How a Springville nonprofit is financing its arts center
Unusual strategy offers tax credits to investors
Seth Wochensky has a deal for you. Invest $5,000 with his organization, and you could receive nearly $6,000 in tax credits. Sound too good to be true? Not so fast. While this certainly has risks and won’t be for everyone, it’s also real – and very rare.
Wochensky is leading a community initiative in Springville to save a historic building in the village’s downtown and turn it into an arts center.
The goal of the redevelopment project is to rebuild the once-deteriorated structure so it can house a performance space, an arts workshop, two artists residences and a public rooftop garden – all centered around a bakery and cafe.
The cost of the rehab is more than $1 million, but a significant amount of work has already been completed over the past six years, funded by a combination of state money, loans and angel investors.
Now Wochensky wants to get the Art’s Cafe project over the finish line. But instead of borrowing more or raising money through a lot of grants and donations, his Springville Center for the Arts is trying something unique for part of the funding.
It plans to sell historic tax credits directly to individuals members of the community – through a public offering that is registered with the state.
“It is definitely unusual. We are unaware of anyone who has done this,” said Wochensky, the center’s executive director. “None of the lawyers, accountants or other people we spoke to across the state had ever heard of it.”
Of course, there’s no guarantee of success, and there are plenty of cautions to go along with this.
If Wochensky’s plan goes off without a hitch, someone who pays $5,000 would receive tax credits that could be used to cut almost $6,000 from their income tax bill – a gain of roughly $1,000, or 20 percent from their initial investment.
But there are risks, and that means the investment isn’t a sure thing. The whole venture could fall apart. The work might not get done. The credits might not be approved. The business could fail within the next five years, which means the tax credits
murkier than textbooks suggested.
Imagine a town in which two hotels are competing for business, one part of a giant chain and one that is independent. The chain hotel might have some better technology and marketing to give it a steady advantage, and is therefore able to charge a little more for its rooms and be a little more profitable. But it is basically a level playing field.
When interest rates fall to very low levels, though, the payoff for being the industry leader rises, under the logic that a business generating a given flow of cash is more valuable when rates are low than when they are high. (This is why low interest rates typically cause the stock market to rise.)
A market leader has more to gain from investing and becoming bigger, and it becomes less likely that the laggards will ever catch up.
“At low interest rates, the valuation of market leaders rises relative to the rest,” Mian said. “Amazon becomes a lot more valuable as interest rates fall relative to a smaller player in the same industry and that gives a huge advantage to Amazon.”
In turn, the researchers argue, that can cause smaller players to underinvest, lowering productivity growth across the economy. And that can create a self-sustaining cycle in which industry leaders invest more and achieve everrising dominance of their industry.
The researchers tested the theory against historical stock market data since 1962 and found that falling interest rates indeed correlated with market leaders that outperformed the laggards.
“There’s a view that we can solve all of our problems by just making interest rates low enough,” Mian said. “We’re questioning that notion and believe there is something else going on.”
Aging population affects productivity
In another effort to apply a new lens on how major economic forces may interact, economists at Moody’s Analytics have tried to unpack the ties between demographic change and labor productivity.
No one disputes that the aging of the current workforce is reducing growth rates. With many in the large baby boom generation retiring, fewer people are working and producing, which directly reduces economic output.
In terms of company efficiency, though, you could imagine that an aging workforce could cut in either direction. Savvy, more experienced workers might be able to generate more output for every hour they work. But they might be less willing to learn the latest technology or adapt their work style to changing environments.
Adam Ozimek, Dante DeAntonio and Mark Zandi analyzed data on workforce age and productivity at both the state and industry level, with payroll data on millions of workers. They found that the second effect seems to prevail, that an aging workforce can explain a slowdown in productivity growth of between 0.3 and 0.7 percentage points per year over the last 15 years.
Ozimek says companies may not want to invest in new training for people in their early 60s who will retire in a few years.
“It’s possible that older workers may still be the absolute best workers at their firms, but it could be not worth it to them or the company to retrain and learn new things,” he said.
The research implies there could be a downward drag on productivity growth for years to come.
These findings are hardly the end of the discussion on these topics. But they do reflect that there can be a lot of nonintuitive connections hiding in plain sight.
Everything, it turns out, affects everything.