Eaton Corp.'s grant request for $20 million in federal tax credits to help finance its proposed move to Wauwatosa met low-income census tract requirements but failed to meet "high distress" standards to qualify for the grant, according to the Wisconsin Housing and Economic Development Authority's director of economic development.
WHEDA is one of three organizations that together make up the Wisconsin Community Development Legacy Fund, a community development entity (CDE) that allocates the federal New Market Tax Credits intended to spur investment and growth in low-income census tracts. The other two organizations that make up the non-profit fund along with WHEDA are Legacy Bankcorp and Impact 7.
NMTC grants are a financing tool that can generate net equity of up to 10 percent or more of a project cost, and also can be used to leverage low-interest loans.
Although the Eaton project proposed for the Milwaukee County Research Park falls within a low-income census tract, it did not meet the Wisconsin fund's more stringent standards to more directly benefit the low-income community, said Farshad Maltes, WHEDA's economic development director.
The Eaton project would be problematic for any CDE that allocates the federal tax credits, including for-profit banks that may impose only the minimum standards to qualify, according to Maltes. The problem, he said, is that the project "does not seem to have a high impact on low-income areas."
That impact could be realized in a variety of ways, Maltes said. An example, he said, would be that the project includes a promise to provide new jobs for low-income residents.
"The Eaton project in Wauwatosa is just not a very good fit” for a New Market Tax Credit grant, Maltes said. "It's not a compelling project" that serves or benefits a low-income a community.
Maltes said he worked with Eaton representatives for nearly two months on the tax credit request, but it was "like trying to fit a square peg into a round hole."
Maltes said he did offer Eaton an alternative to an NMTC grant: Eaton could buy the tax credits. That offer, he said, was rejected March 28.
Maltes said he offered to sell Eaton $50 million in NMTCs, which could generate a net subsidy of up to $6 million. The catch, however, was that Eaton would have to come to the table with $13.5 million to purchase the credits. Maltes said his offer did not stop at $50 million in tax credits, but was for “as many as they wanted.”
In purchasing $50 million in tax credits, a business could realize $19.5 million in write-offs of federal tax obligations for seven years or could resell the credits to other organizations, Maltes said. Eaton, he said, declined the offer.
"They didn't want to come up with the cash up front," Maltes said. "They turned down the offer with their eyes wide open."
Eaton representatives have not returned calls for comment.
Eaton has said it hoped to begin construction of a 90,000-square-foot facility this summer in the research park that would allow the firm to move its north side Milwaukee division to Wauwatosa. The Milwaukee division is no longer involved in manufacturing and employs about 145 people in research and development roles.
Eaton’s pursuit of New Market Tax Credits was controversial because the credits are intended to attract businesses to locate in low- to moderate-income census tracts. The research park location technically qualifies because the only residents in the tract are zero-income invalids living in care facilities.
The relocation project was announced as a $15 million initiative, with about $4 million to have been financed by the low-interest loan using the federal tax credits to draw investors. As reported by Patch Monday, Eaton also had pursued similar funding through Johnson Bank, but that bank had withdrawn from funding the project.