STRATEGIC PRIORITY: Economic Development
AGENDA DATE: February 26, 2025
COUNCIL DISTRICT(S): 7
DEPARTMENT: Office of Economic Development
EXECUTIVE: Robin Bentley
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SUBJECT
Title
Authorize a New Markets Tax Credit (NMTC) transaction between the Dallas Development Fund, a Dallas-based Texas nonprofit corporation and certified CDE or a subsidiary thereof (DDF), St. Philip’s School and Community Center and Capital One, National Association and its subsidiaries thereof, of up to $7 million of DDF’s $55 million NMTC allocation for a project located at 1600 Pennsylvania Ave, Dallas, Texas (Project), a qualified project under Section 45D of the Internal Revenue Code of 1986, as amended, as further described in Attachment A, and for DDF to collect related closing costs and annual fees - Financing: No cost consideration to the City
Body
BACKGROUND
On February 11, 2009, the City Council authorized the creation of the Dallas Development Fund (DDF), a Texas nonprofit corporation and certified Community Development Entity (CDE), and submission of a New Markets Tax Credit (NMTC) allocation application to the U.S. Department of Treasury’s Community Development Financial Institutions Fund (CDFI), by Resolution No. 09-0461. DDF was most recently awarded $55 million in NMTC allocation during the CDFI’s 2021 allocation cycle. Previously, DDF has been awarded a total of $185 million in allocation from the 2009, 2012, 2014, 2017 cycles to date, DDF has closed 24 NMTC transactions involving $222 million in allocation.
Under DDF’s bylaws, in addition to DDF board approval, any DDF activity involving the use, transfer or allocation of NMTC must also be approved by the City through a City Council resolution indicating the allocation amount ($7 million) and beneficiary of the NMTC subsidy St. Philip’s School and Community Center (St. Philip’s).
The NMTC Program permits taxpayers to receive a federal income tax credit for making qualified equity investments in designated CDEs. These investments must be used by the CDE for qualified projects and investments in low-income communities, as defined by the NMTC Program regulations. The investor’s tax credit totals 39 percent of the investment and is claimed over a seven-year credit allowance period.
On January 17, 2025, the DDF Board of Directors review and approved a NMTC transaction between DDF, Capital One, National Association and its subsidiaries thereof (Capital One), and the beneficiary, St. Philip’s. This NMTC transaction will use up to $7 million of DDF's 2021 NMTC allocation of $55 million. Additionally, Texas Mezzanine Fund (TMF) is expected to provide $9 million in NMTC allocation to the project. Capital One, as the tax credit investor, is anticipated to provide approximately $5 million in NMTC equity (gross) to support DDF’s $7 million allocation and TMF’s $9 million in allocation.
This Project supports the addition of a new approximately 15,000 square foot Fine Arts Pavilion to St. Philip’s 80,000 square foot campus. The addition will include a performing arts center and auditorium, music practice rooms, state-of-the-art design, dance, and culinary arts studios, a cafeteria, and community storm shelter. In addition to the Fine Arts Pavilion, NMTC proceeds will be used to fund working capital for St. Philip’s and a recently completed rehabilitation of a 4,500 square foot former church into a client-choice food pantry located across the street from St. Philip’s primary campus.
The Project will allow St. Philip’s to expand both the capacity of educational programs they provide and their impact in the surrounding community through providing 2,300+ low-income students and community members annually with arts education and emergency food access. Specifically, the Fine Arts Pavilion will allow St. Philip’s to double the number of annual events, classes, and activities from 15 to 30, and the expanded cafeteria will allow the school to increase capacity of their Kids Café program, serving dinner to hundreds of children in the surrounding community.
The Project will serve over 2,300 low-income individuals annually across its programs, including:
High-Quality Academic Enrichment. The Project will provide daily instructional training in music, dance, visual arts, and theater to 300+ students from Pre-K through 8th grade. In addition to an auditorium, the Project includes Digital Arts Studio, Dance Studio, Art Room, and Music Room to offer arts-based programming in dedicated spaces both during the school day and in after school programs. Additionally, 150 students benefit from summer camps and spring break programming, ensuring they continue to engage in enriching educational experiences year-round.
Expanded Healthy Foods Food Access. Through its client-choice pantry, St. Philip’s addresses food insecurity by offering high-quality emergency food items to neighborhood residents. Through the expanded food pantry, St. Philip’s is able to increase food distribution from 600,000 to 750,000 pounds of food per year. Additionally, the Fine Arts Pavilion includes a kitchen that will be used to host cooking classes to teach neighborhood residents to prepare healthy meals and support St. Philip’s Kids Café program to serve dinner to hundreds of neighborhood children.
The Project site is located at 1600 Pennsylvania Avenue in Dallas, Texas. The Project falls within Census Tract 48113020900, which is NMTC-qualified and considered “severely distressed” per the CDFI Fund based on a poverty rate of 22.4% and an unemployment rate 2.24x the national average.
NMTC funding is a critical source to allow the Project to proceed. St. Philip’s lacks the resources to develop the necessary capital from operating revenue, and servicing debt is not possible; therefore, a capital campaign is the largest part of the capital stack. St. Philip’s has maximized its fundraising abilities with this campaign, and NMTC funding is essential to bridge the remaining gap. Without the subsidy generated from DDF’s NMTC allocation, St. Philip’s would need to increase their capital campaign, in turn likely pulling from and reducing donor contributions typically used to support operations; given that St. Philip’s subsidizes a large portion of students’ tuition with scholarships, this reduction in operating revenue would jeopardize the organization’s ability to sustain operations of the expanded school and food pantry. To reduce this risk, the capital campaign goal includes funding an endowment with three years of operating revenue.
Additional Project information can be found in Attachment A to the Resolution.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On February 11, 2009, the City Council authorized the creation of the Dallas Development Fund, a non-profit Community Development Entity by Resolution No. 09-0461.
On January 13, 2010, the City Council authorized the acceptance of the initial $55 million NMTC allocation by Resolution No. 10-0210.
On January 19, 2010, the Economic Development Committee was briefed on the DDF and the NMTC Program.
On September 21, 2015, the Economic Development Committee was briefed on the DDF and the NMTC Program.
On January 17, 2025, the DDF Board of Directors was briefed on the St. Philip’s Project and approved the NMTC transaction.
The Economic Development Committee was briefed by memorandum on this matter on February 3, 2025. <https://cityofdallas.legistar.com/View.ashx?M=F&ID=13705678&GUID=66477A18-F821-499E-9AA2-90F4D0A3557D>
FISCAL INFORMATION
No cost consideration to the City.
OWNER/EXECUTIVE
St. Philip’s School and Community Center
Dr. Terry Flowers, The Perot Family Headmaster