Markets In Your Community

D.C.’s Meridian Public Charter School Shows Power of New Markets Tax Credits

When the Meridian Public Charter School was established in northwest Washington, D.C., in 1999, the surrounding neighborhood was a deeply distressed area, and might have seemed a less than welcoming environment for young students. In its first year, students reported to a converted commercial laundry – with very limited outdoor space.

But for the school’s founders, members of the local community dedicated to creating a learning space where children could thrive, establishing the charter school in a place where it was so desperately needed was a cause worth fighting for.

Sixteen years later, the Meridian School is still serving the local community, having grown from an initial class of 87 students to a student body of more than 700 on two campuses, from pre-K3 to 8th graders. Meridian has seen significant improvements in its student’s performance over its initial tenure. In 2009, Meridian was awarded the John Hopkins “Top School” Award as well as the FOCUS Award for Closing the Academic Achievement Gap. Meridian has also increased Science, Technology, Engineering and Mathematics (STEM) opportunities for students at every grade level. The campus can now even support multiple school sports teams, extracurricular activities and clubs, providing additional benefits to its students.

Meridian’s success has been the result of the strong commitment from educators, parents and families, and community leaders who strongly believe in the school’s mission.

But the school’s continued success also serves as a case study in how innovation in public-private financing can serve to create innovative new solutions to age-old problems. Thanks to an innovative financing mechanism known as New Markets Tax Credits (NMTC), the Meridian school moved in 2012 to a renovated 1890’s school building in the neighborhood that had been shut down many years before.

New Markets Tax Credits: History of an Idea

The NMTC program was established by Congress and signed into law by President Bill Clinton in 2000-a true bipartisan achievement. The goal of the tax credit program was to encourage investment into business development, real estate projects, charter schools and other projects in low-income communities.

Here’s how it works: The NMTC created Community Development Entities (CDEs), which are investment intermediaries with a “demonstrated mission of serving or providing capital to low income communities or people and maintain accountability to residents of low income communities…[and most are] affiliates of mission-driven organizations, for-profit entities, government entities, or private financial institutions.”  CDEs apply for NMTCs, and when awarded, the CDE raises equity investment from private investors, who in turn receive a 39% tax credit against their federal income tax over seven years. The CDEs use that capital to make investments in businesses in low-income communities, providing financing that would otherwise not be available.

It’s a program that’s successfully channeled billions of dollars in new investment to low-income and distressed communities. The New Markets Tax Credit Coalition describes the NMTC as “an essential tool for the revitalization of communities left out of the economic mainstream, delivering an unprecedented level of private sector capital to underserved urban neighborhoods and small-town and farming communities.”

Some critics have claimed the tax credits result in “privatizing” of public services. But that critique is as misguided as it is predictable. Tax credits serve to foster constructive collaboration between the private and public sectors, in order to drive innovation and get results. The beneficiaries, in the case of a project like the Meridian school, are the students and families and educators and taxpayers.

The reality is that it can be difficult to attract investment capital to underserved areas. Urban and rural areas that are suffering from decay or stagnation are not always top targets for new investment. The NMTC serves as an incentive to attract investment to these areas.

According to the New Markets Tax Credit Coalition’s 2015 progress report, the economic impact of the tax credit is significant:

  • NMTC investments led to the creation of an estimated 39,378 jobs (20,000 full-time equivalent jobs along and more than 19,000 associated construction jobs) by projects closing in 2014.
  • From 2003 to 2012, NMTC investment has created an estimated 750,000 jobs, at a cost of less than $20,000 per job.
  • More than 70 percent of NMTC investment in 2014 went to areas characterized by “severe distress” in the form of higher poverty rates or higher unemployment-an indication that the majority of the funding is being directed to where it’s needed most.
  • Since the program’s inception, the Coalition notes, NMTC investment has led to an estimated $70 billion in financing to businesses and projects in urban and rural communities.

It’s not just schools that have benefited from NMTC investment. Other examples of projects financed by NMTCs are health care facilities, retail stores, information technology businesses, utilities, professional services firms, performing arts centers, restaurants, child care centers-the list goes on.

A recent Project Invested article examined the public-private partnership that led to the construction of a new headquarters facility for the Twin Cities Habitat for Humanity organization in Minneapolis-St. Paul. NMTCs played a role in that project, as well. The flexibility of the tax credits allows for a wide range of investment opportunities that can be tailored to meet the needs of disparate communities.

One challenge with the NMTC: the program requires regular renewals from Congress, and it expired in December 2014. Advocates are urging Congress to reauthorize the program on a permanent basis, so the tax credits can continue working for communities in need.

An NMTC Case Study: The Meridian Charter Public School

Washington, D.C.’s Meridian School offers a case study in how the NMTC is working to transform communities.

Charter schools have gained ground over the last couple of decades as a new approach to public schooling. Charter schools are public schools that operate independently of the larger local school system, as a partnership between teachers, parents and students, and with stronger accountability for students and teachers. These schools have emerged as a constructive laboratory for innovative thinking in public education.

But they still face challenges, and chief among those challenges is getting access to safe, quality school facilities. For Meridian, that meant that for the first several years of its existence, the school was housed in leased space inside a 1930s-era commercial laundry.

While that makeshift space was adequate for the school’s first years, a more appropriate learning space was needed. Luckily, such a space existed in the neighborhood-the Harrison Elementary School building, an unused historic school building just a few blocks away.

The problem: the Harrison building, dating to the 1890s, would need major renovations to serve as a suitable school facility for students of the 21st century.

That’s where NMTCs came into play.

Thanks to The Reinvestment Fund’s Chase New Markets Tax Credits Charter School Fund, the Meridian School was able to obtain loans to revitalize the 58,900 square foot Harrison school building. The renovations included reorganizing the existing spaces to create spacious new classrooms, adequate office space for administrators and teachers, and dedicated areas for art, music and counseling. The tax credits played a vital role in steering needed investment capital to the school to back the project.

Those renovations have not only served to make the old Harrison Elementary building a viable educational facility for today’s students. They also earned a prestigious recognition from the American Institute of Architects, which honored the project architects at Bowie Gridley with a merit award for historic preservation.

In the meantime, the surrounding neighborhood has also seen significant changes. Redevelopment along the nearby U Street corridor has resulted in an urban renaissance, making the overall area safer and more vibrant. The flourishing of the Meridian school has no doubt benefited from, and contributed to, that neighborhood revival. It’s a demonstration of how real innovation in distressed areas comes from effective public-private partnerships that help increase the flow of capital to where it’s needed the most.

Neighbor and outgoing Chairman of Meridian, Christopher Siddall, commented, “Without the financing made possible through Treasury’s NMTC Program, Meridian would never have been in a position to renovate the historic structure, hire stronger staff, and expand to a second facility all within three years.”

For a more detailed breakdown of how NMTCs work, check out this IRS fact sheet.

For an overview of the award-winning renovation, see this D.C. Preservation League video.