New Data Makes Case for Permanent Authorization for New Markets Tax Credit
The Community Development Financial Institutions (CDFI) Fund recently released a summary report and public data on new markets tax credit (NMTC) investments through fiscal year (FY) 2016. Updated annually, the data once again reflects the flexibility of the NMTC with respect to the types of businesses financed with flexible or non-traditional rates and terms.
The data also confirms the fact that allocatees go above and beyond the minimum statutory distress requirements - census tracts where the individual poverty rate is at least 20 percent or where median family income does not exceed 80 percent of the area median. Equally impressive is the degree to which investments have historically been made in non-metropolitan counties (21.14 percent)
Since inception, the NMTC program has allocated a total of $54 billion in tax credit authority to community development entities (CDEs) headquartered in 45 states, the District of Columbia, Puerto Rico and Guam. The $54 billion includes $3 billion in American Recovery and Reinvestment Act of 2009 allocations and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
With such an impressive record of accomplishment, it is no wonder the demand for NMTCs far outpaces the supply. In the most recent award round, the CDFI Fund awarded $3.5 billion in NMTCs to 73 CDEs selected from a pool of 230 applicants that requested an aggregate total of $16.2 billion in tax credit allocation authority. That translates to only approximately one third of all applicants being awarded NMTCs with the amount requested exceeding 4.5 times the amount of NMTC available. The amount requested would have been significantly greater had the CDFI Fund not established a $100 million cap in tax credit investment authority per allocatee in the most recent notice of allocation availability.
Another indicator of how sought after the NMTC is can be found in the monthly NMTC Qualified Equity Investment Report the CDFI Fund makes available. The December report reflects that of the $54 billion in allocation authority awarded to date, only approximately $2.8 billion or 5 percent remains to be issued to investors. This is particularly noteworthy when you consider that only a little more than $800 million of the $7 billion awarded in the combined 2015-2016 rounds has yet to be finalized.
The revitalization of underserved, low-income communities requires affordable credit and investment capital. Needless to say, more allocation authority than what has typically been authorized ($3.5 billion annually since 2010) would enable more CDEs to be awarded NMTCs which would lead to more investments in businesses which would lead to more jobs and increased access to more much-needed commercial and community goods and services for residents in more low-income communities .
The NMTC is currently only authorized through 2019. So it was particularly newsworthy that in October, Rep. Tom Reed, R.-N.Y., announced that the bipartisan NMTC permanency bill, the New Markets Tax Credit Extension Act of 2017 (S. 384/H.R. 1098), had reached 100 cosponsors. The bill would provide an indefinite extension of the NMTC; an increase in the annual NMTC allocation and indexes the allocation to inflation in future years; and alternative minimum tax (AMT) relief for NMTC investments, thereby ensuring NMTC investors the same consideration under the AMT as is currently provided to investors in many other federal tax credits. What is particularly noteworthy about the bill is that it is now supported by more than 100 members of Congress for the first time in the bill’s history, over multiple Congresses.
According to the NMTC Coalition’s Economic Impact Report (2003-2015), from 2003 to 2015, NMTC investments generated more than $156 billion in economic activity, creating 1,013,837 jobs in low-income rural and urban communities, including 459,294 temporary construction jobs and 554,545 full-time equivalent jobs in nearly every industry sector of the economy. The report also indicates that the federal tax revenue generated by NMTC investments more than pays for the cost of the program.
Permanent authorization would ensure NMTCs remain a powerful and effective tool for the community and economic development of highly distressed communities going forward. The data represented in the summary report and accompanying data file makes the case for doing it now.