State audit questions tax credit awards to Friendly Kitchen, Boys and Girls Club, Red River Theatres
In a new report, state auditors concluded that 15 of the 28 projects the Community Development Finance Authority supported with tax credits last year, including the Friendly Kitchen and Red River Theatres, do not appear to qualify for the financial assistance under state law largely because they did not target unemployment or housing shortages.
The CDFA, which was created by the Legislature in 1983 but is not a state department, vehemently disagrees, said spokesman Kevin Flynn. He said the audit was prompted by an anonymous complaint from someone turned down for financial assistance and that auditors misinterpreted the state laws governing the authority. The relevant state laws do not limit assistance for only housing and employment projects, Flynn said. The laws also mention economic development and give the CDFA discretion to interpret the statute requirements “liberally,” Flynn said.
“We feel we awarded the right projects,” he said. “We feel very confident about the awards we gave.”
A call to the auditing division of the Legislative Budget Assistant, which released the audit Jan. 10, was not returned. The auditors presented their findings, which are advisory, not binding, to lawmakers with this footnote: “While none of our observations make recommendations which might require legislative action, several issues including . . . the scope of and limits on its authority manifested themselves throughout our audit work and may require legislative action to address.”
The spokesman for the state auditing division was not available for comment.
The CDFA supports municipal and nonprofit projects by granting them state tax credits they can sell to businesses through its Community Development Investment Program. (The CDFA also administers a similar program paid for with federal money called Community Development Block Grants, but auditors did not take issue with those awards.)
The state program works this way: If a business buys $10,000 of tax credits from a local project, the project keeps the $10,000 and the business can deduct 75 percent of that amount – $7,250 – from what it owes the state in business taxes. The CDFA relies on a few sources for revenue: It gets $170,000 a year from the state’s general fund and charges the businesses that purchase the tax credits a 20 percent program fee to run the state-award program. It receives federal dollars for the federal Community Development Block Grants.
In fiscal year 2013, the CDFA awarded 28 projects worth $6.5 million through the state program. In their report, state auditors said 15 of those projects, which were worth $4.3 million in tax credits, “did not appear to fit within (CDFA’s) purpose.” Four local projects fell into that category:
∎ The CDFA gave the Boys & Girls Club of Concord $700,000 in tax credits to expand and renovate its property on Bradley Street and to increase the amount of affordable child care it provides for low- and moderate-income families. Flynn said the tax credits helped parents obtain jobs because without affordable child care, they could not work.
The auditors concluded the project did not increase housing or employment and therefore may not have been an appropriate use of the tax credits.
∎ After the Friendly Kitchen burned, its directors and volunteers struggled to raise enough money to rebuild in a new location. The CDFA awarded the project $300,000 in tax credits. The auditors said there was also insufficient evidence that the financial award to the kitchen increased employment or housing.
In its response, the CDFA said rebuilding the soup kitchen reduced demands on local public assistance because the kitchen serves an average of 133 meals a day to homeless and low-income people.
∎ In 2002, the CDFA approved Early Learning NH for $268,750 in tax credits toward a pilot project to increase the amount of affordable child care across the state. The tax credits were awarded in the last fiscal year and included in the audit. Auditors found the project did not increase housing or employment opportunities.
The CDFA argued this project also reduced reliance on public assistance and contributed to the well-being of the low- and middle-income population it is supposed to serve.
∎ The fourth project questioned by the auditors involved $125,000 in tax credits awarded to Red River Theatres for its upgrade to digital projection equipment. The theater also did its own fundraising and had said it needed the upgrade to remain viable because movies were going digital.
The CDFA defended this award in its response to the audit, saying the theater has a record of sparking economic activity and retained four full-time jobs and 13 part-time jobs by staying open.
Auditors also questioned the CDFA’s decision around 2000 to buy the Dixon Avenue property it had been renting, saying state law does not give the CDFA that kind of authority. “Owning real property and operating a business does not appear to conform to the CDFA’s original purpose of increasing the number of development projects, providing capital to business ventures and stimulating private investment in areas where primary employment is threatened and housing is inadequate,” auditors wrote.
Flynn said the CDFA disagrees. The authority bought the building after learning its rent was going to increase 10 percent, he said. “It was a smart financial move to, instead of paying rent, to purchase the building,” he said. The CDFA uses part of the property and rents the rest to a kids vaccination organization, accountants and lawyers. In the past, nonprofits have rented the space, Flynn said.
(Annmarie Timmins can be reached at 369-3323 or firstname.lastname@example.org or on Twitter @annmarietimmins.)