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Tax credit fuels share offers

City co-operatives want new equity for expansions

By: Martin Cash

Posted: 11/7/2012 1:00 AM | Comments: 0 | Last Modified: 11/7/2012 8:51 AM | Updates

KEN GIGLIOTTI / WINNIPEG FREE PRESS ARCHIVES Beth McKechnie, manager of Peg City Car Co-op, says the company's service would be much better if it could increase its fleet size to 11 cars.

We're not talking about the New York Stock Exchange here, but a group of Winnipeg co-operatives are engaged in their own versions of public share offerings as a way to grow their niche enterprises.

Currently fewer than three co-ops are actively in the market with the help of a little-used provincial tax credit program called the Community Enterprise Development (CED) Tax Credit Program that provides investors with a 30 per cent tax credit.

These are modest sums that are being raised, but in the case of the one-year-old Peg City Car Co-op, the equity it is trying to raise is hoped to be the key to a tripling of its business.

Right now the fledgling car-sharing operation has four cars in its system and 110 members (each of whom pay a one-time membership fee of $500 and then pay to use the vehicles).

But Beth McKechnie, the co-op's manager said their number crunching has shown that the service would work a whole lot better if it could increase the size of its fleet to 11 cars.

"It's a chicken-and-egg situation," McKechnie said. "We need more cars in more neighborhoods in order to get more members. But we need more members to get the capital to purchase the cars."

That's where the share offering comes in. Peg City is trying to raise $200,000 through the offering of $100 shares that investors must hold for at least three years.

The provincial tax-credit program, which is jointly administered by Manitoba Agriculture Food and Rural Initiative and the Department of Local Government, has been around for about six years.

Over that time only 12 enterprises have used the program and lately the sweet spot seems to be co-ops. In addition to Peg City, Neechi Commons and Pollock's Hardware are currently selling shares.

Pollock's Hardware, the iconic North End institution, used it when it reconstituted as a co-op in 2008 and successfully raised $50,000.

It's back out in the market again with another round looking to raise another $50,000 this time to help fund the establishment of its second location -- a contractors' supply division.

Mike Wolchock, Pollock's manager, said the process of selling the shares has mostly been via word of mouth.

"It's amazing how people continue to support us," he said. "We had one man who wrote a cheque for $5,000."

Most agree that investors in these enterprises are not solely looking for a return on investment. The original idea for the program was to allow people to support a community enterprise that they believe may have some broader benefit to the community.

In the case of Pollock's, it has the extra advantage of already proving to be a profitable enterprise, going from $336,000 in revenue the last year before it became a co-op to about $1.5 million this year, its fifth year.

Wolchock said investors in the first round of financing who are now eligible to redeem their shares are doing so with about a five per cent capital appreciation.

That it has proven to be an ideal vehicle for co-ops may have something to do with the fact that these kinds of co-ops have a natural constituency from which to attract the kind of modest financial support they are looking for.

Wolchock said he knows most of the people who are investing because they live in the neighbourhood or are already members of the co-op.

Peg City can appeal to a broad cross-section of people who believe in the car-sharing concept and are interested in environmental sustainability even if they don't necessarily need to use the service themselves.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition November 7, 2012 B5

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Updated on Wednesday, November 7, 2012 at 8:51 AM CST: removes unnecessary word

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