The recently completed Parkview Warsaw YMCA facility on Mariners Drive was a $16 million project, providing health and fitness services to people all over Kosciusko County and creating a number of new jobs.

As part of the funding for the new facility, the Y took advantage of New Markets Tax Credits. And what, exactly, is a New Markets Tax Credit?

According to the New Markets Tax Credit Coalition, “The NMTC was authorized in the Community Renewal Tax Relief Act of 2000 (PL 106-554) as part of a bi-partisan effort to stimulate investment and economic growth in low income urban neighborhoods and rural communities that lack access to the patient capital needed to support and grow businesses, create jobs, and sustain healthy local economies.”

“It’s unbelievably complicated,” said Parkview Warsaw YMCA CEO Chad Zaucha. “When we purchased this property, we were informed that it was eligible for new markets tax credits. We were trying to find these tax credits for almost two years.”

The U.S. Department of the Treasury explains it like this: “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 specialized financial institutions called Community Development Entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period.”

Basically, investors get a tax break for investing in projects that benefit low-income and rural areas. Since the founding of the NMTC program in 2000, the Community Development Financial Institutions Fund has awarded 836 allocations totaling of $40 billion in tax credits.

Despite the immense good these tax credits provide, there a very few projects in Indiana benefiting from NMTCs. Zaucha said not a single project in Indiana was funded with NMTCs in 2013. The Y’s project was one of just three projects in 2014 to benefit from NMTCs.

“We raised $13.2 million in capital donations,” Zaucha said. The difference for $16 million project was made up by allocating funds to NMTCs through CapFunds New Markets, a subsidiary of Great Lakes Capital Funds, and Local Initiatives Support Corporation. Those investments will earn $2.8 to $3 million in equity over seven years.

Additionally, the Y established the YMCA Endowment Fund LLC and YMCA Building Corporation for the purpose of managing these funds. In seven years, when the funds mature, the Y will absorb these two entities into the parent company.

NMTCs are essentially a win-win-win situation. Investees have the capital to undertake a project, investors get a handsome return after just a few years, and the community reaps the rewards of an adequately funded local project, such as the Parkview Warsaw YMCA.

“[NMTCs] do not happen very often, and it positions the Y to be fiscally sound,” said Zaucha. “This positions the YMCA to be debt free in seven years.”

“We would’ve been in debt without these,” Zaucha said. “I think it’s more important for a small YMCA to be debt free. It makes tax sense to the investors and positions the YMCA to better fulfill its mission.”