CY 2021 NMTC Award Winners Have High Success Rate, Increased Focus on DEI

Published by Brad Elphick, Rebecca Darling on Monday, October 31, 2022 - 12:00am

The Community Development Financial Institutions (CDFI) Fund’s announcement of the calendar year (CY) 2021 new markets tax credit (NMTC) allocation awards on Friday provided $5 billion of allocation authority to 107 community development entities (CDEs). The CY 2021 awards included an additional $4.5 million in allocation that was returned from prior rounds.

The 2021 round marks the second year of the incentive’s five-year extension at $5 billion annually. However, there are several differences between the CY 2020 and CY 2021 awards.

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First is the difference in the number of applicants, awardees and allocation requested. In CY 2021, 199 CDEs applied for NMTCs (107 were awarded an allocation), requesting $14.7 billion in allocations. CY 2020 had 208 applicants (100 CDEs received allocations), requesting $15.1 billion in allocation. While CY 2020 had more applicants than CY 2021, it had fewer awardees, meaning the success rate for applicants was higher in the CY 2021 round.

The 53.8% success rate among the 199 applicants in CY 2021 was higher than the previous year, when the success rate was 48.1%. But CY 2021 and CY 2020 both had higher success rates than years prior. The increase in the success rate is largely due to the CDFI Fund maintaining a similar average award size as prior rounds even though there was $1.5 billion more in allocation authority available in CY 2020 and 2021. For example, in CY 2019 and 2018, when the CDFI Fund awarded $3.5 billion annually, the success rate for CDEs 36.9% and 34.1%, respectively.

CY 2021 and CY 2020 also differed in terms of their award sizes.  

The largest award size for the CY 2021 round was $60 million, the amount received by 16 CDEs. By comparison, the CY 2020 round had 15 CDEs received $65 million in allocation authority and 16 more CDEs received $60 million, which shows that the average award size is down from the previous round. The average award size for the 2021 round is $46.7 million, compared to $50 million in the 2020 round.

Another notable difference was the increase in minority- or native-owned/controlled CDEs. The CY 2021 round has 21 minority- or native-owned/controlled CDEs that received a combined $980 million in NMTC authority. This is a significant jump from the 2020 round where 14 minority- or native-owned/controlled CDEs received a combined $670 million in NMTC authority. This increase does not come as a surprise as more CDEs, and companies across all business sectors, are implementing diversity, equity and inclusion practices.

The CDFI Fund’s NMTC Program Award Book for the CY 2021 allocation round provides other interesting highlights:

  • Forty-five allocatees (or 42%) will focus on a national service area, while 25 (or 23%) will focus on a multi-state area, 18 (or 17%) will focus on a specific state and 19 (or 18%) will focus on a specific local market.
  • Approximately $3.8 billion of NMTC investment proceeds will likely be used to finance and support loans to or investments in operating businesses in low-income communities, while approximately $1 billion will likely be used to finance and support real estate projects.
  • Approximately $2.5 billion in NMTC authority will be invested in major urban areas, $1.2 billion will be invested in minor urban areas and another nearly $1.2 billion will be invested in rural areas.
  • Seventeen allocatees met the criteria as a “rural CDE,” receiving $814.5 million in authority.

With every $1 invested in the NMTC program generating more than $8 of private investment, the NMTC remains a crucial incentive for development in low-income communities. Through the CY 2021 round, the CDFI Fund has made 1,461 allocation awards with $71 billion in tax credit authority, including $3 billion in Recovery Act awards and $1 billion that was specifically set aside for recovery and redevelopment in the wake of Hurricane Katrina.

Now that the CY 2021 awards have been announced, NMTC practitioners should quickly pivot to the CY 2022 application round, the opening of which is unknown and causing many to wonder when the CDFI Fund will release the Notice of Allocation Availability.

Highlights of the CY 2021 allocation round and the upcoming CY 2022 application round are the focus of the Nov. 8 Tax Credit Tuesday podcast. These and other issues concerning the NMTC world will be discussed at the Novogradac 23rd Annual New Markets Tax Credit Conference in San Diego on Jan. 19-20, 2023. Finally, help shape the future of the NMTC by joining the NMTC Working Group, which is currently discussing ways the CDFI Fund could improve the application process.