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Better Understanding the 27 Congressional Districts Without QLICIs

Published by Brad Elphick and Peter Lawrence on Wednesday, May 29, 2024 - 6:11AM

While there are new markets tax credit (NMTC)-financed developments in all 50 states, there are 27 congressional districts in 13 states that don’t have any qualified low-income community investments (QLICIs), based on the most recent data available (2021) from the U.S. Treasury Department’s Community Development Financial Institutions (CDFI) Fund. This post takes a deeper look at the eligibility characteristics of the census tracts in these congressional districts and if an opportunity exists to attract future investment.

Novogradac’s  NMTC Mapping Tool contains this data and is expected to be updated later this year with 2022 investment information (maps with current and prior years’ QLICI data can be found here). A previous Notes from Novogradac blog post detailed the location of QLICIs made using the NMTC incentive.

About the NMTC and QLICIs

The NMTC incentive encourages economic and community development by providing a tax incentive for private investment in low-income communities. Under the incentive, investors can receive tax credits against their federal income tax in exchange for making equity investments. Community development entities (CDEs) apply for NMTC allocation authority and use the proceeds from qualified equity investments (QEIs) made by taxpayers into the CDE to make QLICIs in qualified active low-income community businesses (QALICBs). Investors can claim a tax credit equivalent to 39% of their QEIs over a seven-year period. As of FY 2021, the NMTC has facilitated an impressive ratio of $8 in private investment for every $1 of federal funding, supporting more than 10,800 businesses, according to the CDFI Fund. 

QLICIs play a crucial role in fostering small business growth within low-income communities. Various types of businesses, including manufacturing, food, retail, housing, health, technology, energy, education and childcare, have benefited from QLICIs. NMTC-funded investments into local businesses contribute significantly to much-needed economic development in underserved low-income areas.

Analyzing the Data 

As of 2021, only 27 congressional districts (out of 435 total districts) across 13 states lack any QLICIs. Specifically, Texas has six districts without QLICIs, while Pennsylvania, Virginia and California each have three such districts. New York and Georgia each have two districts without QLICIs and Minnesota, Michigan, Ohio, New Jersey, Alabama and Florida each have one district without any QLICIs.

Blog Graphic: States with Congressional Districts with No QLICIs

Every Congressional District with No QLICIs Contained Eligible Census Tracts

According to Internal Revenue Code Section 45D, census tracts that are eligible to receive QLICIs under the NMTC incentive have either: 

  1. median family income at or below 80% of area median income (AMI) in the period of 2011-2015 or 2016-2020, or 
  2. poverty rate of 20% or greater in the period of 2011-2015 or 2016-2020. 

Census tracts of severe distress meet the following qualifications: 

  1. poverty rates of 30% or greater, 
  2. median family income at or below 60% of applicable AMI, or 
  3. unemployment rates of at least one and a half times the national average. 

In some of the congressional districts without QLICIs, there are either very few or no severely distressed census tracts. Consequently, placing a QLICI in those congressional districts becomes challenging due to the priority the CDFI Fund assigns to applications serving severely distressed areas. 

Based on 2016-2020 American Community Survey (ACS) data, in the 27 congressional districts with no QLICIs, each congressional districts had at least three census tracts that were NMTC-eligible and at least one census tract that was NMTC-eligible with severe distress. Census tracts in severe distress are far more likely to receive QLICIs than other eligible census tracts, especially in recent years. According to the CDFI Fund, 78.8% of all QLICIS made in fiscal year (FY) 2021 were in census tracts in severe distress and 74.3% of all QLICIs in the lifetime of the NMTC (FY 2003-2021) were located in census tracts in severe distress. Furthermore, all allocatees in the 2022 NMTC award round committed to providing at least 85% of their investments in areas characterized by: 1) multiple indicia of distress, 2) significantly greater indicia of distress than required by NMTC rules; or 3) high unemployment rates.

ACS data is used to define the low-income communities (LICs) that are eligible for NMTCs based on census tracts. When comparing eligibility based on ACS data from 2011-2015 to data from 2016-2020, it should be noted that not all tracts matched up from one period to the next. In the 27 congressional districts, there were 3,863 total census tracts in the 2011-2015 data and 4,629 total census tracts in the 2016-2020 data. Due to these differences, our analysis compared percentages rather than nominal amounts.

The findings showed that of the 27 congressional districts with no QLICIs, 15 saw a decrease in the percentage of total eligible census tracts from 2011-2015 to 2016-2020, while 12 had an increase in the percentage of total eligible census tracts during the same time. The district with no QLICIs that had the highest percentage of eligible census tracts was Michigan’s 5th District represented by Republican Rep. Tim Walberg, with 35.16% of census tracts being eligible based on 2016-2020 ACS data. Moreover, Texas’ 5th District, represented by Republican Rep. Lance Goodman, had the largest decrease in total eligible census tracts when looking at 2011-2015 ACS data compared to 2016-2020 data, declining 13.69 percentage points. The largest increase in eligibility was Texas’ 31st District, represented by Republican Rep. John Carter, which rose 19.83 percentage points. The table below shows the percentage of eligible census tracts in each congressional district from 2011-2015 and 2016-2020, organized by the congressional districts with the largest percentage of eligible census tracts from 2016-2020.

Blog Graphic: Total Eligible Census Tracts, 2011-15 to 2016-20

Novogradac’s analysis also measured the percentage of severely distressed census tracts within these districts. The 14 congressional districts that don’t have any QLICIs saw a decrease in a number of severely distressed census tracts from 2011-15 to 2016-20, while 13 districts saw an increase in number of severely distressed census tracts during the same time frame. The congressional district with no QLICIs that had the highest percentage of severely distressed census tracts from 2016-2020 was Texas’ 36th District represented by Republican Rep. Brian Babin, with 22.00%. The same district had the largest increase in total eligible census tracts from 2011-2015 to 2016-2020, rising 9.20 percentage points. In addition to having the largest decrease in total eligibility, Texas’ 5th District, represented by Republican Rep. Lance Gooden, also had the largest decrease in severely distressed census tracts from 2011-2015 to 2016-2020, dropping 21.63 percentage points. Like the previous table, the table below shows the percentage of severely distressed census tracts from 2011-2015 and 2016-2020, organized by the congressional districts with the largest percentage of severely distressed census tracts from 2016-2020.  

The data in both charts shows that congressional districts without QLICIs all have eligible census tracts that could benefit from NMTC investments.

Blog Graphic: Severely Distressed Census Tracts, 2011-15 to 2016-20

Advocates Continue to Push for NMTC Permanence to Boost Investments 

There are two years remaining in the five-year extension of the NMTC that was enacted in December 2020. Though the NMTC has enjoyed bipartisan support since its implementation, the looming 2025 expiration of the incentive has community development stakeholders concerned and prompting them to redouble efforts to advocate for NMTC permanence by the end of 2025. Introduced in 2023, the New Markets Tax Credit Extension Act (S.234, H.R. 2539) would make the NMTC a permanent part of the tax code. This bill, which represents the sixth continual introduction of legislation to make the NMTC permanent, would also set the initial annual allocation authority at $5 billion, index the NMTC annually for inflation and allow NMTCs to be taken against the alternative minimum tax liability. 

Stakeholders interested in hearing the latest NMTC news can join CDEs, investors, developers and other community development professionals at the Novogradac 2024 Spring New Markets Tax Credit Conference, June 6-7 in Washington, D.C. Those looking to take a more hands-on approach should consider joining Novogradac’s NMTC Working Group, which is comprised of industry participants who collaborate to address technical, regulatory and administrative issues related to the NMTC. 

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