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About $2 million in New Markets Tax Credit equity will fund solar panels and a woodbased heating system at the Yukon-Koyukuk Elder Assisted Living Facility.
 

GALENA, ALASKA—New Markets Tax Credits (NMTCs) are helping make an assisted-living facility possible in this remote area.

Five Alaska Native tribes joined forces to develop the Yukon-Koyukuk Elder Assisted Living Facility (YKEALF), a move that allows seniors to remain in their community. The next nearest facility is an airplane ride away.

The team used a $2 million NMTC investment to fund critical solar panels and a wood-based heating system at the $7.8 million facility. The tax credits will also help the project purchase medical supplies and equipment.

Travois New Markets, which received a $30 million NMTC allocation in 2007 and an $80 million allocation in 2009 from the federal Community Development Financial Institutions Fund , and investor U.S. Bancorp Community Development Corp. provided the NMTC financing.

“The theme that runs through this is sustainability,” says Phil Glynn, vice president of economic development at Travois. First, the development features environmentally sustainable products and technology. Second, those features make the project financially feasible for the long term. And, finally, the development helps sustain the area's families by allowing relatives to stay close together and elders connected to their community and culture.

In an area like this, high energy costs can kill a project, Glynn says. The solar panels and woodburning boiler system make sense in an area that has abundant wood and 24 hours of light in the summer.

By keeping energy costs low, the project is financially healthier, and rents can be kept lower for residents. The recently opened facility serves up to 11 elders and is also a community center.

Individually, the tribes did not have the resources to develop a project like this. However, working closely with Alaska Growth Capital, they were able to piece together the deal, including obtaining grant funds. They were then able to use the grants to leverage the NMTC piece into a long-term, lowinterest loan (1.3 percent interest rate for 30 years), Glynn says.

Glynn says the structure developed by YKEALF, Alaska Growth Capital, and Travois fits perfectly into Travois' traditional deal structure. “Our company routinely uses soft debt sources together with tax credits—both NMTC and low-income housing tax credits— to finance housing for native people.

We believe deals structured this way have the lowest possible risk and highest possible community impact of any tax credit deals in America."

How NMTCs work

The NMTC program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax return in exchange for making equity investments in community development entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years.

The CDEs then use the proceeds from the sale of these credits to make loans or investments with belowmarket terms to businesses operating in low-income communities. The loans have often been structured to have a longer period of payment or as subordinated debt to help make the deals work. CDEs have a mandate to provide their capital on more favorable terms to projects of higher risk and with more flexible features than the typical market will allow.

Travois New Markets, which is a CDE, has focused on deploying its NMTC allocations in Native American communities, including three projects in Alaska.