Testimony from the Neighborhoods and Communities Coalition in Support of House Bills (HBs) 5820-5821

Summary

Testimony of September 2, 2020 from the Neighborhoods and Communities Coalition to Chairman Marino and members of the House Commerce and Tourism Committee, urging support for House Bills 5820-5821. The bills would create the Michigan Community Investment Pilot Program, under which a corporate or individual donor to a qualified place-based nonprofit receives a 50% state tax credit on the donation. The testimony states that the program would be capped at $25 million per year in donation-based tax credits, reflecting a minimum $50 million in new, local investments, and is based on similar programs in 14 other states. It names Rep. Aaron Miller (R-Sturgis) and Rep. Ronnie Peterson (D-Ypsilanti) as sponsors and lists Jessica AcMoody of CEDAM as a contact.

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& Communities
COALITION

Testimony from the Neighborhoods and Communities Coalition in
Support of House Bills (HBs) 5820-5821, Legislation Creating the
Michigan Community Investment Pilot Program and Donation-Based Tax Credit

September 2, 2020
Chairman Marino, Members of the House Commerce and Tourism Committee:

On behalf of the Neighborhoods and Communities Coalition, we urge you to support House Bills
5820-5821, legislation that establishes the Michigan Community Investment Pilot Program and
Tax Credit which provides a 50% donation-based tax credit that provides long-term, sustainable
support for locally driven revitalization initiatives in neighborhoods and rural communities.

As lawmakers know, very large community development projects have several tax incentives at
their disposal to attract investors. One example is the recent 2017 expansion of Michigan’s
Brownfield Redevelopment Financing Act, which made $1 billion worth of incentives available
for "transformational" projects. However, small- to medium-sized neighborhood and rural
community revitalization projects are often overlooked because they lack the same tools to
attract investment.

Our Coalition

The Neighborhoods and Communities Coalition is a regionally-diverse, broad based group that
includes statewide associations such as the Community Economic Development Association of
Michigan (CEDAM), charitable nonprofits such as Habitat for Humanity, and regional placed-
based such as Building the Engine of Community Development Detroit and New Development
Corporation of Grand Rapids. The coalition has been meeting since 2018.

In Brief
« House Bill 5820, Rep. Aaron Miller (R-Sturgis), amends the Michigan Strategic Fund to

create the Michigan Community Investment Pilot Program.

e House Bill 5821, Rep. Ronnie Peterson (D-Ypsilanti) amends the income Tax Act creating
the Michigan Community investment Tax Credit.

® Status: both bills are currently before the House Commerce and Tourism Committee
(see attached separately for a list of committee members). Chairman Marino intends to
take the bills up for a hearing in early September.
Details

Together, the bills would establish the Michigan Community Investment Pilot Program, a
donation-based state tax incentive that would provide support for locally driven revitalization
initiatives in neighborhoods and rural communities. Under the proposed legislation, a corporate
or individual donor contributes directly to a place-based nonprofit for eligible projects or
activities, including:

e Small business development, including agri-business
e Affordable housing
e Financial empowerment
¢ Workforce attraction & retention
Neighborhood & community revitalization
e Commercial corridor revitalization

In exchange, the donor receives a 50% state tax credit on their donation. As drafted, the biils
would cap the program at $25 million in donation-based tax credits, reflecting a minimum $50
million in new, local investments.

The proposed pilot program is based upon similar, successful programs in 14 other states:

Delaware Maryland Pennsylvania
Florida Massachusetts South Carolina
Indiana Missouri Virginia
Kansas Nebraska West Virginia
Louisiana New Jersey

Eligible organizations
To qualify for a community investment tax credit allocation under the Michigan Community
Investment Pilot Program, a community development organization/nonprofit must meet all the
following:

e Recognized and up to date status as a 501 {c}(3);

e Confirmed as a local, place-based organization;

* Documented engagement and experience in one or more of the qualifying programs,

projects, or activities.

Qualified investment

A qualified investment would be a cash or cash equivalent contribution made to a qualified and
approved nonprofit as selected by the Michigan Community Investment Pilot Program to
receive a community investment tax credit allocation. The Michigan Community Investment
Pilot Program shall issue a certification to the taxpayer after the taxpayer makes a qualified
investment.
Eligible programs, projects or activities include:

e Creation or preservation of affordable housing
Removal of blighted properties
introducing new businesses/small business support
Youth or elder programs
Adding or expanding commercial space
Growing financial stability services
Job training/workforce development programs
Arts, culture, and historic preservation efforts

Eligible donor-investors
An individual or corporation with a state tax obligation, donating in cash or cash equivalents1
only, to a qualified nonprofit as provided under the Michigan Community tnvestment Pilot

Program.

The Process

The Michigan Community Investment Pilot Program & Tax Credit program would provide a 50%
tax credit for donations to qualified 501(c}(3) nonprofit organizations across the state. Its
purpose is to increase funding resources to support community economic development
activities in any community - urban or rural.

The process of obtaining tax credits requires eligible nonprofit organizations to move through
the following steps:
OY Nonprofits must first be certified as a 501(c}(3) and meet certain other requirements
provided in the legislation of a “qualified organization.”
(4 Nonprofits must then go through a competitive application process to receive an
allocation of tax credits
(1 Once selected, the groups would use the credits to attract private donations from
corporations and individuals
Q) Organizations benefiting from tax credits are accountable to local community members
and leaders, private donors, and state government

Annual Cap on Pilot Program Tax Credit

The Michigan Community Investment Pilot Program tax credit allocations awarded under the
pilot program is capped at $25 million per year, reflecting a minimum $50 million in new, local
investments.

Fiscal Impact
The proposed tax credit is intended to attract new donor-investors, who might not otherwise

be making an investment in a neighborhood or community. Available tax credit allocations
granted to eligible organizations under the proposed pilot program is capped at $25 million per

1 Liquid assets
year, or $125 million for the five-year time frame of the pilot, representing a minimum of $50
million in new local investments per year, or $250 million across the proposed 5-year term of
the pilot program.

NO Impact on School Aid
The proposed tax credit would not impact property taxes, and therefore will not impact the

School Aid fund.

Why Now?
Now more than ever, Michigan needs community investments.

Michigan faces a number of challenges including:
e Lack of Housing
In many Michigan communities, there is a well-documented shortage of affordable
housing. In these communities, local businesses cannot attract workers because there
simply is no place for their workers to live. 200,000 households in Michigan do not have
an affordable housing unit available

e Lack of investors for smail- to medium-sized projects
Very large community development projects have tax incentives to attract investors.
Small- to medium- sized neighborhood and rural community revitalization projects are
often overlooked because they lack the same tools to attract investors.

e Government cannot do it all
Over the past 8 years, federal neighborhood programs have been drastically cut.
Community Development Block Grants (CDBG) has been cut by $1.1 billion and HOME
has been cut by $46 million. Governments and local economic development
organizations are trying to do more with less.

Closing
The Michigan Community Investment Pilot Program and Tax Credit, as provided in House Bills

5820-5821, will give local nonprofits a tool to attract new investments, similar to the tax credits
already enjoyed by very large development projects. Locally based organizations know what
they need to grow their local economies, stabilize, and strengthen neighborhoods, and attract
the talent needed for new businesses to start and existing businesses to thrive. Finally, as the
state begins to grapple with the economic devastation resulting from Covid-19, this pilot
program will aid in the recovery and revitalization of neighborhoods and communities. For
these reasons, we urge you to vote in support of HBs 5820-5821. Thank you for your
consideration of our views.

For more information, please contact:
Jessica AcMoody, Senior Policy Specialist, Community Economic Development Association of MI

(CEDAM): (517) 485-3043 or acmoody@cedamichigan.gov
Jean Doss, consultant to CEDAM: (517)202-2302 or jdoss@capitolservices.org

4
Examples of Community Investment Fax Credit Programs in Other States
Similar to Michigan Community Investment Pilot Program and Tax Credit
Proposed in HBs 5820-5821

A version of the Community Investment Tax Credit Program is available in these 14 states:

e Delaware e Missouri

e Florida e Nebraska

e Indiana e New Jersey

e Kansas e Pennsylvania
e Louisiana ® South Carolina
e Maryland e Virginia

e Massachusetts e West Virginia

Michigan has the opportunity fo become the 15th.
Some examples of how the Community Investment Tax Credit has been used:

In Pennsylvania during 2016, the Neighborhood Assistance Program’ facilitated:
> 120 new housing units
> Developed 45,000 square feet of commercial space
> Created additional real estate tax revenue on previously vacant properties
73 36 new neighborhood businesses

In Massachusetts, the Community Investment Tax Credit (CITC) between 2014 - 2017? has:
2% Built over 600 new affordable housing units
=> Prevented 1,300+ foreclosures
2 Provided more than 11,6000 individuals with financial coaching and education
~ Developed new partnerships between nonprofits and businesses

In Maryland the 2019-2020 funding of the Community Investment Tax Credit? will:
~ Broaden the pool of rental properties accepting housing vouchers
- Expand services to organizations that focus on individuals and families facing
homelessness
> Support programs to assist seniors to safely and affordably age in place

massachusetts/
3 https:/Awww.givemaryland.org/dashboard
Frequently Asked Questions (FAQ) about House Bills 5820-5821,
Legislation Creating the Michigan Community Investment Pilot Program and Tax Credit

(Updated August 2020)
1. What do the bills do?

Together, House Bills (HBs) 5820 and 5821 create the Michigan Community Investment Pilot Program
and Tax Credit. This proposed program is a donation-based state tax incentive that encourages
businesses and other individuals throughout Michigan to provide support for locally based
revitalization work in neighborhoods and rural communities. Under the proposed legislation, a
corporate or individual donor makes a contribution directly to a place-based nonprofit that has been
selected under the pilot program for a tax allocation. Eligible projects or activities include:

@ Small business development, including agri-business
Affordable housing
Financial empowerment
Workforce attraction & retention
Neighborhood & community revitalization
Commercial corridor revitalization

The donor then receives a 50% state tax credit on their donation. As drafted, the bills would cap the
program at $25 million annually in donation-based tax credits, reflecting a minimum $50 million in
new, local investments. The proposed pilot program is based upon similar, successful programs in
fourteen (14) other states.

2. Who are the bill sponsors?

Rep. Aaron Miller (R-Sturgis) is the sponsor of HB 5820, which amends the Michigan Strategic Fund to
create the Michigan Community Investment Pilot Program

Rep. Ronnie Peterson (D-Ypsilanti) is the sponsor of HB 5821, which amends the Income Tax Act of
1967, creating the Michigan Community Investment Tax Credit.

3. What is the status of the bills?

The bills are currently before the House Commerce and Tourism Committee. Chairman Marino is
excited to start the conversation and plans on holding the first hearing on the bills in early September.

4. Exactly how would this work?
The Community Investment Tax Credit program would provide a 50% tax credit for donations to

qualified 501(c}(3) nonprofit organizations across the state. Its purpose is to increase funding resources
to support community economic development activities in any community - urban or rural.
The process of obtaining tax credits requires eligible nonprofit organizations to move through the
following steps:
L} Nonprofits must first be certified as a 501(c}{3) and meet certain other requirements provided
in the legislation of a “qualified organization.”
© Nonprofits must then go through a competitive application process to receive an allocation of
tax credits
QO) Once selected, the groups would use the credits to attract private donations from corporations
and individuals
Q Organizations benefiting from tax credits are accountable to local community members and
leaders, private donors, and state government

5. Why are these bills needed?

Even before the pandemic hit our state, Michigan communities faced significant challenges to securing
resources for small- to medium-sized projects, ranging from addressing a local housing crisis to
workforce development to corridor revitalization. These bills, by encouraging new contributions from
private businesses and individuals, will help close the funding gap for critical, locally driven projects
and programs. HBs 5820-23 will ensure that Michigan communities have the tools they need to attract
the new investment needed to recover from the economic devastation caused by the COVID-19
pandemic.

6. What problems are these bills intended to solve?
Local neighborhood and community development organizations lack the tools for attracting
investment that much larger economic development projects currently enjoy. The proposed Michigan
Community Investment Pilot Program and Tax Credit targets these vital, locally driven programs and
projects, in order to stimulate increased investment. There are many local nonprofit organizations
throughout the state doing great work. But they need more financial resources to do even more good
for our communities.

7. Who opposes the bills?

To our knowledge, no one at this time opposes the bills. As with any legislation, opposition may not
surface until hearings begin on the bills.

8. Does the Governor support the bills?
The Governor has not yet taken a position on the bills.
9. Do these bills impact the School Aid Fund?

No! The proposed tax credit in HBs 5820-5821 will not reduce school funding.
10. Does MEDC support the bills?

The Michigan Strategic Fund/MEDC has not yet taken a position on the bills. Representatives of the
Neighborhoods and Communities Coalition met with then-MEDC CEO, Jeff Mason and his staff in July
of 2019, and solicited their input during the development of the bills. We are hoping to meet with the
current CEO of MEDC in the near future.

11. Isn’t this a bad time, when the state is facing a revenue shortfall, to be talking about a new
pilot program and tax credit?

Supporters are sensitive to the fact that we are proposing a new program and a new tax credit during
an acute budget crisis. Our coalition worked with the bill sponsors to develop the bills prior to and
during the COVID-19 pandemic. We believe that having new tools to attract investment and support
local communities is not something that can wait. As we struggle to recover from the COVID-19 crisis,
local place-based organizations are in an ideal position to respond to the health, education, and job
challenges that local communities are experiencing.

12. What is the fiscal impact of this program and tax credit?

As proposed, the Michigan Community Investment Pilot Program and Tax Credit will stimulate a
minimum of $50 million in new investment in local neighborhoods and communities. The pilot program
caps the allocation of donation-based tax credits to $25 million a year.

13. How is this different from other tax credits?

This tax credit focuses specifically on allowing place-based nonprofit organizations to direct funds to
community economic development and revitalization efforts in their neighborhoods and communities.
The Michigan Community Investment Tax Credit gives local nonprofits a tool to attract new
investments and deliver on projects, similar to the tax credits already enjoyed by very large
development projects.

14, Why aren’t existing tax credits enough? Don’t they support these exact same organizations
and projects?

Very large community development projects have a number of tax incentives to attract investors. One
example is the recent 2017 expansion of Michigan’s Brownfield Redevelopment Financing Act, which
made $1 billion worth of incentives available for "transformational" projects. But smail- to medium-
sized neighborhood and rural community revitalization projects are often overlooked because they lack
the similar tools to attract investment.
15. What other states have similar programs and tax credits?

Several states, including Maryland, Tennessee, Massachusetts, Indiana, Pennsylvania, South Carolina,
Delaware, Florida, Kansas, Louisiana, Missouri, Nebraska, New Jersey, Virginia, and West Virginia,
already offer similar tax credits.

16. What are the parameters for projects in other states?

Eligible projects in other states include a wide variety of activities such as affordable housing rehab and
development, workforce and business development, neighborhood revitalization, and neighborhood
commercial revitalization.

17. What are the fund caps in those states with caps?

States vary in the amount provided under their caps. Massachusetts does not cap their fund, while
Pennsylvania recently doubled their cap from $18 million to $36 million annually in tax credits.

18. What is the proposed CAP in these bills?

$25 million per year, representing a minimum of $50 million in new investment at the neighborhood
and community level across the state.

19. As | read the bill, it seems to say $25 million over a five-year period?

Yes, that is a drafting error. It is the sponsors’ intent to cap the program at $25 million per year, over
the 5-year time span of the pilot. We will be addressing this in a draft substitute.

20. The bills do not include a lot of detail about how the program would work — why is that?

We intentionally left this level of detail out of the bill, with the expectation that the bill sponsors and
other legislators, nonprofits and other key stakeholders, will work with the appropriate government
agency to develop and craft this language in the form of program guidetines.

21. Frankly, | am skeptical about tax credits. In my experience they seem to only benefit the
financial interests of donors, and rarely produce the community benefits originally promised.

This program intentionally stimulates new investments for community-based activities. Locally based
organizations know what they need to grow their local economies, stabilize and strengthen
neighborhoods, and attract the talent needed for new businesses to start and existing businesses to
thrive. The tax credit provided in these bills is driven by local residents and will directly impact
neighborhoods and communities around the state.
22. Wilk this pilot program and associated tax credit only apply to urban areas?

No. The bills seek to encourage investment in communities across the state of Michigan, including rurat
and urban communities.

23. The bills call this a “pilot program” — how long will the pilot last?
Is there a sunset date in the bills?

Investments must be made after December 31, 2020, and before January 1, 2026.
24. Can financial institutions apply to the program for allocation of tax credits?

No, financial institutions are not included in the legislation’s definition of “qualified organizations” for
tax credit allocations.

For any other questions not answered above, please contact Jessica AcMoody, Policy Director at
Community Economic Development Associations of Michigan {acmoody@cedamichigan.org).
_/ Neighborhoods HB 5820 & 5821

& Communities
COALITION

What is the Community Investment Program?

The Community Investment Program is a donation-based state tax incentive that would provide
long-term, sustainable support for locally-based revitalization work in neighborhoods and rural
communities. HB 5820 & 5821 would unleash more private resources for Michigan's communities.

How Would it Work? | Whatis an eligible nonprofit?

A corporate or individual donor makes Eligible nonprofits are place-based organizations providing
a contribution directly to a place- economic development services including:

based nonprofit. The donor receives a Small business development, including agri-business
50% state tax credit on their donation, Affordable housing

Workforce attraction & retention
Neighborhood & community revitalization
Commercial corridor revitalization

Communities know their problems—

* Financial empowerment
and how to solve them .

Michigan Needs Community Investment Now
Michigan faces a number of challenges including:

Lack of Affordable Housing

In many Michigan communities, there is a well-documented shortage of affordable housing. In
these communities, local businesses cannot attract workers because there simply is no place
for their workers to live.

Lack of resources for small- to medium-sized projects

Very large community development projects have tax incentives to attract investors. Small- to
medium-sized neighborhood and rural community revitalization projects are often overlooked
because they lack the same tools to attract resources.

The impacts of the COVID-19 pandemic

As we struggle to recover from the COVID-19 crisis, local place-based organizations are in an
ideal position to respond to the health, education, and job challenges that local communities are
experiencing.

512,288 The Community Investment
Program could help reduce the

households in Michigan are paying more ,
than 30% of their income on housing housing cost burden
Fourteen states have some form of this tax credit

- Delaware - Maryland - Pennsylvania

- Florida -Massachusetts - South Carolina
- Indiana - Missouri - Virginia

- Kansas - Nebraska - West Virginia

- Louisiana - New Jersey

Here's how the Neighborhood Assistance Program (NAP) has worked in Pennsylvania:

Case Study: 2016 NAP Tax Credit Awards:

In the Lawrenceville neighborhood of
Pittsburgh, NAP helped facilitate:

+ 36 new neighborhood businesses in two
years

+ Development of 120 new housing units
worth $30 million

+ Development of 45,000 square feet of

commercial space worth $9 million
- Average $2,900 in real estate tax revenue
on previously vacant parcels

This program has been a catalyst for community and economic
development and has created unprecedented partnerships between
the corporate and nonprofit sectors.

- Jennifer Beer, Vice President, Government Relations, Greater Pittsburgh Chamber of Commerce

It's time to establish a Community Investment Program

Community members across Michigan, urban-rural-suburban, simply want the same tools to attract
investment that larger projects already receive. Government can't do it all, and locally-based organizations
know what they need to grow their local economies, stabilize and strengthen neighborhoods, and attract
the talent needed for new businesses to start and existing businesses to thrive.

Join the Neighborhoods & Communities Coalition (NACC) by contacting:

Jessica AcMoody, Community Econonmic Development Association of Michigan (CEDAM) | 517.485.3588 | acmoody@cedamichigan.org
Maggie DeSantis, Building the Engine of Community Development in Detroit (BECDD) | 313.477.3155 | mdesantis,becdd@gmail.com

The Neighborhoods & Communities Coalition (NACC) is a group of community development advocates and professionals, local
job providers, and investors committed to establishing a source of sustainable support for local nonprofits working to revitalize
neighborhoods and rural communities.
Organizations Supporting House Bills 5820-5821,
Legislation Creating the
Michigan Community Investment Pilot Program and Tax Credit

As of September 2, 2020

Statewide

Community Economic Development Association of Michigan
Habitat for Humanity of Michigan

HousingLinks LLC

Michigan Municipal League

National Church Residences

Regional/Local

Allen Neighborhood Center

Building Community Value

Building the Engine of Community Development in Detroit
City of Grand Rapids

Dreams of Detroit

Dwelling Place of Grand Rapids NPHC
Enterprise Community Partners

Eastside Community Network

Genesis Non-Profit Housing Corporation
Grand Rapids Area Chamber of Commerce
Grandmont Rosedale Development Corporation
Habitat for Humanity Hiawathaland
Habitat for Humanity Menominee River
Habitat for Humanity Northeast Michigan
ICCF

LINC Up Nonprofit Housing Corporation
Macomb County Habitat for Humanity
Northern Michigan Chamber Alliance
New Development Corporation
Southwest Detroit Business Association
United Way of Washtenaw County


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