The Ultimate Trickle Down

March 16, 1993

Does money really flow down from the rich to the poor, as the Reagan administration's trickle-down theory suggested? Under certain conditions, yes. And in a big way.

A splendid example of this is the $100 million fund that NationsBank created recently to provide investment capital for the creation of up to 100 affordable housing developments with some 4,000 units. It is the single largest investment so far in a tax credit equity fund, one of the shelters still available to corporations under tax laws.

NationsBank, which has been on a major acquisition spree recently, undoubtedly has lots of money. In this case, however, the bank does not act as a lender in the traditional sense but as a user of low-income housing tax credits.

By enabling the acquisition, rehabilitation and construction of low-income housing, the bank can use those credits to lower the taxes it pays on its profits. In this interesting round-about way the bank can improve its bottom line -- by helping people in need of affordable rental housing.

"Tax credits have evolved into a useful vehicle: 94 percent of multi-family housing is done through the use of credits," says Mark Sissman, president of the non-profit Enterprise Social Investment Corp. This Columbia-based brainchild of developer James W. Rouse will manage the fund, which will operate in the nine states served by NationsBank.

Non-profit organizations have become major producers of low-income housing in recent years, partially because of rewritten federal guidelines and partially because of tax-shelter possibilities. Due to the leadership of the Enterprise Foundation and other non-profit organizations here, Baltimore and Maryland have been on the cutting edge of this phenomenon.

Underwriting low-income housing may not seem like a profitable business proposition for most companies. The NationsBank-Enterprise Foundation partnership shows that a major financier thinks it is. The new fund is a challenge to other banks and corporations to use tax credits as creatively for socially significant end-goals.

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