2015 a Year of Landmarks for NMTC Program

Published by Michael Novogradac on Friday, January 15, 2016 - 12:00am

For the new markets tax credit (NMTC) world, 2015 was a landmark year–one bookended by the beginning of the year with a budget proposal and legislation introduced to make the NMTC program permanent and at the end of the year with the five-year extension of the program. Along the way, there were some important reports issued, as well as significant changes at the Community Development Financial Institutions (CDFI) Fund and a landmark anniversary.

Here are some of the major developments for the NMTC community, in chronological order:

Feb. 2: President Barack Obama’s proposed fiscal year 2016 budget includes a permanent reauthorization of the NMTC program for the third straight year, with $5 billion in allocation authority each year as well as the authority to offset alternative minimum tax (AMT) liability.

Feb. 10: Reps. Pat Tiberi, R-Ohio, Richard Neal, D-Mass., and Tom Reed, R-N.Y., introduce the New Markets Tax Credit Extension Act of 2015. The legislation would also provide an annual inflation adjustment and allow the NMTC to be taken against the alternative minimum tax liability. The bill ultimately has 63 bipartisan cosponsors, including 17 on the tax-writing Ways and Means Committee, and an identical bill is introduced in the Senate by Sen. Roy Blunt, R-Mo., and has seven bipartisan cosponsors.

May 21: Reps. Mike Turner, R-Ohio, and Chaka Fattah, D-Pa., circulate a sign-on letter urging leaders of the House Ways and Means Committee to support extension of the NMTC program. The letter states that since 2003, the NMTC has generated more than $60 billion in capital investments for underserved areas, creating nearly 750,000 jobs.

June 2: The CDFI Fund releases data collected on NMTC investments through fiscal year (FY) 2013, showing that in the history of the program, community development entities (CDEs) disbursed $35.3 billion in qualified equity investment (QEI) proceeds to more than 4,200 qualified active low-income community businesses (QALICBs).

June 10: The New Markets Tax Credit Coalition (NMTCC) issues the New Markets Tax Credit Progress Report 2015. In it, the NMTCC reports that the NMTC was responsible for creating nearly 40,000 jobs in 2014. The report states that 71 percent of analyzed NMTC projects in 2014 were in severely distressed communities where the median income is at or below 60 percent of the surrounding area’s median income (AMI), poverty rates are 30 percent or more, or the unemployment rate is 1.5 times the national unemployment rate.

June 15: The CDFI Fund announces the award of $3.5 billion in NMTC allocation authority to 76 CDEs under the calendar year 2014 round of the NMTC program. It’s the 12th round and featured 263 applicants seeking more than $19.9 billion in allocation authority. The list of awardees shows that operating businesses benefit from allocation more than real estate projects.

Aug. 29: On the 10th anniversary of the landfall of Hurricane Katrina in southeastern Louisiana, the NMTC program is cited as an example of how federal programs can help bring private investment in disaster areas.

Sept. 28: A week after launching a new website, the CDFI Fund launches its Awards Management Information System (AMIS), an enterprise-wide business system that will eventually support all CDFI Fund programs, replacing the myCDFIFund portal. The CDFI Fund transitions to AMIS in multiple stages through fall 2016.

Sept. 29: The CDFI Fund announces that it guaranteed nine bonds worth $327 million in fiscal year 2015, providing long-term fixed-rate capital for CDFIs financing projects in low-income and underserved communities. The proceeds are provided through the CDFI Bond Guarantee Program.

Oct. 21: The CDFI Fund releases notice of allocation availability (NOAA) for the next round of the NMTC program, making $5 billion in tax credit authority available, pending congressional authorization.

Dec. 4: The CDFI Fund releases an updated Certification, Compliance and Monitoring FAQ document. It contains new information on how the CDFI Fund monitors compliance with the unrelated-entity requirement in the allocation agreement and about whether a QALICB can use qualified low-income investment (QLICI) proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an affiliate.

Dec. 18: The NMTC is extended for five years when President Obama signs the $1.1 trillion Consolidated Appropriations Act of 2016 which includes the $680 billion Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act includes the provision to extend the NMTC program at $3.5 billion annually through 2019. It’s one of several provisions in the bills, including five-year extensions for the renewable energy investment tax credit and production tax credit and making the low-income housing tax credit (LIHTC) minimum 9 percent level permanent.

Dec. 21: The NMTC commemorates its 15th anniversary, marking a decade-and-a-half since President Bill Clinton signed the Community Renewal Tax Relief Act of 2000 into law. This blog commemorated it with a timeline and a summary of the benefits.

Implications for 2016 and Beyond

Between 2003 and 2012, the NMTC generated about 750,000 jobs in low-income communities across the country, at a cost to the federal government of less than $20,000 per job. Over the same time period, nearly 4,000 qualified low-income community businesses received investment through the NMTC. And now, finally, after years of negotiations and short-term renewals, the NMTC program has an unusual degree of certainty. The five-year window provided by the extension will allow capital to continue to flow to businesses in low-income communities, provide incentives to private investors and continue creating and maintaining jobs at businesses in the neediest communities. However, it is important to note that the NMTC extension funds the program at roughly 2009 levels. So at least for now, instead of fighting for the program to continue, legislative focus can shift to increasing the allocation amount to allow more community development funding in struggling areas.