Company wants to inject $5 million into Wilmington, can't find project
Karl Baker
In early 2018, it appeared as though all of the pieces needed to fund new commercial construction within an economically distressed Wilmington neighborhood were fitting together.
There was a likely new injection of money. There was a need for new businesses to provide basic services. And there were government officials enthusiastically supporting new development – particularly in West Center City, a neighborhood that for decades had languished in an economic malaise.
There also was Michigan-based Cinnaire, a politically connected community development organization, which had just named Wilmington one of its three "priority cities."
In March, a company official said Cinnaire was eager to invest into Wilmington at least a $5-million chunk of the $65 million in federal tax credits it recently had secured from the U.S. Department of Treasury.
The company only needed to find a qualifying construction project – one that would house a business that provided a social benefit, such as a daycare, and would create new jobs.
“We know that’s something that’s really needed in Wilmington, so we’re eagerly and aggressively looking for a project,” Dionna Sargent, Cinnaire's chief development official in Wilmington, said in March.
Yet, to date, none of the $65 million New Markets Tax Credit allotment has found a worthy home in Wilmington, and Cinnaire last week said it now appears unlikely any of it will.
In a follow-up phone call, company officials walked the statement back, in part.
"We've been looking at multiple opportunities in Wilmington and so far, nothing has been in a place where we've been able to dedicate the" tax credits, said Peter Giles, Cinnaire's vice president of business development.
It is an unusual turn of events for a city filled with neighborhoods suffering from high rates of poverty, and one where developers are experienced in negotiating the maze of state and federal taxpayer incentives.
New Markets Tax Credits have financed numerous Wilmington projects in the past. The credits, which can be redeemed for cash, helped fund a ShopRite grocery store in what was a food desert in the Southbridge neighborhood.
The credits also helped to expand the Sunday Breakfast Mission, and to remodel the Queen theater and the 421-423 Market Street building, which houses La Fia Bistro.
Giles declined to disclose which Wilmington projects Cinnaire has considered funding with the most recent authorization of tax credits but said the company has spoken with for-profit and nonprofit firms.
Yet, the directors of two major Delaware nonprofits, which periodically carry out capital projects, said they hadn't been contacted at all by Giles' community development company.
“$65 million in tax credits? I never knew about that,” Ministry of Caring founder Brother Ronald Giannone said. “I’ve got plenty of buildings, 39 buildings throughout the city of Wilmington that need development and infrastructure.”
What is confounding, Giannone said, is that Cinnaire officials never mentioned the tax credits at the end of 2017 when they provided funding through a separate line of tax credits for a senior housing project at the former Cathedral of St. John on North Market Street.
Giles said he was not sure why Cinnaire did not contact the Ministry of Caring about the New Markets Tax Credits.
In general, he said, Cinnaire, as a midwestern company, has yet to build all necessary relationships with developers in Delaware, New Jersey and Maryland.
“It’s difficult but not surprisingly so. It just takes time,” he said.
Why haven't they made it work?
New Markets Tax Credits are little-known outside of the community development industry. The Treasury Department claims the credits, which can be bought and sold on the open market, have created or retained nearly 750,000 jobs since 2003.
They are designed to spur private sector development in economically distressed areas. Wilmington’s Market Street core qualifies because it lies in the same census tracks as low-income areas to its east and west.
In a typical low-income community in the United States, there are more planned projects than there are dollars to pay for them, said Brett Theodos, a community development expert at the Washington, D.C.-based Urban Institute.
It may be the case that Wilmington is different from the norm, he said, and has a scarcity of projects, but that would be unlikely.
“To think that (Cinnaire) couldn't make a deal work in Wilmington, I just want to know more about what they were trying to do," Theodos said.
Giles agreed that typically there are more projects than dollars but, in Wilmington, “it isn’t what I have seen and isn’t what I heard from the industry.”
He declined to disclose which or how many projects Cinnaire had considered in Wilmington. He said the company examines projects based on whether they may be able to pay back loans, and whether they fit within Cinnaire's proprietary investment strategy, which he declined to disclose.
Giles also rebuffed assertions that Cinnaire has tempered its enthusiasm for Wilmington. The company remains involved in city development using other streams of financing, he said.
Fighting over tax credits
When awarded the $65 million allotment last year, Cinnaire had recently expanded its footprint for the tax credit program into Delaware. It also had just named Wilmington among its three "priority cities” – a designation intended to focus development dollars there.
The other cities were Detroit and La Crosse, Wisconsin.
Cinnaire's connections in Wilmington appear to run deeper. In November, 2017 it held its Mid-Atlantic annual meeting at the Hotel DuPont and Mayor Mike Purzycki gave the keynote speech.
Gov. John Carney, U.S. Senators Chris Coons and Tom Carper, and U.S. Rep. Lisa Blunt Rochester also addressed attendees through recorded video messages.
"Cinnaire has been an important partner in Delaware's effort to create affordable housing and revitalize neighborhoods in our state," said Carney, who noted the Flats development Cinnaire helped to fund in 2015.
It was an impressive lineup and forceful political endorsement for a community development financial institution based 600 miles away in Lansing, Michigan.
While its political connections were clear, its relationship with area developers is less so as the company would not reveal who they had spoken with.
A spokesman for Wilmington’s largest landowner and developer, the Buccini/Pollin Group, did not respond to questions about whether the company had talked with Cinnaire.
For numerous projects over many years, BPG has used cash infusions that originated as taxpayer incentives. It, like many other development companies, maintains a robust appetite for subsidies.
BPG officials also are, at times, fierce lobbyists for such funds.
While arranging financing last year for the ongoing transformation of the DuPont Building, BPG worked closely with the Delaware Department of State to secure millions of dollars in historic tax credits.
At one point, the company even asked the state to lobby the National Park Service on its behalf for federal tax credits, according to an internal government email sent by Delaware’s cultural affairs director Timothy Slavin to Secretary of State Jeffrey Bullock.
“Rob Buccini called and said the National Park Service communicated with them today that their application for federal tax credits is incomplete,” Slavin said in the email obtained in an open records request. “He was agitated at NPS and asked if there was anything I could do to influence the process. I told him the NPS review is a separate, independent review, which he knew.”
The Ministry of Caring also has lobbied the state in its efforts to secure tax credits for new construction. A month after Slavin had mentioned Buccini's request to Bullock, Giannone contacted Slavin's office to inquire about Delaware’s historic tax credits.
An office employee told him the credits for that authorization period had already been reserved for the DuPont Building last year, according to another email from Slavin to Bullock.
“As you can imagine, he wasn’t thrilled with this news and said (in a non-threatening manner) that he would reach out to the Governor’s Office,” Slavin said
Are they just pickier?
One possible reason Cinnaire hasn't been able to find a New Markets Tax Credit deal in Wilmington could be because they are running the program the right way, suggested Theodos, the analyst from the Urban Institute.
They could simply have stricter rules than others for defining what counts as a social benefit from a construction project. Nationally, Cinnaire has a good reputation among community finance institutes, he said.
“Cinnaire’s basically saying it’s a pipeline problem, it’s not a capitalization problem, we have the money,” Theodos said. “The city would be a good place to ask.”
Purzycki’s Deputy Chief of Staff John Rago said in an emailed statement, “Local government has no role in dictating where these credits are used.”
“While there may not be any eligible projects in Wilmington at this moment, that does not mean there won’t be some in the future,” he said.
For his part, Giles said Cinnairre has not cut the possibility of directing any of the tax credits to Delaware.
“We have ongoing conversations with people in Wilmington,” he said.
Patricia Beebe, president of the Food Bank of Delaware, said she could use the tax credits for her social entrepreneurship programs. She said Cinnaire has not reached out to her but she welcomes the contact.
Beebe also had attempted to expand operations in Wilmington, but met obstacles unrelated to financing. Beebe said she couldn't find anyone to sell her property for the construction of a new food bank warehouse.
So, instead, she built it in Bear.
"I never had the code to break into Wilmington," Beebe said.
Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.
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