United States
EPA 500-F-14-001
September 2014
Office of Solid Waste and Emergency Response

Cover photo:
Carrfour Supportive Housing CEO Stephanie Berman-Eisenberg cuts the ribbon at the grand opening of Harvard House, an affordable
housing community in North Miami Beach, Florida.
(Photo courtesy of Wikimedia Commons).

Any site reuse effort must address a number of
financing gaps linked to past uses or perceptions.
Strategies focusing on areas that may be historically
low-income or economically disadvantaged often
face additional financing hurdles that can foil efforts
to assemble a complete package.These gaps typically
involve capital shortages for three activities specific to
site reclamation.The first activity is defining a credible
market strategy that will provide a path for sufficient
reuse activity (and revenue) to address early-stage
project needs, such as site preparation and possible
site assessment. Next, parties should define a site
revitalization plan that enhances the prospects for
new economic growth while maintaining critical
elements of the community fabric. Finally, it is
important to actually implement the components of
this plan in a timely and complete manner.
In addition to these types of costs, typical financing costs for conventional sites may be elevated for sites in
environmental justice communities. Developers almost invariably have to pledge a higher rate of return to their
investors or lenders to persuade them to assume the higher perceived risk associated with the project. Extra
underwriting costs also can add significantly to the costs of loan processing and review procedures. And lenders
usually require developers to have at least 25 percent equity in the project to make sure that the borrower has
sufficient capital at risk. Thus, ensuring equitable development can be a daunting goal in many communities.
The goal of this document is to help community leaders understand basic public sector financing tools, their
objectives and criteria, what they can do—and suggest ways in which community development proponents
can help to make them fit their own neighborhood project needs. Brief case examples of how these financial
tools were used for specific projects are woven throughout this report and provide examples of successful
implementation. These tools can be very valuable and workable, but may not be obvious, and often have to
be driven by community leaders. It is important to remember that just because a program does not define
"equitable development"as an objective does not mean that it cannot be used for such purposes. Equitable
development advocates can often channel these various tools for their desired end uses that also meet other
program goals, typically linked to creating jobs, reversing blight, or addressing economic distress.

Proponents of community-level equitable development need to know the distinctions between tool types: what
elements of development they are intended to address; what types of projects they are most suited for; which
ones have the best track record; and the potential to leverage other investment in ways that meet a community's
vision for what it would like to be. As equitable community development continues to grow, these types of
markets have become more of a focus, and community development advocates have become more creative in
piecing project financing together. In response, the public sector has deployed various types of tools that have
played a critical role in project financing. For example, the public sector has provided resources to jumpstart
the site assessment and cleanup process, addressed various costs needed to prepare sites and make properties
more economically competitive, and offered "gap financing"to plug financing pro forma holes not easily filled by
traditional capital sources. Each type of tool has a specific purpose and can play a distinct role in advancing the
overall financing and redevelopment package at a range of brownfields properties.Typically, projects integrate a
number of funding sources from several programs—leverage is a key aspect of equitable development finance. To
best package and deploy these tools, and to most effectively use them to attract the types of investments that are
needed, equitable community development advocates need to understand these distinctions.The most common
of these tool types applicable to equitable development include the following: grants, tax incentives, loans
(including revolving loan funds (RLFs)), and  loan guarantees.

 GRANTS—The direct provision of funding  to an eligible recipient (public or private) for an intended use. In a
 community development context, targeted grants can provide vital up-front resources to pay for necessary
 activities such as site assessment, cleanup, demolition, or property preparation.
Grants are available for a wide range of purposes,
and they can cover many facets of a development
project or an effort aimed at reversing abandonment
and blight. Grants are rarely provided directly to
private developers or other private parties that may
be carrying out a development project. Typically,
grants are made to (or passed through) public or
non-profit partners who work with the private
parties to bring a  project to fruition.This may add
time or an extra layer of bureaucracy to the effort,
but also brings opportunities to  community-based
organizations that might qualify for grant funding. In
addition, grant resources are finite and subject to the
whims of appropriators. In times of high demand or
tight budgets, they may not be reliable sources of funding. On the other hand, the key advantage of grants
is that they can bring immediate cash into the front end of the project. Grants can pay for critical, early stage
project activities.
Grants generally take one of two forms: block or formula grants, in which funds are distributed to states or
local governments according to a statutory formula, or project grants for specific activities or services (such as
housing or small business development). In the case of the former, community-based partners have to work
with  the eligible recipient of the grant funds to secure help. For project grants, community entities may be
eligible to apply directly. Grants may provide full funding, partial funding (with additional contributions or
matching funds required), or take the form of "forgivable loans."The latter mechanism often is used to channel
financing to private sector entities. Developers are provided with loans, which need not be repaid if they meet
specified project performance criteria (such as generating a certain number of jobs, adding certain  amounts of
open space, cleaning properties near schools or other"sensitive need"facilities, etc.). Depending on the specific
program, terms can be structured to flexibly meet any type of need—community planning and outreach, early-
stage site assessment, advantageous start-up business financing, demolition, supportive infrastructure, etc.

Although virtually no federal grant programs are targeted specifically to "equitable development," developers,
development agencies, and community-based organizations (CBOs) have used more than a dozen different
economic and community development grant programs—offered by U.S. Department of Housing and Urban
Development (HUD), U.S. Department of Agriculture (USDA), U.S. Economic Development Administration (EDA),
and others—to meet various redevelopment needs in ways that also promote equitable development goals.

 TAX INCENTIVES—tax exemptions, credits, and deductions are used to encourage redevelopment and channel
 capital investment through the use of taxation policies. In a community revitalization context, reduced, rebated,
 or offset tax levies can allow taxpayers to ultimately use the savings for the types of redevelopment purposes—
 such as structural rehabilitation, investment in affordable housing or "new markets" activities in distressed areas,
 and general site preparation—that can support equitable development objectives.

Tax incentives can take three forms: exemptions, credits, and
deductions. An exemption provides a release from taxation.
Credits provide dollar-for-dollar reductions in taxes owed.
Deductions allow certain costs or expenses to be subtracted
from income over one year (expensing), or over more than
one year (depreciation).
Tax incentives can be structured to flexibly meet a range
of public sector goals—redevelopment of certain types of
projects (e.g., affordable housing), in certain community
areas (e.g., historic districts), or with specific public benefits
(e.g., bringing grocery stores or health clinics to underserved
areas). Around the country, redevelopment advocates
promote the use of all types of tax incentives to achieve these different benefits. The downside is that tax
incentives do not bring  immediate cash into the front-end  of the project. In addition, since most CBOs or
redevelopment entities operate as non-profits, they generally are not able to take advantage of tax incentives;
they must either find a private sector partner able to use them, or they will need to structure projects in a way
that allows them to transfer or sell tax incentives if they are to be of value.

 LOANS—A range of private, non-profit/quasi-public, and public sector agencies and institutions lend money for
 specific real estate acquisition, construction, and improvement activities, including site redevelopment projects.
 Public-private financing partnerships are often the key to equitable development success in many communities.
At the federal level, USDA, HUD, and the Small Business
Administration (SBA) make some development loan resources
available (although in most cases, these agencies deliver
more assistance via loan guarantees). Some loans are made
available through partnerships with private banks, as well as
economic development agencies, authorities, or corporations.
Loan programs do not necessarily target the specific financing
needs of projects focusing on equitable development. It is
up to the developer or entity spearheading the project to
identify a viable public or private loan source and structure
the loan application to meet specific project needs. CBOs and
their partner organizations have played an essential facilitator
or"matchmaking"role in many communities, linking program
resources to equitable development needs.This role has

proven especially critical for efforts that involve small business start-ups or site assessment, cleanup, and
preparation to "shovel ready" status. Private financing for these activities remains incredibly difficult to secure,
especially in the current credit climate.

 REVOLVING LOAN FUNDS (RLFs)—Pools of capital from which individual project loans are made. RLFs can be
 pulled together from a wide range of public- and private-sector sources, including: appropriated capitalization, bank
 donations (for example, to help lenders meet Community Reinvestment Act requirements), state/local Community
 Development Block Grant (CDBG) allocations or program income, earmarked fees or fines, or foundation/
 philanthropic donations. Depending on the requirements of the capitalization sources, RLFs can be designed to
 target any type of project, in any defined area, and promote any desired community development outcome.

States, communities, and non-profits such as
community development corporations (CDCs) can
structure RLFs (often capitalized with federal funds) to
meet a variety of goals. They can provide loans from
the pool for defined purposes  (such as small retail
development or environmental cleanup), in targeted
areas (such as those suffering from abandonment),
or to achieve certain goals (such as blight removal or
job creation). Depending on authorizing statutes or
governing policies, RLF managers may have enormous
flexibility to define eligibility or performance
standards, loan terms, and other criteria. This flexibility
can be important to ensuring the successful financing
of projects that promote equitable development.

 LOAN GUARANTEES—In a public program context, loan guarantees are agreements to repay all (or most
 typically, most) of a private loan made by a lender in the event that the borrower is unable to repay. Guarantees
 can expedite capital availability and minimize risks by bringing comfort to lenders, because the guaranteed
 portion of the loan is not subject to default. Some federal SBA guarantees are targeted to micro, minority, and
 women-owned businesses—often, the focus of equitable development activities in specific communities.

Some federally-capitalized  RLFs focus on equitable
development; for example, EPA's brownfields RLF
program looks at proposals that focus on "equitable
development outcomes.. .when intentional
strategies are put in place to ensure that low-income
and minority communities  not only participate
in, but benefit from, decisions that shape their
neighborhoods and regions." Philanthropies may
also use this tool  to focus on equitable development.
For example, the  San Francisco-based Low Income
Investment Fund (LIIF), through its RLF, provides
acquisition, construction, and term financing for
affordable homes, schools,  and other community
facilities serving low-income facilities. Recent loan
funds have focused on projects that are part of
equitable transit-oriented developments.

Typically for most RLFs, as loans are repaid, the money goes back into the fund and is recycled to make new
loans. The downside to any RLF mechanism is that there may be insufficient capital to sustain a loan stream
after the initial flurry of activity; if new capitalization is not secured, then the fund must replenish itself
based on repayments—which often are small and accumulate only over an extended period of time.
Loan guarantees are an alternate source of funding for private-sector borrowers who are not eligible to
receive financing through other public programs. SBA offers more guarantees than any other agency—
more than $7.5 billion  for community development corporation-assisted projects this year alone—although
HUD and USDA also deploy this tool. Loan guarantees are somewhat easier to negotiate than pure equity
investments because the entity guaranteeing the loan never turns over any of its own funds, unless the
company does not perform as projected.
In an equitable development context, loan guarantees can provide critical comfort to lenders concerned
about the impact of collateral devaluation (for example, due to surprise contamination) or the possibility
of competing resource needs (such as for unanticipated site preparation or initial working capital costs)
affecting a borrower's ability to repay. At the same time, it is important to remember that start-up businesses
or site/facility redevelopers seeking to secure guarantees, distressed area or not, must still present credit-
worthy loan application packages to their banks, and must still meet underwriting criteria.
  6.5-acre, century-old former Robertson yarn mill;
  vacant 10 years
  Economically distressed neighborhood;
  local CDBG target area
     Nearly 1/3 of city's population
     51 % low income households
     13.5% poverty rate
  EPA grants facilitated key first step — site cleanup
  demonstrated viability of local interest in redevelopment
     $52,000 EPA cleanup grant to non-profit
     Weir Corporation
     EPA RLF support — $148,000 sub-grant, $140,000 loan
Set the stage for preparation of site for Low-Income
Housing Tax Credits (LIHTC)-supported residential
    64 affordable housing units
    Near public transportation, recreation
    18,000 sq. ft. commercial space
Leverage—$15 million local/state/private investment
    EPA cleanup and RLF funding
    Approximately $750,000 in historic rehabilitation
    tax credits
Other funding partners include:
    Mass Development
    Massachusetts Dept. of Housing and Community
    Massachusetts Housing Partnership
    MASS Housing
    Community Economic Development Assistance
    Corporation (CEDAC)
    Bank Of America
    Bristol County Savings Bank

The most successful community development and
revitalization efforts recognize private lender and
developer concerns and perceived risks. The extent
to which equitable development proponents can
understand and overcome these risks will enhance
their efforts to get the types of investment activity
they would like to encourage. To this end, equitable
development strategies can be made stronger—
and can more effectively deploy the various tools
available, especially those noted below—if they
aim to help private parties better manage risks by
meeting at least one of the following objectives:
•   Ensuring a minimum return: Communities
    can work with federal agencies to connect
    developers and lenders/investors with incentives
    such as loan guarantees or companion  loans
    that ensure a minimum return. This can make
    projects more financially attractive, and also
    induce the developer to include elements that
    may be more in line with a community vision
    for revitalization.They also can offer support,
    such as environmental insurance, that limits the
    borrower's exposure to unforeseen  problems that
    affect the value of collateral  or the borrower's
    ability to pay.
•   Reducing the borrower's cost of financing: Local
    leaders can work with community-based entities
    and others to subsidize the interest costs on
    project loans (for example, with tax-exempt
    financing or tax credits, or low-interest loans),
    as a way to attract capital into areas that
    might be perceived as more  risky to invest in.
    Community-driven interests can also reduce
    loan underwriting and documentation  costs by
    offering loan packaging assistance or technical
    support that might be available through CDCs,
    university centers, and other local institutions. In
    some cases, local governments can partner with
    CBOs and others to help cut  borrowing costs by
    partnering with site users to prepare records and
    help maintain institutional controls.
•  Offering terms or incentives to ease the
   borrower's financial situation:Tools like tax
   abatements, tax credits, or grace periods can
   improve the project's cash flow and make the
   project numbers work. CBOs and equitable
   development advocates may be able to facilitate
   connections between prospective developers
   and the entities offering these tools, which can
   be helpful in mixed-use project scenarios that
   include open space, or in areas where start-up
   costs might be higher. Similarly, training and
   technical assistance services can offset project
   costs and reduce a site developer's need for cash.
•  Offering assistance or information that provides
   investor and lender comfort: Community
   organizations, working in partnership with
   universities or even federal labs, may be able to
   facilitate connections to performance data for
   new technologies, institutional controls, or other
   tools that can help transfer or manage risk, which
   could increase the investor's and lender's comfort
   level with a specific project.
Community development success is built on
partnerships, with financing tools and strategies
representing a crucial component of these
efforts. Like any development activity, equitable
development efforts can span  the range of real
estate uses—commercial, industrial, recreational,
residential, and others. Over many years, the federal
government has developed a range of financing
tools (grants, loan and loan guarantee programs,
tax incentives, equity investment, etc.) designed to
encourage private sector participation in economic
and community development. In recent years,
many of these tools have been used to stimulate
investment in the disadvantaged and emerging
community markets. Each tool has a specific
purpose and can play a distinct role in advancing
the overall financing and redevelopment package
at a range of sites, and for a variety of new uses.
The applicability and value of these financing tools

has ebbed and flowed as development needs and
requirements changed, and this is certainly true
in the current volatile economic climate. These
tools are constantly evolving to take advantage of
emerging opportunities, and to address problematic
development situations.
These tools, which can be enormously valuable in
promoting equitable development in communities,
are only as good as the priorities and values of the
local entity that is using them. Any tool, no matter
how useful, will not help if the community has
not defined a vision that encourages equitable
development results. At the same time, it is important
to remember that just because one of the tools
described above does not directly focus on equitable
development does not mean that it cannot be
applied for such purposes. Equitable development
advocates can often take advantage of these various
tools, leveraging or packaging them to meet their
own intended end uses.
  Locally driven public-private partnerships can stimulate
  innovative site financing in small communities
  1923 vintage Texaco gas station in downtown
  Rosalia, WA (pop. 600)
  Abandoned 21 years; Underground Storage Tank
  (UST) issues
  Site vision as focus of "heritage tourism" main street
  revitalization strategy
  Converted to "gateway" retail, craft/farmers market,
  visitor center for nearby Steptoe Nat'l Battlefield,
  National Forest
  Public financing sources include:
     $54,000 WA Dept. of Ecology grant
     $45,000 Whitman County small cities CDBG grant
  Partner donations include:
     Development grant sharing from surrounding counties
     Rosalia Lions Club
     Rosalia "Gifted Grannies"—quilts for auction
     Retired Texaco Executives Association—
     furnishings and memorabilia
     Pro bono legal, remedial services
     Utility incentive rates
     Community sweat equity
     Dept. of Corrections—commemorative license plates

More than two dozen federal programs from agencies
such as EPA, HUD, EDA, and others, have and could
support equitable development investment and
projects consistent with a community's vision for its
future, including grants, loans, loan guarantees, and
tax incentives (such as the low-income housing and
historic rehabilitation tax credits). Once equitable
development advocates understand the context and
goals, implementation, and intended results of these
programs, they can be in a better  position to fit their
own project within the mission of these programs.
•  Abandoned canning facility and warehouse on
  6.6 acres
•  Converted to 268 new apartments (20% affordable),
  plus 20,000 sq.ft. of retail
•  $42.9 million project cost; financing included:
     $5 million HUD Section 108 loan
     $ 7 million city economic developmen t loan
     $29 million Low Income Housing Tax
     Credit allocation
     Equity infusion from sale of approximately $7.8
     million in historic rehabilitation tax credits
EPA's three basic brownfields grant programs
described below can fill critical financing needs
and play an important role in moving projects in
previously developed, often abandoned areas where
concerns over possible legacy contamination impede
lending opportunities. Given their basic mission of
supporting site assessment and cleanup leading to
reuse, EPA's brownfields programs address the critical
first stages of the redevelopment process, and can be
used to set the stage for equitable development once
sites are evaluated and cleanup takes place. Data
analysis performed by EPA's brownfields office shows
that the brownfields program has served low- and
moderate-income persons, resulting in additional
equitable development language being included  in
the most recent grant guidelines.
Assessment grants, which provide up to
$200,000 for site investigations to determine what
contamination might be present and to conduct
planning and community outreach related to
the brownfields properties, will provide critical
information and data for communities seeking
to prioritize and position properties for new
investment. Cleanup grants provide up to $200,000
(with a 20 percent cost share typically required)
to carry out remediation at sites owned by the
recipient, which helps make them "shovel ready"
and more attractive for new uses. Finally, EPA's
program to provide up to $1 million in capitalization
for cleanup RLFs can bring additional sources of
funding to address cleanup concerns that are very
difficult to address in the private capital markets.
RLFs can help communities, often working in
partnership with private developers, to overcome
initial financial hurdles through several financing
mechanisms: low- or no-interest loans, bridge loans,
discounted loans, and "sub-grants" to deal with key
pre-development costs.
In addition, EPA's Clean Water State Revolving
Fund has great potential to support equitable
development projects (as part of necessary
infrastructure preparation), but is not often used
for this purpose. Each year, every state receives
additional capital for these RLFs, which is used to
make low or no-interest loans for terms of up to

20 years for projects with water quality impacts—
including those that deal with ameliorating
groundwater contamination. Project priorities are
set by the states, within broad EPA guidelines, and
a range of redevelopment projects with a water
connection can access these state funds if the
state allows. State clean water RLFs can cover the
costs of activities such as excavation and disposal
of underground storage tanks, capping of wells,
disposal of contaminated soil or sediments, and
environmental assessments—activities that can fit
well within the framework of many local site reuse
projects. Each state determines who may use its
revolving fund resources. EPA allows communities,
municipalities, individuals, citizen groups, and non-
profit organizations to be loan recipients.
HDD's CDBG program provides direct grants to
"entitlement" cities  (those with more than 50,000
residents) and urban counties (those with more than
250,000 residents).  Recipients have considerable
flexibility in designing local grant or loan programs
that meet one of three broad criteria: helping
low- and moderate-income people, addressing
slums and blight conditions, and addressing urgent
community needs. CBOs and community leaders
need to work with their local government recipients
to ensure that their desired projects are included
in a city's HUD plan, and to access these resources.
HUD addresses the needs of small jurisdictions
through CDBG monies provided to the states. State
allocations are then competitively re-distributed
to small cities and towns. Community leaders will
need to work with their county or town jurisdictions
to secure some of these resources for projects they
would like to pursue.
Municipalities of all sizes can use CDBG to provide
critical gap financing needed to carry out essential site
prioritization, and planning and assessment activities,
as well as to support site preparation, demolition,
and redevelopment needs. Many of these activities,
especially at the neighborhood level, tend to be very
difficult to finance with private funds. CDBG, CBOs,
non-profits, and development authorities must work
with their municipal or state recipient agencies to
define projects and access these funds.
CDBG has proven to be a key tool in meeting a range
of equitable development project needs, including in
neighborhoods facing eroding economic conditions
located in distressed areas that clearly meet CDBG's
mission to help low- and moderate-income people
or eliminate slums and blight. For a number of
entities seeking to revitalize previously used sites for
  2.2-acre former auto dealership, gas station, and service
  garage site, vacated in 1990
  LIST, gasoline, oil, and other contamination deterred
  $10.6 million total investment
  Role of HUD/CDBG—Critical gap financing; used for site
  assessment, partial 1st phase cleanup (including tank remov;
  Developer funded 2nd phase of cleanup
  City $2.35 million redevelopment loan from CDBG-
  capitalized pool
  Now—77 new apartment units; renovated art deco
  former showroom into Spot Coffee house with 20 jobs

new community uses, a key HUD policy clarification
related to brownfields has proven helpful. HUD, in
its 2006 final CDBG rule, clarified how brownfields
activities fit within CDBG eligibility and national
objective regulations.That rule expanded CDBG's
"slums and blight" national objective to include
"known and suspected contamination, as well as
economic disinvestment." It also broadened the
definition of clearance to include"remediation of
known or suspected environmental contamination."
Finally, the rule includes the abatement of asbestos
and lead-based paint as eligible rehabilitation
activities, which is of considerable help to community
leaders and residents who want to transform
abandoned housing or commercial brownfields
properties into productive new uses as part of
equitable redevelopment strategies.
The EDA's public works program helps finance
infrastructure construction, expansion or upgrades,
and site preparation activities needed for economic
development to occur. EDA targets its investments
to attract private capital investment by supporting
the "back-end" or real estate development/reuse
elements of brownfields transactions. EDA's
economic adjustment program offers grants to
local governments and non-profits in communities
and regions suffering from severe economic
distress in order to help them design and carry
out strategies (such as planning, infrastructure
construction, or RLF capitalization) that can support
equitable development goals. For both programs,
eligible applicants include cities, other recognized
jurisdictions, and  non-profit organizations acting  in
cooperation with a political subdivision.
EDA's goal is market-based community economic
development. In practice, this often involves
revitalizing unproductive real estate to beneficial  new
uses. Like other federal programs, while EDA does not
cite "equitable development" in its project criteria,
it does seek to foster capital investment and job
creation—key goals of many equitable development
strategies.The unemployment criteria in EDA's
project selection policy may work to the advantage
of distressed communities seeking resources for
revitalization. Traditionally, more than half of all EDA
resources go to small towns and rural areas that
often have few alternatives when trying to finance
community revitalization projects.
The USDA's rural development programs provide
a range of support to small towns (with some
exceptions, typically those with 20,000 or fewer
residents) needing help to stimulate business and
economic development. Community facility loans
and grants can support development activities
that include industrial park sites or access ways, as
well as critical service and safety institutions such as
hospitals. Business and industry loans are available
    OMAHA,  NE
   • Ford Motor factory (1916-36), bobby pin and curler
     manufacturer; abandoned in 1986,
     center of blighted area
   • Developer concerns re: financing gaps stemming
     from rehab of brownfields into affordable housing
   • New Markets Tax Credits were key—$12 million
     allocation instrumental in attracting private capital
     from US Bank needed to close the $24.5 million deal
   • Today—96 moderately priced apartments, ground
     floor commercial space with 138 jobs
   • Development is spurring significant additional
     private investment in surrounding area

to public, non-profit, or private organizations to
improve the "economic and environmental climate
in rural communities."The intermediary re-lending
program loans money to non-profit corporations
and public agencies to capitalize locally-managed
RLFs that re-lend it to companies to finance business
facilities. Rural development grants, offered through
the Rural Business Enterprise Grant and Rural
Business Opportunity Grant programs, provide
operating capital and finance to emerging private
business and industry. Related training, planning, and
coordination activities are also eligible.
Few towns have made the direct connection
between equitable development and USDA, but
it can work, and in fact, USDA can serve as a vital
financing resource for redevelopment. For example,
a former sewing machine factory in Delaware was
converted into housing, and an abandoned electric
power station in Nebraska was retrofitted as a small
business incubator with the help of USDA's  rural
development programs. Most USDA development
programs can support planning for redevelopment
or revitalization, as well as for site clearance or
preparation.This support includes rehabilitation or
improvement of sites or structures, which are key
activities in many equitable development projects.
Most SBA assistance takes the form of loan
guarantees. The key program of interest to CBOs and
other entities interested in equitable development is
known as the Section 504 Certified Development
Company (CDC/504) program. Section 504
loan guarantees are delivered either directly or
through local economic development agencies or
community-based corporations. While SBA retains
much of the broad decision making authority,
specific projects are locally determined and driven.
SBA can prove especially helpful to new or small
firms that usually lack access to affordable capital
from conventional sources.
The CDC/504 loan program is a long-term financing
tool, designed to encourage economic development
within a community. It accomplishes this by
providing small businesses with long-term, fixed-rate
financing to acquire major fixed assets for expansion
or modernization. A Certified Development Company
is a  private, nonprofit corporation that is set up to
contribute to economic development within its
community. Certified Development Companies
work with SBA and private sector lenders to provide
financing to small businesses, which accomplishes
the  goal of community economic development.
Typically, a CDC/504 project includes: a loan secured
  Former Jefferson Davis hospital for indigents, built 1924
  Last use as county storage facility, abandoned in 1980s
     Leaking UST, paint & asbestos
  $200,000 EPA cleanup grant helped Avenue Community
  Development Corp. prepare site for affordable artist
  live/work space
     34 unit Elder St. Artist Lofts anchor emerging arts district
     Occupancy later opened to the community at large
  Leverage—$6.3 million in redevelopment investment;
  public sources include:
     City of Houston
     Harris County
     Texas Dept. of Housing and Community Development

           m s 9 B: i «

from a private sector lender with a senior lien
covering up to 50 percent of the project cost, a loan
secured from a Certified Development Company
(backed by a 100 percent SBA-guaranteed debenture)
with a junior lien covering up to 40 percent of the
project cost, and an "equity injection" contribution
from the borrower of at least 10 percent of the project
cost. Many communities have used CDBG funds to
meet the equity requirement. Proceeds from 504
loans must be used for fixed asset projects, such as:
land or building acquisition, improvements (including
street improvements, utilities, and landscaping),
the construction of new facilities or modernizing,
renovating or converting existing facilities, and the
purchase of long-term machinery and equipment.
The maximum  SBA debenture is $1.5 million when
meeting the job creation criteria or a community
development goal. Generally, a  benefiting business
must create or  retain one job for every $65,000
provided by the SBA, except for small manufacturers
which have a $100,000 job creation or retention
goal. The maximum SBA debenture is $2 million
when meeting a public policy goal such as: business
district revitalization, expansion of minority business
development, and expansion of small business
concerns owned and controlled by veterans
and women.The maximum debenture for small
manufacturers is $4 million.
SBA also operates its basic Section 7(a) loan
guarantee program, its largest effort, which
typically focuses on projects needing $100,000 or
less in financing. Most of the 7(a) program has been
delegated to certified private lenders, who determine
recipients  (within broad SBA guidelines) and service
the loans.
Tax incentives.Three federal tax credits are
good candidates for integrating into equitable
development projects, as part of financing packages
to spur investment (depending  on the project type,
nature and needs of private project partners, and
site end use).These include historic rehabilitation
tax credits, New Markets tax credits, and low-income
housing tax credits.
Tax incentives bring a number of advantages to
efforts focusing on equitable development outcomes.
They can increase a project's internal rate of return
due to the operational cash offsets they provide.This
may make the project more attractive to potential
private partners, and help attract investment capital.
Tax incentives can also ease a borrower's cash flow by
freeing up cash ordinarily needed for tax payments,
allowing it to be used for other purposes (such as
training or providing community amenities). In
addition, some tax credits—notably, low-income
housing and historic rehabilitation tax credits—can
be sold to raise up-front cash or syndicated to attract
additional investment. Both of these strategies can
help meet critical site preparation and property
development activities not otherwise easily financed.
Finally, tax credits are more reliable as an incentive
because most of them are not subject to a
competitive public award process. If a project (or
developer) meets the criteria, the credit is secured.
The downside of many tax incentives is that if no
income or profit is realized, there is no tax to offset
and the credit has little immediate value. Even if the
incentive carries forward to subsequent tax years, the
near-term prospect of a tax credit does little to help
with cash flow needs. In addition,  non-profits that are
not subject to taxes generally cannot take advantage
of (or transfer) the benefits of these incentives. To
use them most advantageously, non-profits typically
partner with for-profit entities, and structure the
projects so that the for-profit can take advantage of
the tax savings.
Historic Rehabilitation Tax Credits. Developers
and property owners can claim a 20 percent historic
rehabilitation tax credit against costs incurred as part
of any project designated as a certified rehabilitation
by a state's historic preservation officer (SHPO).The 20
percent credit is available for properties rehabilitated
for income-producing commercial, industrial,
agricultural, or rental residential purposes, but it is not
available for properties used exclusively as the owner's
private residence.The credit may be taken for any
relevant rehabilitation expenditure, including asbestos
or lead-paint removals done in a way that is historically
sensitive to the structure. In addition, a 10 percent
credit is available for rehabilitation performed on non-
historic older buildings predating 1936.These rehabs
need not be certified by the SHPO to receive the credit.
Numerous states have their own state historic
rehabilitation tax credits of up to 25 percent. Some
have aggressively marketed a tandem state-federal

credit partnership as a powerful incentive to restore
and reuse former mill sites, schools, and other
properties for new community uses.
A few downsides need to be taken into consideration.
Historic rehabilitation tax credits are subject to
recapture (for up to five years, at 20 percent per year)
if the property is disposed of, or converted to non-
income producing purposes.They are only available
if the rehab investment is greater than $5,000, or
the adjusted basis of property. The latter condition
requires a large expenditure on a big project, which
may not be feasible.
New Market Tax Credits (NMTC). The  New Markets
tax credit program gives taxpayers a 39 percent
income tax credit (over seven years) for making
equity investments in designated Community
Development Entities (CDEs), which use those
investments, in turn, for projects in  low-income
communities.This makes NMTCs well suited  for
communities that wish to promote  investment in
and reuse of abandoned properties. CDEs use their
allocations to make loans or investments in "qualified
businesses" and development activities such as: for-
profit and non-profit businesses; homeownership
projects; community facilities, such as health or child
care; and charter schools.
Although many NMTC projects have taken the
shape of traditional development projects (i.e., office
buildings, retail centers), the New Markets program
has substantial potential to support equitable
development efforts, given its own  eligibility criteria
and location-related targets.This is  a sizable  program:
$3.5 billion was allocated in June, 2014, to 87 CDEs
headquartered in 32 states; more than $30 billion
has been awarded since 2002.The main challenge
is an informational one: even though they often
deal with distressed properties in depressed areas,
few CDEs have made the connection to equitable
development interests. An example of one who has is
Capital Impact Partners; they will focus on financing
health facilities,  healthy food projects, and elder care
developments in Detroit and southeast Michigan.
Low-Income Housing TaxCredits. The LIHTC program
is an indirect federal subsidy used to finance the
development of affordable rental housing for low-
income households. Credits are allocated to states
based on population, and states award them to those
    • PA's first affordable "rent-to-own" townhouse
    • Former vacant, blighted city block near downtown
    • Energy efficient construction, designed to blend into
     existing residential neighborhood
    • 20 low-income units, completed Nov. 2009
    • $1.5 million in low-income housing tax credits
     key part of financing package needed to attract
     investors to rent-to-own (with 15-year escrows)
     project structure
undertaking affordable housing projects. Developers
then sell these credits to investors to raise capital
(or equity) for projects, which reduces the debt that
the developer would otherwise have to borrow. This
results in more affordable rents. Investors receive a
dollar-for-dollar credit against their tax liability each
year over a 10-year period.
Because use of LIHTCs guarantees a definable
minimum return on investment, they have proven
to be an attractive incentive for developers seeking
to build mixed-income or affordable housing.
In fact, according to some experts, affordable
housing financed in conjunction with LIHTCs is
the only construction going on right now in some
communities. However, a key concern that has arisen
is that the credits are losing value on the secondary
market in the current economic climate, making them
less valuable to those needing up-front capital to
proceed. This could make residential developments
with  higher site  preparation costs, less attractive.

United States
Environmental Protection
   EPA 500-F-14-001
    September 2014