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In January, NewsBuzz reported that Federal regulators might not approve the Irgens Development Partners, LLC request for $20 million in New Markets Tax Credits to build a research and development facility for Eaton Corporation in the Milwaukee County Research Park because the location qualified only due to a loophole. In fact, state officials denied the request, saying the proposal would compromise their agreement with federal authorities.

Officials of the Wisconsin Housing and Economic Development Agency (WHEDA) say their agreement with the U.S. Department of the Treasury required them to take a hard look at such tax credits, to make sure they are truly going to developments in economically distressed areas. Questions also remain as to whether the firm and its attorneys did their proper due diligence before submitting a request that was certain to be denied. Furthermore, Eaton turned down a novel WHEDA proposal to buy qualifying tax credits on its own to help with the financing.

EATON CORP.'S CURRENT LOCATION

According to Farshad Maltes, WHEDA Director of Economic Development, the saga began in January, when Irgens Development, which had formerly had an arrangement for credits with Johnson Bank, and its law firm Quarles and Brady approached WHEDA for New Markets Tax Credits. These credits are awarded competitively from the United States Department of the Treasury Community Development Financial Institutions Fund (CDFI) through agencies like WHEDA.

“I got the application in January, and as part of my review process, I got the basic summary … When I checked the census tract, I found it was in a qualifying area,” Maltes told NewsBuzz.

The area qualifies as a low-income census tract only because its residents are institutionalized. It is an anomaly among all census tracts, but the developer still chose to pursue the tax credits.

“But we made a promise to the (Treasury Department’s) CDFI Fund to only provide credits in highly distressed areas … This is a hard promise, not a soft promise,” Maltes said, with emphasis. “We make these promises to get a better chance for approval of our projects … Most allocatees have made this promise … We promised that any project we would submit would qualify in four distressed criteria.

“Our promise has a clause that we will not fund anything without at least one highly distressed criteria. So although the Eaton project was in a qualified investment area, we could not find it to meet any of our distress criteria,” Maltes said. “So, number one, we couldn’t do it legally, and number two, the project wasn’t a good fit.

“But I offered Eaton an option. I offered to have them buy tax credits for qualifying Milwaukee projects. It would be a win-win. In return for helping projects in Milwaukee, they could get a tax break that they could use for their development, and a poor area of Milwaukee would get help.”

According to Maltes, the credits sought would net about $5.8 million.

“I offered them $19 million in tax credits that would have netted them the same $5.8 million. But they would have had to pay $13 million in cash up front to get the credits. I told them in March. That was our last conversation.”

Maltes adds, “The attorneys and developer were always civil and cordial,” but he never heard back regarding his revised proposal. Officials at Eaton have told the Milwaukee Journal Sentinel they intend to pursue other development opportunities.

NewsBuzz had quoted several critics of the use of these tax credits, including former Milwaukee mayor John Norquist, who said the arrangement violated the spirit and possibly the letter of the federal law for such tax credits. Milwaukee County Supervisor Marina Dimitrijevic, a Research Park board member who voted in favor of the land sale, offered similar criticism, indicating she had changed her mind about the deal.

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