Film producers and industry professionals across the Commonwealth of Massachusetts, and across the country for that matter, are pushing the state legislature to remove the sunset date for Massachusetts Film Tax Credits.  Over the years, supporters of the film tax credit have defended the program by extending the sunset date to subsequent years, effectively keeping the program alive to sustain the 25% tax credit on eligible production expenses in the state.  While this defensive strategy has worked in the past, supporters are now going on the offensive and pushing for a permanent removal of the sunset date.

The removal of the sunset date would keep the well-functioning film tax credit incentive in place, and give assurance to current and future filmmakers that they can continue to operate business as normal in the state.  Opponents raise the issue that the film tax credit does not create enough jobs relative to the cost, while supporters argue that it keeps an industry stable and creates positive externalities such as infrastructure (New England Studios, for example) that are not directly accounted for in the film tax credit analysis.  Regardless of supporter or opponent momentum, expect more political lobbying and activity throughout the Commonwealth.

Traditionally, the Massachusetts Production Coalition (MPC) orchestrated lobbying efforts among industry supporters to extend the credit. Now the MPC is taking a more proactive approach instead of reacting to opponents’ proposals.  MPC is supporting House Docket 388, filed by Representative Tackey Chan and Senate Docket 424, filed by Senator Michael Moore, to eliminate the 2022 sunset date.  The goal of the MPC is to create enough industry buzz to add additional cosponsors to the bill, which will ultimately result in the Governor signing the bill into law.

Clocktower Tax Credits, LLC, supports the elimination of the sunset.  Since 2010, Clocktower has helped dozens of Massachusetts filmmakers finance their films by selling their film tax credits to taxpayers across the Commonwealth.  Nathan Howe works with producers and can be reached at (978) 460-4244 or NHowe@ClocktowerTC.com.

Its been about 13 months since the issuance of the 2017 Tax Cuts and Jobs Act transformed the 1-year Federal Historic Rehabilitation tax credit into a 5-year credit.  While the credit had always vested over a 5-year period, under the new law the credit itself is to be taken and used by the investor ratably over a five-year period of time, beginning with the year the building was placed into service.  While the industry was thrilled that the credit itself was pulled from the trash bin under some proposed legislation, the negative impact on the investor equity marketplace was foreshadowed.  Coupled with the reduction in the federal corporate tax rate from 35% to 21%, and the creation of the Base Erosion and Anti-Abuse Tax, it appeared that a slowdown in investment activity, and the pricing in the equity marketplace, was inevitable.

While some of these effects have been felt, the results have been muted.  The impact of the extension of the credit to five years has been delayed due as projects grandfathered as 1-year credits under the transition rules have dominated the closing agendas of most corporate investors.  Up through Fall 2018, most investors would not even quote pricing on 5-year projects; their pipelines were full of projects hastened to close before the new rules took effect.  And there was a wait-and-see attitude pervasive among most investors; each wanted to see how its competitors were pricing this revised credit.

By early winter, most investors were seeing a stream of 5-year credit projects, and have stepped up to provide active proposals with competitive price quotes.  While early pricing reflected the predicted 10-15 cent per dollar drop in pricing, the marketplace quickly reflected the spate of investors jumping back in, and investors began sharpening their pencils.  We are now seeing pricing in the low $0.80s per dollar of credit, reflecting a reduction of only 6-10 cents from the levels quoted for 1-year credits.

Under the new rules, investors are only building up a cache of tax credits at one-fifth of the previous rate.  That is, an investor with an appetite of $50 million in 2019 tax credits can’t simply invest in $250 million in Qualified Rehabilitation Expenses (QREs) this year; rather, they’d have to invest in over $1 billion in QREs to reach their tax credit target.  Thus, investors are needing to invest in more projects in the next few years, but fewer projects in the succeeding years once they have built a stream of 5-year credits.  So the best timing is RIGHT NOW to bring a historic tax credit development opportunity to market.  Clocktower stands ready and able to help developers do just that.  Please contact Jeff Jacobson at (978) 823-0200 or JJacobson@ClocktowerTC.com to discuss your opportunities.

The partial government shutdown that took place in December and January has had far-reaching effects outside of the ever-increasing political divide in Washington.  Among the group of temporarily shut down government entities is the National Park Service, whose continuous review and approval of prospective historic rehabilitations is required to generate Federal Historic Tax Credits.  The slowdown has led to no Parts 1, 2, or 3 approvals, leaving projects currently in-progress at a standstill awaiting feedback to ensure the receipt of Tax Credits.  Additionally, new projects applying to the NPS have not been able to submit preliminary documentation, leading to uncertainty once the organization is up and running as to where the initial focus will be.  This has impacted historic work throughout the country, with the risk-averse development community not wanting to invest capital into projects, only to have the work ultimately rejected.

Moreover, the shutdown also impacts projects nationwide which are using grants or loans from HUD or other government agencies.  The uncertainty persists regarding Housing and Urban Development’s availability during the shutdown, and its efficiency in underwriting upcoming opportunities.  The limited staff and resources has led to a focus on crucial current housing situations, such as renewals of expired HAP contracts during the shutdown.  This could delay construction schedules for months as HUD restarts many processes to provide loans directly or through affiliated partners.

The current political battle continues without an end in sight, with fears of another full prolonged shutdown after a temporary re-opening agreed to by President Trump.  Before the matter is fully resolved in Washington, the situation for the historic development community is unsettled, without any certainty of the availability and efficiency of vital parts of developers’ capital stacks.

Clocktower Tax Credits, LLC has the expertise and experience to provide up-to-date information on short-term uncertainty and planning prospects around government hurdles.  Please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com, and David Curtis (978) 440-0742 or DCurtis@ClocktowerTC.com, to discuss where your project stands and how we can help navigate the current murky waters in Washington to produce a successful Tax Credit investment during unstable times.

Sue Ellyn Idelson was recently elected by her fellow FBA (Florida Brownfields Association) members to the FBA Board of Directors.  This is a two-year term that expires in September 2020.  The purpose of the Association is to promote a wide array of Brownfields-related goals, objectives and initiatives, including environmental restoration, economic revitalization, natural resources preservation, conservation and recreational-based beneficial reuse, enhancement of financial and regulatory incentives, job creation and training, public health, environmental equity and justice, and community outreach and education.

You might be asking yourself, what value does a tax credit broker bring to the FBA?  One of the regulatory incentives Florida uses to clean up its contaminated sites is a tax credit known at the Voluntary Cleanup Tax Credit or VCTC.  Clocktower Tax Credits has represented the marketing of the VCTC since the credit’s inception in 2001.  In fact, our President, Jeff Jacobson was instrumental in helping craft the transfer process from Seller to Buyer.  Our experience over the years with both Sellers and Buyers of the VCTC positions us to know what programmatic changes would be beneficial to making the VCTC more marketable and thus a better vehicle to incentivize developers to clean up contaminated properties.

One area we would like to explore is removing the limitation of a one-time tax credit transfer.  The state issues the credits once a year in July.  Due to an exhaustion in annual state funding, there have been many years when tax credits have been issued two years after application.  If an award recipient of a tax credit certificate needs or prefers to liquidate its position and sell its tax credit interest, we would have the flexibility to buy the credit outright from the owner.  We would then have the opportunity to sell the tax credit later once it’s issued or when there’s greater investor demand.

Another area that would increase the marketability of the tax credit is a change in recapture rules.  We support a regulation stating that transferees are not subject to recapture.  Currently, there is a three-year period where the Department of Revenue can audit the cleanup project and if credits were inappropriately issued, they are subject to recapture.  This provision creates risk and uncertainty for Buyers of the tax credit certificates.  Credit pricing would increase if this risk was eliminated.

Sue Ellyn looks forward to her tenure on the Board.  Project owners looking to sell their VCTCs should contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com, for information and great results!

After much anticipation, the Massachusetts Department of Energy Resources (DOER) announced that the official start date of the Solar Massachusetts Renewable Target (SMART) Program will be November 26^th, 2018.  On that date, the existing SREC II Program will transition to the new SMART Program for both residential and commercial solar power generators.

Under the SREC II Program, energy generators would sell their renewable energy credits through an online marketplace to suppliers and other users of power to meet their renewable energy requirements, whether company or state mandated.  Conversely, the new SMART Program provides predictable payment rates to owners of solar generation by using a series of “declining blocks” dictated by the amount of total capacity in each block.  The first block will provide the highest rate of payment with the most capacity, and as more solar power generators become allocated and reach the limit of the block, the second block, with slightly less capacity and payment, goes online for the next wave of applicants.

It will be interesting to monitor the program this Fall as the early adopters of the SMART Program will reap the most benefit, but at the same time, be experimenting with a brand new renewable energy incentive program.  The use, payment, market structure, and law governing renewable energy credits will change drastically, but the goal of increasing Massachusetts’ use of renewable energy remains a top priority.

Please call Nathan Howe at (978) 460-4244 or NHowe@ClocktowerTC.com to learn more about the SMART Program and how we can help solar developers monetize their eligible 30% Investment Tax Credits on their solar system.