Community Developments Investments (June 2016)

Beneficial Partnerships, Missions, and Values

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Kevin Goldsmith, Senior Vice President, Community Development Banking, New Markets Tax Credit Group, JPMorgan Chase Bank, N.A.

Asian Health Services in Oakland, Calif., was financed in collaboration by Enterprise Community Partners with JP Morgan Chase, and the Nonprofit Finance Fund. (Source: Chase)

Federally qualified health centers (FQHC or health center) have been serving low-income communities for 50 years and have become the backbone for delivering primary care to more than 20 million low-income and uninsured Americans. Through a combination of federal New Markets Tax Credits (NMTC) partnerships with community development financial institutions (CDFI) and working with the U.S. Department of Health and Human Services, banks can play a meaningful role helping FQHCs expand and grow their operations. This is exactly what JPMorgan Chase Bank, N.A. (Chase) has been doing.

Since 2009, Chase has invested $119 million of NMTC equity in 32 FQHC projects, leading to a total of $378 million in qualified equity investments (QEI). These investments have leveraged additional direct investment in the projects outside of the NMTC structure, resulting in a total development cost of over $550 million.

In 2014 alone, Chase provided $24 million of NMTC equity into six health center projects, resulting in total QEIs of $74 million and total development costs of $146.6 million. These six projects provided access to health care for 325,000 individuals and brought a significant number of full-time equivalent jobs to low-income communities.

Additionally, Chase New Markets Corporation, the community development entity controlled by Chase, provided $14 million of allocated NMTCs to another six projects between 2009 and 2013. Chase partnered with 24 other community development entities to secure NMTC allocations for the remaining $364 million in QEIs.

Behind these numbers lies a mutually beneficial partnership between multiple public and private institutions, driven by a strong alignment in missions and core values.

The Health Resources and Services Administration (HRSA) is the primary federal funding agency for improving access to health care services for people who are uninsured, isolated, or medically vulnerable. Recently, the availability of Medicaid for eligible recipients was significantly expanded by the Affordable Care Act (ACA).1 But a significant shortfall remains in delivery of medical services to underserved populations because of an existing shortage of physicians and other medical team members. Moreover, this personnel shortage has been exacerbated by the spike in demand from increased availability of Medicaid coverage.

HRSA seeks to improve access, quality, and equity of care through funding directed to health centers for the provision of essential primary and preventive health care services. The services target low-income underserved populations and communities. Ultimately, both HRSA and health centers are working to improve the quality of life for low-income families and individuals by providing better and more economical health care and more jobs to support community economic development.

These goals are strongly aligned with the mission of community development banking at Chase, many CDFIs, the CDFI Fund, and ultimately, the purpose of the NMTC program.

Naturally, the opportunity for partnership arises from these well-aligned intentions. Moreover, a need is clearly evident for growth and expansion of the health center program, creating a sense of urgency among those parties prepared to take action. This collaborative environment has been critical to Chase's ability to overcome obstacles facing the expansion of the health center program and to execute successful NMTC transactions for the financing of health centers.

Chase is dedicated to economic and community development across the firm's footprint. Providing solutions to the health care challenges our country faces is a critical component of pursuing that mission. Furthermore, the NMTC program emphasizes community impact, the assessed need for better access to community facilities, and delivering tangible benefits for low-income communities. Additionally, to receive operating grant funds from HRSA, health centers must meet HRSA requirements.2 These community-supporting requirements are the central reason why Chase believes that health centers are ideal candidates for NMTC financing.

Most traditional lenders face significant challenges when considering the decision to extend credit to health center projects. Fortunately, Chase's NMTC group has developed sufficient flexibility and expertise through partnerships and experience and can successfully manage many of these challenges. Most traditional lenders look to cash flow from operations as the source of their principal repayment. But Chase has learned that this is a metric by which most health centers appear weak and non-creditworthy.

Health centers are required to serve low-income and uninsured individuals via a sliding fee scale and are often located in communities with unstable, struggling economies. Health centers receive very limited revenue from "traditional customers," as patients frequently pay only what they are able to, which is often nothing. Although the sliding fee scale is a critical component for serving the mission, from a community impact perspective many lenders are not comfortable with this financial profile. In the past, this has significantly inhibited access to traditional financing for health centers.

Health centers do not necessarily lack adequate revenue, however; it is merely coming from a different source. Understanding health centers' business model is critical to developing confidence in extending credit to them. Through Chase's experience in financing health centers under the NMTC program, we have developed confidence that these organizations are significantly supported by the resources and creditworthiness of the federal government. By definition, health centers receive grants from HRSA under section 330 of the Public Health Service Act to fund operating deficits, and qualify for enhanced reimbursement from Medicare and Medicaid programs. Although health centers themselves are not large institutions with investment-grade credit ratings, they are sustained by the quintessential large and creditworthy institution: the U.S. government.

NMTC program regulations and health center program regulations have not, however, always been compatible. Opening a line of communication between HRSA, Chase, and strong CDFI partners has enabled the parties to identify common goals between programs. Ultimately, the recognition of common goals has enabled the reconciliation of regulatory issues that prevented Chase from using grant funding from HRSA as NMTC leverage. Frequently, these grants came through construction expenditure reimbursements, which required the funds to be bridged. This provided Chase and many of its CDFI partners with opportunities to experience important nuances of the credit relationship with health centers, without requiring Chase to take on the risk of a traditional cash flow loan. Moreover, the communication experience with HRSA and frequent activity in closing NMTC financing for these projects enabled the collaborative to advise the health center management and helped improve communication with HRSA. Improved communication ensured the project's success and the repayment of bridge financing.

Arriving at a mutually beneficial resolution with HRSA was a critical accomplishment, since HRSA grants have frequently served as the lion's share of the NMTC leverage loan, providing adequate "soft" funding to appropriately capitalize a health center NMTC transaction. HRSA grants are often about $5 million. When NMTC equity is added to the capital stack and combined with funds from HRSA, leverage, debt service coverage, and other financial risk metrics are very favorably affected. For example, in a $10 million QEI scenario, the remaining leverage gap is likely approximately $2 million. CDFI lenders bring knowledge and expertise of health centers as an asset class and strong familiarity with local communities. These qualities reduce the leverage gaps and provide traditional lenders with increased confidence. With partners in place, the lender can extend the final piece of leverage to health centers via traditional credit, helping a transaction get over the finish line.

After initially closing NMTC transactions on a one-off basis, Chase and two of its strongest nationally focused CDFI partners, Enterprise and the National Equity Fund, formed a strategic collaboration to provide "one-stop" NMTC financing for health centers. These two CDFIs provide the debt and NMTC allocation, and Chase provides the NMTC equity. The collaboration allows the NMTC investments of the three parties to maximize community impact.

To further maximize impact, we wanted to reduce the general difficulty of obtaining leverage loans for any NMTC project. We also wanted to comply with the aforementioned HRSA guidance allowing grants to be leveraged using construction-period bridge financing and to hold discussions between the three parties identifying a common interest in financing FQHCs. The ultimate goal of the collaboration is to develop expertise through a focus on FQHCs and bring down NMTC transaction costs by reducing the variety of financing sources and parties involved.

Doing so also requires enabling the use of "boilerplate" documents and consistent loan terms from the two CDFI lenders. Expected collaboration efficiencies could reduce overall NMTC transactions costs by 10 percent to 20 percent, facilitating the use of NMTCs to serve many additional FQHC developments. This partnership remains critical to Chase's success in financing FQHCs through NMTCs.

Additionally, Chase's NMTC group is fortunate to be housed within a firm that has a broad and deep platform. Our firm employs bankers and credit professionals who specialize in covering health care, government, nonprofit, and CDFI clients. Leveraging their expertise, both on an industry-wide and individual relationship basis, has been critical to our success.

One recent trend we have noted, especially during the latter part of 2014, is that HRSA is starting to move away from providing capital grants for these expansion projects. This movement indicates that health centers have increased access to traditional financing, as more and more traditional lenders have a better understanding of what lending to a health center entails and are comfortable with the federal government representing a large portion of their source of repayment, especially given the expanded Medicaid coverage available under the ACA. This is a promising trend for the commercial viability of future health center financing, and Chase looks forward to developing new partnerships and strengthening existing ones to take further steps towards our collective goal.

Health centers are unique but not necessarily inherently risky. The resources and creditworthiness of the U.S. federal government significantly support health center operations. Creditors are typically averse to going too far outside the box when their capital is at risk, but we at Chase are slowly starting to see that box expand to include health centers.

Health centers financing typically fits very well into an NMTC scenario. HRSA capital grants have frequently provided adequate "soft" funding to appropriately capitalize a health center NMTC transaction. Since these grants are often funded as reimbursements, the historical requirement for lenders to bridge these soft funds has given them experience and added comfort in extending traditional credit. The nature of health center projects fits well within NMTC regulations and results in the positive community impact that all parties want.

There is an urgent and overwhelming demand for health care resources in the United States, and no single organization is capable of providing a solution on its own. Partnerships between public and private organizations, as well as between for-profit and nonprofit organizations, are crucial to take steps towards reaching a solution. Identifying common goals between these organizations is critical to fostering successful actions.

For more information, email  Kevin Goldsmith.

Federally Qualified Health Center Spotlight: Erie HealthReach Waukegan Health Center, Waukegan, Ill. 

The new Erie Healthcare Center in Waukegan, Ill., received a $3.03 million New Markets Tax Credit equity investment from JPMorgan Chase Bank, N.A.. (Source: Chase)

A $9.25 million New Markets Tax Credit (NMTC) transaction provided critical financing for the acquisition and rehabilitation of a former bank building in Waukegan, Ill. The building is now used as a comprehensive health center facility, complete with medical, dental, behavioral, and mental health services and examination rooms.

ESIC New Markets Partners LP, with the cost of equity controlled by Enterprise Community Partners, a national community development financial institution, provided all of the NMTC allocation for the project, as well as a $2.4 million term loan and a $1.9 million loan to bridge a portion of a $4 million Health Resources and Services Administration grant. JP Morgan Chase provided a $3.03 million NMTC equity investment for the structure.

The Lake County Health Department estimates that Erie HealthReach Waukegan Health Center's (Erie) proposed Greater Waukegan service area is home to over 90,000 medically underserved residents, many of whom are uninsured or Medicaid enrollees. Of these 90,000 underserved residents, just 32 percent are currently served by the safety net providers operating in Lake County, Ill. Effectively two-thirds of all medically underserved residents in Greater Waukegan have no access to affordable health care. The new Waukegan health center clinic will leverage Erie's decades of experience and unmatched capacity for serving low-income immigrant patients in a dramatically underserved community.

With the addition of the health center, Erie will be able to accommodate up to 42,000 patient visits per year, including 30,000 medical visits and 12,000 dental or oral health visits. These services are expected to reach 14,000 unique patients, of whom 89 percent are anticipated to have incomes at or below 200 percent of the poverty line, and 35 percent are expected to be uninsured. The facility's location, in close proximity to public transit, will further broaden its reach to low-income residents. Additionally, the project is estimated to create 32 full-time health care positions by 2017.

For more information, email Kevin Goldsmith.

1 The ACA actually refers to two separate pieces of legislation—the Patient Protection and Affordable Care Act (PL 111-148) and the Health Care and Education Reconciliation Act of 2010 (PL 111-152)—that together expand Medicaid coverage to millions of low-income Americans and make numerous improvements to both Medicaid and the Children's Health Insurance Program (CHIP).

2 HRSA requirements include the following: Serve an underserved area or population, offer a sliding fee scale, provide comprehensive services, have an ongoing quality assurance program, and have a governing board of directors that includes community members.

This publication is part of:

Collection: Community Developments Investments

Deputy Comptroller
Barry Wides

Editorial Staff
Letty Ann Shapiro
Janet Fix

Design Staff
Vince Harris

For questions or comments, call (202) 649-6420 or email This and previous editions are available on the OCC's website at

Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.

Deputy Comptroller
Barry Wides

Editorial Staff
Ted Wartell
Bill Reeves
David Black
Dan Gibbard

Design Staff
Rick Shacklette
Cheryle Robison

For questions or comments, call (202) 649-6420 or email This and previous editions are available on the OCC's website at

Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.