ms. Oliver. Good morning. My name is Elizabeth Oliver. I am
the President of Shekinah Beauty Centers, Inc. I am here today
to speak on behalf of the SBA 504 program. Being a small-
business owner and being considered, at the time, as self-
employed, most traditional lenders did not extend the
opportunity with ease for ownership. I am very grateful for the
program because it has proven to be designed for small
businesses that are trying to build wealth in real estate.
With the beauty industry being a multibillion dollar
industry, 90 percent of the business owners lease the space
that their businesses are functioning out of. But I am pleased
to be amongst the 10 percent that have ownership.
The SBA program has been excellent for me from the start to
the finish. The loan officer, Angela Howard, was very
knowledgeable with the program and assisted me with the SBA
process, as well as getting a local bank to collaborate with us
for the main portion of the loan.
With lower down payments and fixed interest rates, that I
could not have found in traditional lending, the alternative
funding of the SBA 504 program has enabled me to expand my
business and create a vineyard for other small businesses to
operate within our business while maintaining their own
business identity. I don't think this would have been possible
without the assistance of the SBA program.
My husband and I have another business venture operating
within the same building, and we hope to expand both
businesses, and pray that we'll have the opportunity to use the
SBA program once again. Thank you.
[The prepared statement of Ms. Oliver may be found in the
Appendix, on page 39.]
Mr. Chabot. Thank you very much. I appreciate your
testimony here this morning. And our fifth and final witness
here this morning on the panel is Guinette Kirk, Vice President
of Business Development, DNK Architects. Guinette Kirk received
her undergraduate degree from Howard University in 1978,
majoring in psychology. She received her M.B.A. in 1980 from
Ohio State University. She has worked previously for
Shillito's, Federated, as an assistant buyer from 1981 to '82;
the Drackett Company, as assistant product manager, from '84 to
'90; and Totes, as product manager, in 1994.
Guinette assumed the position of vice president and
business development officer with DNK Architects in 1994.
DNK was formed by Ms. Kirk's husband, David, in 1986. The
company provides architectural and building code consulting
services to clients and design professionals, and we welcome
you here this morning, Ms. Kirk, and thank you for your
testimony.
STATEMENT OF GUINETTE KIRK, VICE PRESIDENT OF BUSINESS
DEVELOPMENT, DNK ARCHITECTS
Ms. Kirk. Thank you. Good morning. As was stated
previously, I'm Guinette Kirk, and I'm Vice President of
Business Development for DNK Architects. As you already know,
we are a Cincinnati-based firm specializing in architecture,
interior urban and landscape design. We've been practicing
since 1986, and we have 18 employees servicing the Tri-State
area.
We provide services to the public and private sectors, and
our clients include such companies as the Health Alliance,
Procter & Gamble, the Uptown Consortium, Children's Hospital--
Cincinnati Children's Hospital Medical Center, Cincinnati
Public Schools, the Dayton Public Schools, and the General
Services Administration.
A few of our completed local projects include the Lincoln
Court Senior Citizens building, which was part of the Hope 6
project; the new Lindner YMCA in the West End; Gateway
Condominiums in downtown. This was one of the projects that was
previously shared with you through the PowerPoint with Mr.
Munitz. Woodlawn Elementary School in the Princeton School
District; the Hamilton County Community Action Agency
headquarters; and we also provided all the modifications to the
old Cinergy stadium that were required before the new Reds
ballpark was built. In addition, we were the master architects
in association with URS for the Cincinnati Public Schools $1
billion rebuilding program.
Currently, we are working with the Uptown Consortium here
in the Avondale area, and you recently toured that site. We're
working on revitalizing the Burnet Avenue area. Our work with
the Consortium, Tony Brown and his staff includes improvements
in the right-of-ways, site developments, housing, offices, and
new retail.
Approximately six years ago, we were introduced to the SBA
504 loan program by Angela Howard, a loan officer of Horizon
Certified Development Company, which was formerly the HCDC. She
knew that we were looking to--for a new office space for our
business. By using the 504 program, we were able to purchase a
6,400-square-foot building, renovate it, and relocate our
business to the Clifton Heights area in 2001.
The 504 loan program afforded us a fixed rate of interest,
lower capital outlay, and a longer loan term. All of these
factors contributed to us being able to control both, our
initial capital outlay and our ongoing expenses.
We were also able to increase staff and thus add to the
City of Cincinnati's tax base.
In summary, we would highly recommend this loan program to
other, not just minority, but other business owners here in
Cincinnati. And I would like to thank you, Congressman Chabot
and Congresswoman Velazquez, for this opportunity to provide
our testimony.
Mr. Chabot. Thank you very much.
Chairwoman Velazquez. All right. Thank you very much. This
has been quite--not only informative, but for me to come here
and see, firsthand, the impact. And I wish that I was here many
years ago, but I know that from this point on, I could come
here, back here five years from now, and see the positive
impact that these federal programs are having in our
communities.
The fact of the matter is that the ranking member and
myself, and the Small Business Committee members, the Small
Business Committee, will be working on revamping and retooling
some of the programs on their SBA. And we're going to be
working on the revitalization of the statute of the Small
Business Administration. So, this provides a great wealth of
information that we can use.
Let me address my first question to Mr. Brown and Mr.
Munitz. One of the obstacles to getting more investment as part
of the New Markets Tax Credit program has been the complexity
of the program. In a recent General Accounting Office report,
it discussed how investors are concerned about the structure in
which the tax credit is awarded. The investor also wants more
flexibility in the ways they can make investments in these
CDEs. Has this complexity discouraged you or other potential
investors from using the New Markets Tax Credit program?
Mr. Brown. As I look back at our banking community,
clearly, this is a very complicated program. It's a tax credit
program, and there are conflicting regulations. There is the
community development impact that Congress intended for the
program to have, and yet there are 45D rules under the IRS
statute that governs tax shelter types of rules to make sure
that the benefit of the program benefits the public, they have
a public policy benefit, and that it just doesn't enrich the
investors.
We have found, in the way in which we've used our New
Markets Tax Credit program, that we've had to get legal
opinions and get our bank partners comfortable in utilizing New
Markets Tax Credits to do land banking. And when you're doing
land banking in a manner that doesn't provide an immediate
source of repayment, then you can't just accrue that interest
and repayment for year in/year out.
And I could go into a lot more examples, but in summary,
the New Markets Tax Credit Coalition, as well as other industry
associations, are working with the IRS and members of Congress
to try to simplify in instances where conflicting tax codes
impact how the program is used and its appetite for the
investment community.
Chairwoman Velazquez. Thank you. Mr. Munitz.
Mr. Munitz. Madam Chairwoman, I really echo a lot of what
Tony has said. We were blessed a little bit differently than
most, the majority of our investors in our fund, or for-profit
corporations, but our banking investors are experiencing a lot
of the similar problems with the complexity of the codes for
the actual New Markets Tax Credits and then the IRS codes to
claim the credits themselves. So, from that standpoint, it does
get very complex.
I think on the other side that you mentioned briefly, what
kind of projects you can invest the funds in, I think those are
doing very well for us. And from 3CDC's standpoint, we wouldn't
want to see much change in that. It helps, we feel, keep us
competitive, that we're truly investing these funds in the
neighborhoods and the projects that need them the most in this
country, and not some other things that could just benefit from
additional return from the federal government.
Chairwoman Velazquez. Thank you. Mr. Brown, some critics of
the program point out that the New Markets Tax Credit doesn't
do enough to attract new investment. They argue that it simply
shifts investment. I was wondering if anyone could speak to the
issue of how the program has encouraged investors to put money
into these CDEs, that they may not have invested if the New
Markets Tax Credit did not exist.
Mr. Brown. And I think that's an excellent question.
The Uptown Partners Fund is a tremendous example. I mean,
you have five nonprofit employers who are investing in the New
Markets Tax Credit program: The University of Cincinnati,
Cincinnati Children's Hospital, Health Alliance, and the
Cincinnati Zoo, I better not forget TriHealth. And it is
uncommon for 3CDC, Procter & Gamble, Federated, it is sort of
uncommon for these corporate entities to invest in community
development programs.
Because of the Community Reinvestment Act, it is not
uncommon for our financial institutions to do it. I think that
the program has attracted new investors. It has attracted
investment bankers who do not have to comply with the New
Markets Tax Credit program. It has attracted insurance
companies who don't have to comply with the Community
Reinvestment Act. I'm sorry. And so it has attracted other
nontraditional community development investors.
At the Fund, before I left, the administration allowed me
to invest in what's called the Community Investment Impact
System, CIIS. So now the CFI Fund has the ability to attract
and to report to members of Congress: Who are the investors?
Are they uncommon? And even heretofore, the inquiry I used to
get when I testified before members of Congress, the Fund could
not tell you in which census tracts investments were being
made.
Now with CIIS, and the GAO has reported they have the
capability to slice and dice the information the way in which
the members of Congress want to see it. So I think you will
find, if you pose this question to the U.S. Department of
Treasury, they have the capability to answer it.
Chairwoman Velazquez. Thank you. Mr. Main, the 504 program
is unique in its focus on local economic development and relies
on CDCs to carry out this mission. How does the program focus
on the local community, and in particular the CDC's role
benefit business.
Mr. Main. As economic development agencies, and I can speak
primarily to HCDC, we do more than just package loans. We try
to give back to the community. We took--we developed a business
incubator. When we lost a General Motors assembly plant back in
the mid-'80s, rather than--we felt that the rational response
was through developing entrepreneurs, and we developed the
business incubator.
What the 504 program has provided us, though, is somewhat
of a culture, where we have to get projects completed. We have
to get loans approved, we have to get them funded, and they
have to repay. So that's kind of developed a culture, as such.
We've also been able to take that as economic development,
financiers, and put it in other projects. We, in addition to
the 504s, as I mentioned, we have the state Regional 166, but
what's more importantly, we also have a program through what's
called CRF USA, which has New Markets Tax Credits, and it goes
beyond 504. We cannot do non-profits with CRF USA. We can
finance non-profits. We have financed some condominiums in Over
The Rhine with non-profits, primarily commercial. We are just
one example. There's other CDCs, Certified Development
Companies, throughout the country that provide other types of
community benefits and support.
Chairwoman Velazquez. The 504 loans are fixed rate and tend
to be longer term than other financing alternatives. Is it
these characteristics that have made the 504 program more
attractive to local communities or local businesses.
Mr. Main. I think it's a couple things. One is the fixed
rate. Currently, we have rates at 6.29 percent, so it is below
market. It's the fixed rate, it's the low down payment. As a
rule, it can be as little as 10 percent down.
I think the other thing, and it was mentioned by several of
the witnesses, it's also the loan officers will work with
entrepreneurs in, not only the 504 piece, but also putting them
in touch with a bank and working them through the process. So I
think, in addition to the fixed rate, the low down payment, I
think it's also the--and not just here, but other CDCs, they
work with the businesses in getting the financing through.
Chairwoman Velazquez. Okay. Mr. Munitz, Mr. Brown, can you
talk to me about how--or have you had any type of mechanisms
that will prevent commercial gentrification or tenant
gentrification? And so far, have you seen any of these trends
happening.
Mr. Munitz. Madam Chairwoman, it's something that we've
taken very seriously at 3CDC as we're working in Over The
Rhine. What we have been doing is partnering with some of the
social service agencies, the community agencies in Over The
Rhine, to ensure that that doesn't happen.
One of the things that has been nice about what we've been
doing is there have been such an enormous amount of vacant
buildings and properties, that we are not actually pushing
anybody out of buildings as we go in to redevelop them.
The other thing, as we're moving along and trying to do
this, is we showed our goal is to put 100 for-sale condominiums
on the market each year for the next five years. We're also
working with some of the low-income housing providers and the
social service agencies to make sure that they keep pace with
this, because this year we developed 93 for-sale condominiums.
There's also been 80 affordable units that have come on-line
that are new to the community.
So, we want to try to bring both up together. And the only
way that these investments are going to make it in the long run
is to keep the heritage in Over The Rhine, which is a true
mixed-use, mixed-income neighborhood.
Mr. Brown. Madam Chair, you hit on what is a critical issue
for us in our town. I think the issue of commercial
gentrification--I'll address it from the standpoint, in the
Uptown area, as you witnessed, you have four of the region's--
actually three of the region's top employers sharing the same
headquarter blocks. The issues that we've had historically in
the Uptown area has been how our institutions have expanded
into the neighborhoods. And, historically, they have not done
it very smart.
And so the Uptown Consortium was formed by them to do land-
use planning in a better way. I think the Burnet Avenue
revitalization plan is a way in which we can be transparent
about the need to expand the campus for Children's Hospital,
for instance, to provide parking and to provide offices, but to
utilize new urbanism techniques that it can also be the
catalyst for neighborhood revitalization.
The University of Cincinnati, if we were doing this hearing
in Clifton Heights, would be an example of how they were able
to transform the campus and create Varsity Village and give
their nonprofit partners air rights on top of their parking
garage in order to stimulate the Clifton Heights business
district.
So, commercial gentrification, particularly in the Uptown
area, and I probably shouldn't use the word "gentrification,"
but I would say land-use planning in the Uptown area, how this
city balances its job base and the need to grow that job base
without having an adverse impact in the neighborhoods, is
something that we have to balance, it has to be comprehensive,
and we have to plan for it.
The issue of the residential impact is the same thing. I
think our planning has to be done in a way that provides a
balanced mix of housing. This city, second to Detroit, has lost
more population than any other city in America. And so what we
do together to provide the housing stock, the quality of life
in our neighborhoods in a way that make it attractive for folks
to want to live and play.
I mentioned the consortium has 50,000 employees. Less than
five percent live in the uptown neighborhood. So, though we
have a captive audience, as we've surveyed those employees, we
know what the negative attributes are as it deals with safety
and the quality of public education. So, those are other
factors that deal with, how do we create a quality of life that
makes our neighborhoods communities of choice, and not areas
where you avoid.
Chairwoman Velazquez. Thank you. I will now recognize
Ranking Member, Mr. Steve Chabot, for his questions.
Mr. Chabot. Thank you, Madam Chair. Let me, again, thank
you for holding this hearing here. And I want to thank all the
witnesses for their excellent testimony.
And because of time constraints, we obviously have to limit
our number of witnesses in a hearing such as this, we would do
the same thing if we were in Washington now, to a relatively
small number of people.
But we have quite a few people here who have an interest in
small business or who have an expertise, a whole range of
people. And I recognize an awful lot of people out there that
really could very easily have been one of the people who would
be testifying here, and might have things to contribute.
So, what I would suggest is, if there are things which we
didn't have an opportunity to cover this morning, or ideas that
people might have, if you want to contact our office, if you
can do it in writing, that would be the best thing, or e-mail
us or something, I can make sure that I provide a copy to the
chairwoman and to other members of the committee when we get
back to Washington. We have staff, as well.
So, if you have questions or comments or suggestions,
please feel free to contact us. We can follow up with you and
have a back-and-forth, and maybe--or perhaps we have some
small-business folks here who are thinking about, you know,
applying for a particular loan. If you get in touch with us, we
can get in touch with the SBA local folks here, as well. They
are also ably represented today. So, I just wanted to start off
by saying that.
My first question is: Back in February of 2007, there was a
GAO, General--the Government Accounting Office report that came
out, and it was released, and it said that substantial
investments were made in low-income communities that would not
have occurred without the New Markets Tax Credits. And, in
fact, 88 percent of investors said that they would not have
made their investment without the New Markets Tax Credit.
I wanted to ask these three gentlemen, first of all, and
especially with respect to Over The Rhine and Avondale, is that
what you have found to be the case here? Is this, the
improvements that we either have already seen, for example, in
Over The Rhine, or the ones that we see on the horizon,
especially here in Avondale, are these things that wouldn't
have happened without the New Markets Tax Credits.
And, obviously, the information that we take back are
things that we're talking about reauthorizing this program for
years to come, but it's something that we will take into
consideration. So, what's been your experience here?
Mr. Munitz. Madam Chairwoman, Congressman Chabot, I
couldn't agree with you more. It's been, really, from 3CDC's
standpoint, the single most important thing to allow us to move
forward in redeveloping Over The Rhine. It's a neighborhood
that people have had many starts and stops over the last
several decades to try to get redevelopment to occur.
And the way that the New Markets Tax Credit program is set
up, and our investors, who would never invest that money were
it not for the credit that the government is giving them, and
allowing them to keep their equity invested for seven years
during that term, until the product can perform on its own, to
come out with a conventional lender to finance that, it's
been--I can't even begin to state how valuable that has been.
Also, allowing us to be flexible to create terms that bring
those investments in, where we're really taking, as I said, low
loan-to-value ratios of our loans, very low collateral that we
take, allowing the developers to go in without any risk, no
direct security from the developers.
So, if it were not for this program, we would not be able
to move forward in the scale that you need to to make true
urban redevelopment in this day in these communities.
Mr. Brown. And I just would echo what Chad has said. I
think, simply put, what the New Markets Tax Credit Program has
done is, it has allowed your corporate partner that would have
looked at making a contribution for a community development
activity, and to know that it's limited because it has an
impact on the income statement, to take a look at its balance
sheet.
Because the tax credit, you know, 39 percent over five
years sounds like it's a huge tax credit, but what it does for
the investor, it's about a five percent return. So, it allows
Chad to talk to Procter & Gamble or it allows us to talk to our
investors to say, instead of putting that money into a U.S.
Treasury or money market, invest in this tax credit program and
then we can give you community impact.
So, whether or not there is an economic return on the
investment, the tax credit return itself, and the social impact
provides a tremendous opportunity to bring private capital to
work in low-income communities. So, if you look at it from that
standpoint, that is what's been the stimulus of being able to
attract this, these private dollars.
Mr. Chabot. Thank you. Could you discuss briefly, when you
have investments like we've been talking about here this
morning, the types of jobs that can be available to folks that
actually live in the communities.
What types of jobs are we talking about? What impact on the
community? That's my first question.
And the second question, you mentioned, in the one slide,
that there was a random shooting relatively close to here. And
as we all know, Cincinnati had its highest homicide rate last
year in the city's history. What type--you know, if we're
successful in redeveloping some of Cincinnati's most
disadvantaged communities over the next number of years, what
impact should that have on crime, you know, connected with the
job development? And to some degree, it's a chicken-and-egg
thing because, you know, if you're able to have more
development and more jobs for people, one would think it
reasonable that crime would come down.
Now, the other side of that is, if it's a high-crime area,
people don't necessarily want to invest in that neighborhood,
because they're afraid that they won't get a return on their
dollar. It may not be safe for their customers or their
employees or themselves. So, if you could address that
relationship, as well.
Mr. Brown. The allocatee for the Uptown Partners Fund is
the Cincinnati Development Fund, and one of the nation's best
community development financial institutions. And I can say
that with authority, having managed them or invested in them
all. And, quite frankly, but for the Cincinnati Development
Fund, I don't think we would have been successful in the uptown
area, because we wrote their track record.
As a result, they have an obligation to report to the U.S.
Department of Treasury the types of jobs that are created from
their investments. And we know, through the allocation
agreement, that we'll have to report the types of jobs created
from the construction activity, and in this case, the types of
real estate.
In our case, we're investing in office and retail types of
jobs. You have seen on Burnet Avenue, if you had been here just
six months ago, a lot of vacant commercial space.
If we're successful in constructing 300,000 square foot of
office retail, we estimate that that should create and retain
nearly 2,000 jobs.
The issue of--now, how does tax credits get allocated in
areas that need it most? In our allocation, we said we're only
going to focus in low-income areas that, by federal definition,
meets the criteria of being economically distressed. And so
there are low-income communities, as you know, across the
country that are in vibrant central business districts that
qualify for the program.
But, as you can see, in the uptown area and in Over The
Rhine, low rates of home ownership, high rates of poverty, and
we are trying very hard to make sure that our program has a
neighborhood benefit, that it benefits our neighborhood
business districts, and that our focus is that it increase the
rate of home ownership. Cincinnati has a very low home
ownership rate. In the uptown area alone, we only have a 20
percent home ownership rate.
So, as we use the programs to buy real estate--and as I
said on the walking tour, it can't be a small plan. It has to
be bold, and that we know that we have to deal with the
perception of our market, whether crime is real or perceived in
their mind. A lot of it is perceived. And we're doing
everything we can in working with the Cincinnati Police
Department, in the types of investments we make and the way
that we deploy the New Markets Tax Credits, to create a new
environment that then makes it attractive for folks who want to
live and buy. And it's a challenge, but it's one in which we
prioritize how we deploy our dollars.
Mr. Chabot. Does that pretty much cover it, Chad.
Mr. Munitz. It does. Just to add, it's a very important
thing, and I think both of our organizations are committed to
this. It starts from the beginning of using--it's not just at
the end. Once the development happens, in having those new
residents and the people working there be from low and moderate
income, but also the work to create the development, we're both
very committed to using small minority businesses to get that.
So, from the very beginning, the investment occurs, we're
helping out those areas.
Mr. Chabot. Thank you. Madam Chair, do I have time for one
more question.
Chairwoman Velazquez. Oh, sure.
Mr. Chabot. Okay. Thank you. If I could address the
question to Ms. Oliver and Ms. Kirk and David, you, as well.
Now, you all have benefited from the loan program in order to
either start up or expand your business thus far. And, David,
you kind of oversee that type of thing.
Are there any things that you've seen in the program that
would make it more user-friendly or easier for those that are
starting up a small business or trying to grow it, any kind of
roadblocks or things that you think should be a bit easier than
it is, that makes it difficult, any changes that you would
suggest in the program.
Ms. Kirk. I'll go first. We started in 2001, as I said.
And, honestly, our process went so smooth, and I credit a lot
of that to Angela Howard.
Mr. Chabot. Good job, Ms. Howard.
Ms. Kirk. Because she--we developed a relationship with
Angela from the previous banking relationship, and then she
knew us, and knew that this was something that would help us.
So, I would say just that relationship building, but honestly,
we didn't have one hiccup, not one.
Mr. Chabot. Ms. Oliver.
Ms. Oliver. Yes, I'll echo that, because Angela, she was
so--she was just excellent. She was very knowledgeable of the
program. And anything that I had a question about, she was
readily available. And she--the process was just complete. So,
there's nothing that I can think of.
Mr. Chabot. Excellent. Thank you. David, having dealt with
probably many different--I'm very happy that these two are very
satisfied. I'm glad it went well.
Mr. Main. So am I.
Mr. Chabot. Are there--you know, we've discussed this in
the past. Are there any suggestions that you would make or that
could improve or make it a little easier or more user-friendly.
Mr. Main. I think I mentioned it in the testimony. One of
the issues has been, the agency has been pretty much cut to the
bone, to the point where I don't know how much more they can
cut as far as staffing. They need to update the SOP.
We were quite satisfied when we ran local processing
through the Cincinnati office and Ron Carlson in Columbus.
While I understand the need for improvement in that, there are
times where we have found that Sacramento has not been as user-
friendly. There have been issues as far as appraisals, there's
been--one of the biggest issues is land contracts.
Now, it's not an issue out in the western part of the
country. But for years in the Midwest, in Ohio, in Michigan, in
Minnesota, if you have a land contract, someone comes in,
they're not creditworthy for whatever reason, they cannot get
conventional financing, they purchase property on a land
contract. Equity title doesn't transfer. And we have taken out
land contracts with 504 programs.
Well, as it turns out, for some reason, Sacramento is
telling us no. There is no real rationale behind it other than
saying, well, we don't think it should apply. I think, with
additional staffing, they could update the SOP. If we know the
rules of the game, we can play them, but that's just one
example.
And as I mentioned, perhaps an eastern processing center
for 504 loans. I'm concerned that the next great quake comes
out in California, or they lose power, what happens to the
process? Because this is one area. Whereas if we had a second
one--Cincinnati would be a great place for an eastern 504
processing center, I'm sure New York would be, just as well--
that we could balance things. But I--and I think, with updating
the SOP and looking at some issues on appraisals and that, that
could improve the program.
Mr. Chabot. Thank you very much. I yield back my time.
Chairwoman Velazquez. Thank you. Mr. Main, if the 504
program did not serve the Cincinnati community, where would
local businesses turn for long-term financing, low-cost
financing?
Mr. Main. It doesn't exist.
Chairwoman Velazquez. And can you tell me if there are more
and more businesses turning to the 504 program.
Mr. Main. We've seen our volume increase over the last six
years. We approved 31 loans back in 2001. We approved 61 last
year. Hopefully, we're on track to do more this year. And it's
a matter--the economy has somewhat slowed down in Ohio, and I
noticed in Michigan, as well, but we seem to be pretty much
holding our own.
There is really no other alternative. The banks, typically,
they may take a longer-term amortization, maybe about 20 or 25
years, but they are going to have maybe a five-year balloon or
they're going to have--they're going to want to adjust the
interest rate after five years. The 504 program, as far as I'm
aware of, is the only commercial loan program that will have a
fixed rate which provides predictability for going out 20 years
with a reasonable down payment.
Chairwoman Velazquez. Mr. Brown, you mentioned in your
testimony some changes and recommendations that you would make
to the New Markets Tax Credit. Would you mind repeating them or
adding to what you just said in your testimony.
Mr. Brown. Yes. Madam Chairwoman, what I indicated is that
there's an association, the New Markets Tax Credit Coalition,
documented the issues and the complexity of the program and
some of the other changes of where there needs to be regulatory
fixes versus statutory fixes. As a board member on the New
Markets Tax Credit Coalition, we were faced with the challenge
of, do we focus on trying to keep the program simple without
addressing meeting major reforms, and just ask members of
Congress to go forward with the simple bill to extend the
program?
And those of us in the industry have concluded that we
should go and ask members of Congress to do a very simple
extension, because if you look at the time frame of when
allocations have been awarded, it usually takes six months to a
year to do the allocation agreement, and then another period of
time before the dollars are actually deployed.
As Congressman Chabot shared the GAO report, the
allocations, those dollars are just now getting in the streets.
So, out of the total amount allocated, about 59 percent is now
deployed in low-income communities. And the issue is, it's not
been deployed or percolated long enough so that we can report
to you the quantitative impact that the program has had.
So, we have documented the statutory issues, things that
the IRS--because of the tax shelter regulations, dealing with
true debt analysis and making sure that a loan is a loan and
it's not a grant, because those are things that, because of
supporters like you and Mr. Chabot, we felt that it was best to
go forward with a simple extension of the program and work with
the IRS, members of Congress, to then come back later with the
statutory reforms that would deal with all the technical
glitches.
Chairwoman Velazquez. I'm seeing the incredible and
positive impact that the New Markets Tax Credit is producing
here in Cincinnati. We should be committed, not only to
extending the date of 2008, but to fully fund the program,
because as we can see, the impact that it is having here, we
have so many other communities across the country that would
benefit from such a program.
So, I hope that when you talk to other members of Congress,
that you share the positive experience and encourage them to
not only extend the program, but to fully fund the program, to
make it really workable. And, Mr. Chabot, if you have any other
questions.
Mr. Chabot. I have one question and one comment. A question
for Ms. Oliver and Ms. Kirk. This is a little beyond the scope
of this immediate hearing, but being small-business owners,
when I talk to small-business people, they seem to bring up,
when I ask them what their greatest challenge is--and we've
heard this in hearings in Washington for years now. One of the
greatest challenges that small-business owners have is
providing health care for their employees. And I'm just
wondering, is that something that you all, as small-business
owners, are concerned about? And do you find that a challenging
issue to deal with?
Ms. Kirk. I'll go first. Insurance, insurance, insurance.
That's all I will say. It's not only health care, but it's just
insurance rates, period. Roughly 25 percent of our monthly
overhead goes to insurance premiums, which is outrageous,
totally outrageous.
Fortunately, for health care, we are able to participate in
a relatively good insurance program, but we look at increases
annually, and more out-of-pocket expenses, as well, which makes
it difficult to attract good employees. You know, it's
requiring for the nation a new mind-set of what health care
coverage is--should be for us, and that we, as individuals,
have to participate.
But it does make it extremely difficult because, you know,
you're an employee, you want to look at your total compensation
package. And the more out of pocket that you have to
participate in your own coverage impacts what you have
available to cover your expenses and your lifestyle.
Mr. Chabot. Thank you.
Ms. Kirk. One other thing that I would like to add, which
you didn't ask me, but I would just like to state, that the
fact that we purchased our building and were able to
participate in a 504 program, I don't want it to go by that a
true trickle-down effect is possible, because we're able, now
that we own our building and we've--not only just the
renovation, the types of businesses, African-American and
minority businesses, that we used to help with that, but in
terms of our ongoing maintenance, helps to provide, you know, a
source of income for businesses that, say, a traditional large
corporation would not ordinarily hire.
And thus, those businesses, you know, are employing people
that live in this targeted area. So, there is a true line item
effect and a true trace that you can have as to the benefits of
the tax credits and 504 program and minority businesses and on
and on.
Mr. Chabot. Thank you. Ms. Oliver.
Ms. Oliver. Basically, because of the health insurance
issues, I tend to get independent contractors that I do not
have to provide health care for. And I just thank God that I
have it through my husband, because when I was doing it myself,
it was, like, very expensive, just per month, for one person,
up to like $600. So, for that reason, I do have independent
contractors in my business.
Mr. Chabot. Your insurance, then, is provided through your
husband's employment with another company, job.
Ms. Oliver. Correct.
Mr. Chabot. It's one of the--as the chairwoman knows, it's
an issue that we, as a nation, are struggling with. And,
certainly, we've been dealing with this in the Small Business
Committee, and there are various proposals that have been put
forward. And we are considering those things now.
We had a bill that we proposed in the past couple of
Congresses, called the Health Care Affordability Act, which
would allow every individual and every small-business owner to
fully deduct all the health care premiums from their taxes,
which large companies can do now, but a lot of small companies
can't. Individuals certainly can't.
We're looking at the high cost of lawsuits and, you know,
medical malpractice lawsuits, and things of that nature,
looking at what's the best way to handle that, because that
causes premiums to go up.
And also allowing small-business owners to pool their
resources, association health plans, where a number of barbers,
for example, or a number of beauticians, or other businesses,
could join together and have greater ability to negotiate with
the insurance company for lower rates for their employees,
various things that we're looking at. But I didn't want to get
too far afield of the hearing.
Chairwoman Velazquez. That would be a topic for another
hearing, but let me add to that. First, that I was one of the
lead sponsors of the association health plans with all the
members. It was bipartisan legislation to allow for small
businesses to band together and leverage to provide insurance.
On the Democratic leadership, I have to tell you that I've
been telling the democratic leadership that this is an
important issue, and that we cannot address the issue of lack
of health insurance in our nation without addressing the issue
of lack of insurance for small businesses.
Out of 44 million Americans who do not have any access to
health insurance, 60 percent of them are either small business
or their employees. It is an important issue for this
committee, we've already held hearings.
We, the Democrats, also--I took--I put together a round
table. So, it is a priority for our work committee. And,
hopefully, we will be able to come up with a bipartisan
legislation that we can all afford to have. But this is a real
challenge. And it is the right thing to do on behalf of small
business. Mr. Brown, you wanted to add something.
Mr. Brown. I was just going to clarify an answer to a
question that you posed, and it was a very important one, about
how we approach Congress in extending the program versus
regulatory changes versus statutory. And I really wanted to
just, because of our bank investors in the community, to really
present the program from their risk.
And the whole issue, and the clarity of the program, from
our standpoint, is that the investors are trying to manage
against recapture risk, and so they have to rely on the tax
opinion from the counsel to note that the investment or the
loan would meet the IRS definition and guidelines.
And so what happens, the community development mission and
our ability to use the tax credit to subsidize projects, which
will allow us to forgive a loan or forgive an investment, we
can't structure the deal that way, because it could not meet
the--get the legal opinion and thus be a tax credit shelter
definition and cause recapture to the investor.
So, those are the issues for champions like you who know we
need this private capital to be done in a flexible way to close
the gap, that there are other public policy objectives. You
have to make sure that investors aren't enriching their
pockets. And that, in the most simple way I can put it, is the
difficulty of the complexity of this program.
Chairwoman Velazquez. Mr. Main.
Mr. Main. I just wanted to mention briefly on the health
insurance issue, HCDC is a small business. We have experienced
between 12 and 20 percent increases in our health insurance we
provide to our 20 employees. As far as the association, we have
roughly 47 companies in our incubator. There's about 200
employees, that if we could pool that into an association, we
could--I understand we would see lower premiums because we
would have that critical mass of the 180 to 200 employees as
opposed to having right now a unit of 20.
Mr. Chabot. Madam Chair, just one brief concluding comment,
if I could. You know, oftentimes I think that the image or the
view that people get from what goes on in Washington is
Democrats and Republicans are always fighting with each other
and trying to take political advantage and taking shots.
Chairwoman Velazquez. We're friends.
Mr. Chabot. And I think that's one thing that is--it's
true, and that there are those that do work in a bipartisan
fashion. And I think that's the way the committees ought to
work, and some do. And the Small Business Committee, I think
especially now--that did have problems in the past, there's no
question about that, but the Chair--as the Chair and myself, as
a ranking member, have worked very hard, and our staffs have,
to work as much as possible in a bipartisan fashion. We're not
going to agree on everything. There are philosophical
disagreements that we have, but you can disagree and not
necessarily be disagreeable. And when you work together, I
think you can accomplish great things for communities, and you
can also accomplish great things for our country.
So, I want to thank you, again, for coming to our district,
and thank you for continuing to work in a bipartisan fashion,
even though your party is in the majority and mine in the
minority. I would like to see that change someday. That's one
of the things we disagree on, probably. But, let's continue to
work together. Thank you for--
Chairwoman Velazquez. Well, let me just say thank you,
Steve. First, this is the first field hearing that we have
conducted in four years. And as I said, there is no way that we
can know if the things that we are doing in Washington really
are working back in our communities if we don't come and listen
to you here, and if we don't come into your district and see
the positive developments that are taking place.
But, when it comes to the Small Business Committee, and
I've been serving on this committee for 15 years now, and given
the political climate in Washington, my comment and my opinion
have always been that this is the committee that should be run
in a bipartisan way, because there should not be a Republican
or Democratic approach when it comes to small businesses.
And as Chair now, I will recognize the right of the
minority to deliberate, to participate, to fully participate in
the legislative process. If I deny that right, I will then call
for a partisan reaction and response, and I would understand
that. But, hopefully, we will continue to work in a bipartisan
way so that small businesses in this country will benefit from
the work that we do in the capitol and in DC, in the House of
Representatives.
It has been a great pleasure for me. Thank you very much
for all the witnesses. And we will take all this wealth of
information back to the capitol, to the House of
Representatives, to our committee, and we will review and see
how can we improve the 504, the New Markets Tax Credit, to make
sure that they are, not only reauthorized, but fully funded.
Thank you very much, And this committee is adjourned.
[Whereupon, at 11:40 a.m., the committee was adjourned.]
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