4 reasons you should learn more about state’s Anchor Institution program

Perhaps overlooked in all of the provisions of the Economic Recovery Act of 2020 is the Community Anchor Institution Program. Developers, municipal leaders and institutions such as those in higher education and health care should educate themselves. It’s a big deal.

Nancy Cantor, chancellor of Rutgers University-Newark, identified the worldwide anchor institutions movement as one that seeks to harness enduring organizations, such as “Eds & Meds,” to achieve economic and social objectives. New Jersey joins this movement with the anchor institution program, which authorizes such an institution, independently or in collaboration with one or more partner businesses, to apply for tax credits to invest in and oversee a large-scale (over $10 million), community anchored project — or a “CAP.”

An anchor institution is an entity that the New Jersey Economic Development Authority must certify is a governmental or nonprofit entity, that is a:

  • Comprehensive health care system;
  • Public research university (such as Rutgers or New Jersey Institute of Technology);
  • Private research university (such as Princeton University or Stevens Institute of Technology);
  • Major cultural scientific, research or philanthropic institution;
  • Public college (separate from public research universities); or
  • Experienced nonprofit or governmental economic or community development entity;

and whose primary mission and specific policy goals align with those of EDA under the program.

Here are four things you need to know about the program:

It was designed for Opportunity Zone-eligible areas

The tax credits are available for CAPs that result in capital investment in the continued development of a federal population census tract in the state that was eligible to be designated as a federal Opportunity Zone, regardless of whether the area was designated under the federal program. Please note, being eligible to be designated is all that matters.

The EDA will establish criteria for projects located in such areas, based on the benefit to the state considering “the significant economic, social, planning, employment, environmental, fiscal and other benefits that would accrue to the state, county or municipality from” the project. Thus, the measurement of the benefit is not solely financial.

It was also designed to encourage targeted industries to come to, or expand in, the state

The program was meant to attract economic investment into or expansion of targeted industries to overcome cost-of-occupancy differences between New Jersey and less-expensive options in other jurisdictions. Notably, the EDA is authorized to establish different criteria for CAPs in Opportunity Zones and CAPs primarily designed to attract a targeted industry.

Targeted industry means any industry identified from time to time by the authority, which shall initially include advanced transportation and logistics, advanced manufacturing, aviation, autonomous vehicle and zero-emission vehicle research or development, clean energy, life sciences, hemp processing, information and high technology, finance and insurance, professional services, film and digital media, non-retail food and beverage businesses including food innovation, and other innovative industries that disrupt current technologies or business models.

It was designed as an investment model

The program is designed to convert the tax credits into an investment by EDA in a CAP which can be structured as an equity interest or a loan. For CAPs financed solely by governmental and nonprofit entity investments, the EDA will negotiate an agreed-upon formula including the potential recapture (return) of the value of the tax credits awarded.

For CAPs not financed solely by governmental and nonprofit entity investments, the EDA will negotiate an agreed-upon formula including the potential recapture (return) of the value of the tax credits awarded and additional return on investment to the EDA that may be current or deferred. EDA’s interest in CAP will, however, be subordinate to investments made by an anchor institution and any partner anchor institution.

It was designed to expand the influence of anchor institutions

The program incentivizes anchor institutions to look beyond the borders of their host communities, permitting them to invest in other locales that lack strong anchor institutions, thus expanding their influence and impact. The preamble states it is broad enough to permit the addition of other beneficial uses to a CAP, including facilities of an anchor institution itself. The anchor institution may also use the tax credits as collateral or to secure any financial instrument approved by EDA to provide financing for the CAP.

Anne Babineau is a shareholder at Wilentz, Goldman & Spitzer P.A., where she serves as co-chair of the firm’s real estate group. This article is a summary of a complex law, the regulations for which have not yet been adopted.