How a Springville non­profit is fi­nanc­ing its arts cen­ter

Un­usual strat­egy of­fers tax cred­its to in­vestors

The Buffalo News - - TASTE - By Jonathan D. Ep­stein

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.

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