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The origin of what has become a key milestone for the state’s Economic Development Authority came in July 2009, when the Urban Transit Hub tax credit program was amended to include sites serviced by freight rail.
That quickly drew an inquiry from Daily News L.P., the New York newspaper publisher, which approached EDA officials with a plan to upgrade its Jersey City production plant. More than two years later, the company became the first business to receive a tax credit for a completed project under the incentive program — and its decision to sell its credit may become an ongoing theme as other companies eventually complete their projects.
Daily News, which was building two new state-of-the-art printing presses at the site, was undecided about where to build a third when it approached EDA, said Tim Lizura, the EDA’s senior vice president for finance and development. But the project’s newfound eligibility for Urban Transit Hub credits was a game-changer to executives, who were approved for a $41.65 million tax credit nine months later.
In mid-December, the state issued the newspaper a certificate for a $4.1 million tax credit — the first of 10 it is slated to receive over 10 years in return for its $25 million capital investment and 300 jobs that were retained at the production plant. Lizura called it a milestone for the incentive program, which has been used to award more than $900 million in tax credits.
Lizura said the newspaper publisher is planning to sell its credits, an option available to Urban Transit Hub award recipients and a practice that could be common as more projects are completed.
“We look at this as one of the few times where, if we’re trying to work with our business community and a company is looking for tax minimization strategies, they could be a buyer of these credits as well,” Lizura said. “It’s a nice way to help both sides — the company making the investment and the company we’re trying to retain.”
State law allows a business to sell a credit to another business for at least 75 percent of the credit’s value, Lizura said, though most certificates usually are sold for about 90 cents on the dollar. According to Lizura, Daily News will sell its credit for 92 percent of the face value, receiving what is “effectively a cash payment” for around $3.83 million, Lizura said. Representatives from the Daily News were not available to be interviewed for this story.
Lizura said selling the tax credits is especially common among residential developers who receive them. Developers have the ability to sell multiple years’ worth of credits up front in order to get cash infusions for their project, he said.
Ron Beit, whose RBH Group is building the mixed-use Teacher’s Village project in Newark, said the firm will sell its full $39.5 million residential credit to Goldman Sachs Bank USA. He said the ability to sell the credit is important because “it’s very difficult to make the economics work on these urban core development projects, especially the urban cores that the state is looking to catalyze.
“You need to create a market, so by definition these projects have gaps in their financing,” Beit said. “And the Urban Transit Hub tax credit is a tool that gets you there. You sell these tax credits, and it literally is a cash plug to the pro forma.”
And while commercial projects are eligible for larger tax credits under the program, both Lizura and Beit said residential tax credits are easier to sell. That’s because a commercial project must meet minimum job requirements during each year that it receives a piece of the credit, while residential projects have no such burden.
“From our perspective, while it wasn’t as lucrative up front, they were certainly easier to sell, because there wasn’t that sort of ongoing risk,” Beit said.
The Daily News project already was under way in July 2009 when the Urban Transit Hub program was amended, Lizura said. The company at the time was building the first two printing presses in Jersey City, part of a plan to expand into third-party printing. The estimated total capital investment from the project was around $100.6 million, allowing the Daily News to meet the $50 million minimum under the incentive program, Lizura said. But the EDA based its tax credit award only on the capital investment and the 300 “at-risk” jobs associated with the third printing press.
E-mail to: jburd@njbiz.com
On Twitter: @JoshBurdNJ
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