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NMTC CY 2020 Allocations Include Most First-Timers, Highest Average Award Since 2015-2016 Round
The Community Development Financial Institutions (CDFI) Fund’s announcement of the calendar year 2020 (CY 2020) new markets tax credit (NMTC) allocation awards this week provided $5 billion of allocation authority to 100 community development entities (CDEs), including the highest number of first-time allocatees and highest average award since the combined CY 2015-2016 round.
The nine first-time awardees (9% of total) marked the third consecutive round that the number of first-time awardees increased and is the highest number since the CY 2015-2016 round when there were 13 first-time recipients. Additionally, the CY 2020 round included the highest percentage of first-time awardees since 2015-2016, when 10.8% were first-time recipients.
In addition, 14% of the allocatees in this round are minority- or Native-owned/controlled CDEs. The number of awards to minority- or Native-owned/controlled CDEs was higher than in the previous three rounds; however, the percentage of the total number of allocations they represent is lower than the prior round. As a percentage, awards to minority- or Native-owned/controlled CDEs in the CY 2020 round was only higher than the CY 2018 round (13.7%) when comparing the past five rounds. In the past five years, the percentage of awards to minority- or Native-owned/controlled CDEs has ranged from 13.7% to 17.8%.
The pattern of awards to rural CDEs is very similar to those to minority- or Native-owned/controlled CDEs. The CDFI Fund awarded 16 rural CDEs in the CY 2020 round (16% of total) compared to 14 in the prior round (18.4% of total). As a percentage, awards to rural CDEs in the CY 2020 round was only higher than the CY 2018 and CY 2015-2016 rounds in the past five years, when the percentages were 15.1% and 11.7%, respectively. In the past five rounds, the percentage of awards to rural CDEs has varied between 11.7% and 19.2%.
The CY 2020 round was the first of at least six-consecutive $5 billion rounds, the next five made possible by legislation late in 2020 that extended and expanded the NMTC. With an additional $1.5 billion in allocation authority (since 2010, rounds have generally been $3.5 billion, with the exception of the combined $7 billion 2015-2016 round), the CDFI Fund awarded allocation authority to 24 more CDEs than in the CY 2019 round.
The 48.1% success rate among the 208 applicants (who requested approximately $15.1 billion in allocation authority) was also higher than the past three years, when the success rate varied between 31.8% and 36.9%. 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. This seems to corroborate what the CDFI Fund has been saying over the past couple of years about how competitive the applications have become and that more and more are highly qualified. It’s likely that fractions of a point in the scoring process can be the difference between winning an award and being left out.
The largest award size for the CY 2020 round was $65 million, the amount received by 15 CDEs. That ties last year’s highest award amount, but is less than other recent rounds. However, the average award size of $50 million is the highest since the 2015-2016 double round and reflects the fact that 72 of the 100 CDEs received at least $50 million in allocation. That 72% of CDEs who received at least $50 million in allocation authority compares to just 60.5% of CDEs that received at least $50 million in the CY 2019 round–a significant jump.
The CDFI Fund’s NMTC Program Award Book for the allocation round provides some other highlights:
- Forty-five allocatees will focus on a national service area, while 26 will focus on a multi-state area, 13 will focus on a specific state and 16 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, while $1.1 billion will likely be used to finance and support real estate projects.
- Approximately $2.7 billion in NMTC authority will be invested in major urban areas, $1.1 billion will be invested in minor urban areas and another $1.1 billion will be invested in rural areas.
- Sixteen allocatees met the criteria as a “rural CDE,” receiving $810 million in authority.
- The 14 minority- or Native-owned/controlled CDEs described earlier received a combined $670 million in NMTC 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 2020 round, the CDFI Fund has made 1,354 allocations with $66 billion in tax credit authority.
Highlights of the CY 2020 allocation round are the focus of the Sept. 7 Tax Credit Tuesday podcast. The CY 2020 allocation and other issues concerning the NMTC world will discussed at the Novogradac 2021 Fall New Markets Tax Credit Conference, Oct. 28-29 in Austin, Texas. The CY 2021 application round is expected to open soon and the Novogradac Top 10 Tips to Gain an Advantage in the Upcoming $5B NMTC Round webinar is available on demand.