Coastal Enterprises, Opportunity Zones and How Non-Profits Affect the Social-Economic Structure
Rethinking what it means to be alive in the twenty-first century.
Full disclosure: I am not a tax lawyer, just a curious observer of the wealth concentration and redistribution economy, so take what I say with that in mind.
Coastal Enterprises Incorporated is a prosperous non-profit. Total current assets listed on the 2019 audit are worth 40,574,865.00 with an additional 23,218,123.00 in Land, property, and equipment, and other assets worth 68,539,013.00 making a grand total of 132,332,001.00
The largest figure in all of those assets is Loans Receivable, net of current portion worth 36,879,376.00. Coastal Enterprise is a non-profit banking organization investing debt-free non-profit funding and government grants into its for-profit subsidiaries that lend money to the small entrepreneur community targeted by CEI’s original non-profit purpose.
CEI also owns, among its for-profit subsidiaries, multiple low-income housing locations some of which are of exceptional quality structured as single housing units on their own plots of land. The main problem with these housing situations is that the occupants are so restricted from increasing their incomes that the slightest increase disqualifies them from residency, so upward mobility is not just discouraged, it’s prohibited by statutory laws compartmentalizing housing and economic development resulting in restraining economic development.
In the real world, affordable housing stability is needed but it should not be at the cost of sacrificing opportunities for economic growth. That is where zoning that allows businesses in a home can make a difference.
What goes on in the transactional space when the non-profit momentarily becomes a for-profit and then shapeshifts back again, is hidden from the public view.
Both the IRS and the corporation are required to disclose the information the nonprofit provides on Form 990 to the public.
For-profit corporate tax information is completely confidential.
There is little public examination of this aspect of for-profit, non-profit relationships. After the non-profit invests in its for-profit subsidiary, what transpires is opaque to the public until it is transferred in aggregate figures back into the non-profit parent’s accounting.
When CEI was first created, it was motivated by a mission to provide funding at the grassroots of the economy, but today it is tied by its purse strings to the corporate state and primarily serves the corporate state’s targeted sector, which is clear in the character description of its newest subsidiary CEI-BOULOS CAPITAL MANAGEMENT, LLC.
The 2021 Annual Report of CEI-BOULOS CAPITAL MANAGEMENT, LLC. the Brief listing of the character of the business states:
MANAGER OF OPPORTUNITY ZONE INVESTMENTS
Together with CEI, Boulbose invests in opportunity zones across the nation, including the homeless warehouse with 200 beds per room to be built in an industrial zone in Portland, Maine.
In information written about fiscal sponsorship, it is common to find a complete description of the internal relationship between parts without ever a mention of the words “for-profit” or “for-profit subsidiary”, But this article from Candid Learning states it clearly:
For-profit subsidiaries of nonprofits
A nonprofit parent may establish a for-profit subsidiary because, for example, its leaders wish to engage in unrelated business activities that don't directly pertain to the stated mission of the nonprofit. Otherwise, the nonprofit may be required to pay an Unrelated Business Income Tax, commonly referred to as UBIT. A nonprofit may also create a for-profit subsidiary in order to avoid possible risk and liability that might be directed at the original organization if the activities were carried out under its tax-exempt status. Can my organization have a subsidiary?
The above quote suggests the non-profit corporation forms a for-profit subsidiary to avoid taxation while information found in the CEI audit indicates that the for-profit subsidiaries are taxed:
CVI, CCVI, CCHI, PCI, BCI, HSI, GPI, and RSI file Form 1120, Corporation Income Tax Return, with the IRS annually.
CVII, CVIII, CVIV, CHOM, BCLP, GPLP, PCLP, and RPLP file Form 1065, Return of Partnership Income, with the IRS annually.
CEI, CHI and CCHI ("nonprofit entities") are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and determined not to be a private foundation within Section 509(a) of the Code. The nonprofit entities are also exempt from state and local taxes.
(Subsidiaries are listed at the end of Form 990. Schedule R, Part III- Identification of Related Organizations Taxable as a Partnership)
I am assuming that the companies that file Form 1065 are absorbed into the ones that file Form 1120. I selected one subsidiary, POND CIRCLE, INC. (PCI). It is found on the Maine State corporate name search where POND CIRCLE, INC is identified as a non-profit corporation but POND CIRCLE, INC is stated to be a for-profit subsidiary of CEI on pg 15 of the 2019 audit :
Pond Circle, Inc. ("PCI") - In 2002, CEI established a for-profit entity, PCI. CEI is the sole shareholder of PCI and, therefore, it is consolidated.
I could not find Pond Circle, Inc. on ProPublica Nonprofit Explorer
The Four Subsidiaries listed on Current CEI Website
CEI-BOULOS CAPITAL MANAGEMENT, LLC is a subsidiary added in 2020. It is listed as a foreign limited liability corporation on the Maine government-corporate name search. Foreign means it can operate outside of the state.
Bright Community Capital
Maine Gov Corporate Name Search Found 0 entities for query: Bright Community Capital in category ALL CATEGORIES
ProPublica Nonprofit Explorer found 0 organization results for Bright Community Capital.
CEI CAPITAL MANAGEMENT LLC is listed in the Maine gov corporate name search as a foreign limited liability corporation, established in 2004, there are many annual reports.
ProPublica Nonprofit Explorer lists 0 organization results for CEI CAPITAL MANAGEMENT LLC.
CEI VENTURES, INC. is listed in Maine corporate name search as a BUSINESS CORPORATION established in 1993.
I downloaded the 1993 articles of incorporation. The only significant information is that there were 3000 common stock shares of no par value or a par value of zero and that shareholder meetings may occur outside the state.
None of the above gives a clue about where Form 1120 is found so for now what happens in the for-profit subsidiaries, stays in the for-profit subsidiaries.
The only information I have uncovered to date on the 2019 audit is that Subsidiaries and related entities are listed under Programs listed under Salaries and benefits expenses as (559,421). This doesn’t reveal a great deal since figures from subsidiaries are aggregates that leave too much unexplained for the public observer to understand what has transpired.
To my view, non-profits are merely financial instruments. I don’t believe that non-profits categorically serve the public benefit. Some do but others are exploitative. The same is true for for-profit businesses. The main social benefit of the non-profit financial structure is that it keeps executive pay from rising into the stratosphere. Corporations traded on the market answer to shareholders who demand profit be first and foremost. The corporation might be producing a product with great public benefit but the shareholders may still demand that profit be prioritized when the environment or another social issue is at stake. Large non-profits are guilty of the same sins, but their executive pay is under control, if not their volunteer employees, who work for no pay even as the non-profit thrives, negating the wealth distribution benefit of limiting executive pay when the bottom of the workforce doesn’t get paid at all while the non-profit institution steadily acquires tax-exempt property assets. Imagine if this evolves toward a society in which non-profits (with their for-profit subsidiaries) are more common than for-profit businesses, except those traded on the stock market. We are already at least halfway there.
CEI widens options for some, but it made a choice to pursue Model L Fiscal sponsorship and to not offer Model A in which nonprofit fundraising directly benefits the small entrepreneur rather than merely the Fiscal Sponsor (CEI). In Model L fiscal sponsorship the fiscal sponsor and the sponsored project are one and the same. The Fiscal sponsor forms an LLC in which it is the sole member and since it is the sole member its accounting gets absorbed back into the non-profit parent which, outside of the legal structure, is one and the same as its subsidiary.
CEI Is a nonprofit economic development organization with many for-profit subsidiaries. I counted around 27 for-profit subsidiaries on its 2019 Tax Audit merging into each other.
After 2000 all of the subsidiaries started by CEI are for-profits, and all say “CEI is the sole shareholder of xyz and, therefore, it is consolidated.”, All of the subsidiaries are listed on the audit as for-profit corporations so each has separate books that merge into the parent’s accounting as aggregate figures.
Principles of consolidation
The consolidated financial statements include the accounts of CEI and Affiliates. All significant intercompany transactions and balances have been eliminated in consolidation. (emphasis by author) CEI 2019 Audit
I once asked CEI if they would consider offering fiscal sponsorship to the small business community. The answer was “Our lawyers advise against it”, meaning “It is not in CEI’s self-interest, since that is what lawyers advise about. Lawyers do not advise what is best for the community that the non-profit serves, but what is in the interest of the non-profit entity. CEI is a lending institution. There is no benefit for CEI in offering Model A fiscal sponsorship to small entrepreneurs, but there is a benefit for the small entrepreneurs if they can secure non-profit non-equity debt-free funding via Model A fiscal sponsorship.
Before there was a corporate state with its massive wealth concentration and redistribution industry and its public-private for-profit- non-profit network, and its favored targeted sector, and its hierarchical corporate world order, the Maine Government had to think of a way to justify taking over managing the economy of the whole state by BIG corporation, Maine State Inc. so Governor Longley formed a Task Force made up of the heads of the largest corporations in the state to lead the Legislature in reinventing the Maine government, and all together they came up with this rationale:
The Legislature finds that one of the limiting factors on the beneficial economic development of the State is the limited availability of capital for the long-term needs of Maine businesses and entrepreneurs. In particular, the lack of equity capital to finance new business ventures and the expansion or recapitalization of existing businesses is critical. This lack of equity capital may prevent worthwhile businesses from being established; it may also force businesses to use debt capital where equity capital would be more appropriate. This creates debt service demands which a new or expanding venture may not be able to meet successfully, causing the venture to fail because of the lack of availability of the appropriate kind of capital.
This impediment to the development and expansion of viable Maine businesses affects all the people of Maine adversely and is one factor resulting in existing conditions of unemployment, underemployment, low per capital income and resource underutilization. By restraining economic development, it sustains burdensome pressures on State Government to provide services to those citizens who are unable to provide for themselves.
To help correct this situation, it is appropriate to use the profit motive of private investors to achieve additional economic development in the State. This can be accomplished by establishing an investment corporation to provide equity capital for Maine businesses and by establishing limited tax credits for investors in the corporation to encourage the formation and use of private capital for the critical public purpose of maintaining and strengthening the state's economy. Governor’s Task Force for Economic Redevelopment-1976
The statement leads with a need for better capitalization opportunities for small entrepreneurs, who are not included in the conversation. The small entrepreneurs are used to build an argument for chartering the Maine Capital Corporation which would use refundable tax credits to attract shareholders. The tax credits combined with tax exemptions converted to a 50% capital subsidy by Maine taxpayers for MCC.
Maine State Inc’s idea of “appropriate capital” for small business owners is equity capital, which over time would transfer ownership of the economy to an elite class. As large investors acquire small companies the entire economy functions like one large hierarchical corporate order.
The legislative statement is written in absence of voices from the community that it purports to benefit. Governor Longley’s advisory council was selected exclusively from the state’s wealthiest and largest corporations. The actual purpose is clearly stated in paragraph three.
“It is appropriate to use the profit motive of private investors to achieve additional economic development in the State.”
Translation: It is appropriate for public resources to be used to profit private investors, documented in full detail as the story of the Maine Capital Corporation, here.
The legislative rationale is a recipe for a corporate take-over of the entire economy of Maine. The small business owner is a voiceless instrument of the interests of investors. Is it any wonder that since this agenda was implemented, the wealth divide has grown and grown and grown?
Those not in the corporate state’s cha-ching targeted sector need to create a support network of our own, and if we are wise enough, we can keep it in the long term. Those outside the state’s targeted sector are taxed to finance benefits for businesses in the targeted sectors. Ding Dong! It’s your wake-up call calling. Those on the outside need to create their own networks. We can redirect the flow of wealth through some of the same financial instruments that have been used against the middle of the economy, and we can lobby for fairer ordinances, fairer laws, and the repeal of the unconstitutional systems that are currently in place. We can break the silence and make our voices a part of the conversation. We can’t knock the tower down all at once or it will collapse on top of us. The system has to be deconstructed and reconstructed with careful insight into the effects of each action on the others. We can develop a plan of our own for our communities that we know better than remote consultants. We can elect our own into office or we can run for office. We can define our own measure of the meaning of economic development. We can create a strong alternative to the dominant powers of the old paradigm. When is life more interesting than when it is being born?
So come to the caucus. Still no date and no place but it has to occur before March 19. Keep watching here to find out when! The Green Independent party welcomes everyone but to be a voting member, you have to register- so consider going to your town office and registering Green. It’s a new day!
Also published on Medium in Data-Based Investor.
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