HATTIESBURG, MS (WDAM) - The Hattiesburg City Council is considering a new financing program to fund construction of a new public safety complex.
The council found out in May the complex would cost $38 million dollars to build, not the $25 million it expected, and voted to cap construction costs paid for by the city at $32 million. Now the city is looking to use federal New Market Tax Credits to help cut costs.
"It allows community development entities (CDEs) to essentially sell their tax credits to investors who take the money for the credits and put them into your project," said Kim Smith, attorney with Butler Snow Law Firm, the firm that's provide legal counsel for the city for this program. "That's done through kind of a complicated structure that we use."
The system essentially works to benefit both big investors and cities. The federal government makes it beneficial for individuals or companies, like national banks, to invest in projects in low income areas to promote revitalization. Big investors will fund large, expensive projects because they want the credit on their taxes. The amount they pay for the credits then goes into the city's construction fund to reduce the building cost for the city.
"It would go into a construction fund and it would be used to pay you architects and contractors like you otherwise would," Smith said. "They're making an equity investment into an entity in exchange for the credits. These are big banks, typically national banks. Trustmark invests in tax credits. Whitney Bank, Wells Fargo & Co., U.S. Bank, so those are the players in the market."
Hattiesburg City Council President Kim Bradley said, "The government wants to create incentives to raise money to revitalize these areas. We're able to generate revenue from the sales of these credits that would help defer some of the cost or actually eliminate some of the cost of this project."
Smith said Hattiesburg would need to start an urban renewal agency if it moved forward with this plan.
"The government entity sets up what is called a public benefit corporation," Smith said. "It is a non-profit, usually a 501c3 supporting organization, to the government entity. It is the entity that is the project borrower. It would be considered the qualified business. We have a statute in Mississippi that our firm helped to get passed that essentially gives government entities permission to set up public benefit corporations. There's a list in that statute, and it includes community hospitals and urban renewal agencies. It doesn't include cities. For some political reasons, that wasn't included in there, but the way that cities do it is through setting up an urban renewal agency. That entity has, through that statue, the ability to set up a public benefit corporation. So a step that we would have to take if we were to get an allocation of credits would be to set up an urban renewal agency that would then set up a public benefit corporation."
Smith said federal credits can reduce cost by about 20 percent, and said with Mississippi's tax credit program. State of Mississippi Equity Investment Credits Financing, it can be up to 30 percent.
If Hattiesburg saves 20 percent on this $38 million public safety complex project, the city saves $7.6 million. Bradley said the city would still have to "come up with" the other $30 million, which he said would likely come from the sale of bonds.
Smith also said there's also a small historic component included in Hattiesburg's project, and historic tax credit equity could increase the savings even more.
"Essentially that's cash in a construction fund on the closing day that you would use to construct your project," she said.
Bradley said that savings is essential.
"I think it's very important because the project started out at $25 million," he said. "Then you put all the extra things and the things that we want to do, and it's $38 million."
Two of those extra things include a public recreation campus and an arts building, both of which are included in this proposal.
Bradley said the city will enter into a professional agreement with Butler Snow, and then the law firm will then help find the city a consultant.
"The consultant, she (Smith) said, does the bulk of the work," Bradley said. "They're going to help you find the institution that has the credits to sell. They're going to help you set up, begin setting up, the structure that allows you to participate in the tax credit program. Then Butler Snow would come in as the legal side when you're preparing documents. She (Smith) said it was an expensive undertaking."
There is no total cost listed by Butler Snow for services in the letter the firm sent to the council, but there are hourly rates listed for the four attorneys who would work on the project. If all four work for one hour, it would cost $1,230. Bradley said he and Mayor Johnny DuPree agree there needs to be a "not to exceed" amount included in an agreement before they sign it.
"We need to do that before we sign up and before we actually engage a consultant," Bradley said.
Bradley said using tax credits in this way is new to him, but said he was briefed about the program last month at the Mississippi Municipal League Convention.
"This is something that's very new, or it's new to me," Bradley said. "But it's something that's worth looking into. You don't know until you ask. We were at the Mississippi Municipal League meetings a couple of weeks ago, and I was introduced to her, to Kim (Smith). We were meeting with Butler Snow and our consultants, and that's where the idea came that she needed to come and make the presentation. Since that time, the mayor has gone to Washington and has sat down and actually met with some consultants. So the mayor's doing his homework. We were trying to get caught up to speed with it (Monday), the council was, so that we can move forward."
The council is scheduled to vote on the resolution at its meeting Tuesday, July 19, 2016.