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Mercantile sets up tax credit clearinghouse

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Mercantile Bank has announced a new economic development program for rehabilitation projects in the state. The Missouri Tax Credit Clearinghouse, a Mercantile subsidiary, was launched under authority of the federal Office of the Comptroller of the Currency, granted Sept. 4.

The subsidiary will allow community development projects and nonprofit organizations to receive funds by selling state-authorized tax credits to interested investors.

"This is an outstanding breakthrough program that will spur economic and community development across the state," said Missouri Treasurer Bob Holden. "It's really a great example of public-private partnership, because it is going to give a tremendous boost to Missouri's capacity to invest in its own economy through its diverse tax credit programs."

"We don't know anyone else, anywhere in the country, that has put together a state tax credit program as sophisticated ... as the Missouri Tax Credit Clearinghouse," said Kathy Bader, president of Mercantile's Community Development Corp., which specializes in community-related projects that require special financing.

In the last year, Bader said in a release, Missouri has passed legislation that greatly expands its tax-credit programs, including a law establishing a credit for historic renovations and a law allowing such credits to be sold to third parties.

Mercantile executives said they concluded that the full potential of these programs could be better realized with the help of a clearinghouse to make a market in the credits.

"Many people want to invest in community development projects, but they don't understand how tax credits work or which projects are a good match for them," she said. "On the other hand, some companies and non-profits have more tax credits than they can use. The Missouri Tax Credit Clearinghouse brings them together."

The bank decided that it would operate the clearinghouse itself, because, as the largest bank based in the state, it said in the release, it was in the best position to know who needed the credits for development and who could use them as a taxpayer.

Mercantile cited one example of how the clearinghouse will work with the Hotel Governor project in a blighted section of downtown Jefferson City. The long-vacant hotel is now being restored as an office building. Through the clearinghouse, Mercantile Bank itself will invest about $5 million in equity to pay for renovations of the building. The bank doesn't need the tax credits associated with the investment for its own tax purposes, but through the clearinghouse it will sell them next year to investors who do need them.

"Without the clearinghouse, we wouldn't be able to do this deal," said Bruce Cohn, the project's developer.

The Missouri Tax Credit Clearinghouse is facilitating similar deals, Bader said, in North Kansas City and Excelsior Springs.

The role of the clearinghouse could vary from transaction to transaction, but specifically, the release said it will buy and then resell to investors certain transferable state tax credits; form investment entities that will make equity investments directly in tax-credit-assisted community development project partnerships; and act as a finder, bringing investors together with

developers, non-profits and other tax-credit-assisted organizations.

A Mercantile summary said more than $75 million in Missouri state tax credits are available each year. Among the tax credit programs offered by different state agencies, the credits relate to low- to moderate-income housing, community development, social welfare, economic development and job creation, and environmental remediation.

The release presented an example of a $400,000 project eligible for $100,000 in historic state tax credits or 25 percent of the project's total cost. If the developer is unable to use the tax credit, Mercantile would advance money less than $100,000 for the right to obtain the $100,000 tax credit.

"The difference between the sum Mercantile advances and the $100,000 credit reflects the fact that the Missouri Tax Credit Clearinghouse will later sell the credit for a discount and earn a fee for its services," the release said.

When the developer's project is complete, it transfers that credit to the clearinghouse, which then sells the credit to an investor, probably a corporation, for a discount the release used $95,000 as an example.

The discount "creates the financial incentive for Corporation X to do the deal," the release said.

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