What is the Likelihood of NMTC Reauthorization Beyond 2020?

Published by Bob Ibanez on Monday, October 12, 2020 - 12:00am

Despite the New Markets Tax Credit (NMTC) providing two decades worth of patient, flexible capital to businesses and projects located in distressed rural and urban communities, thereby creating jobs and growing business opportunities, the authorization for the NMTC is set to expire yet again at the end of this year. This is familiar ground; since its enactment, the NMTC has been extended seven times. The following timeline depicts allocation increases and extensions since 2001:

Blog Graphic: NMTC Allocations Timeline 2001-2020
Click to Enlarge

 

To date, Congress has authorized $61 billion in NMTC allocation, with bipartisan legislation currently in Congress (in the House, H.R. 1680, the NMTC Extension Act of 2020 and H.R. 2, the Moving Forward Act, as well as Senate Bill 750) aimed at providing an indefinite extension of the NMTC, increasing the annual NMTC allocation level and indexes future allocation to inflation, and providing NMTC investors with relief from the Alternative Minimum Tax.

There is no shortage of data bolstering the argument for extension of the NMTC. For example, the NMTC Coalition’s 2020 New Markets Tax Credit Progress Report includes data on the nearly 6,400 projects financed by the NMTC since 2000. Sixty-five CDEs that participated in the 2020 survey reported:

Using $2.7 billion in NMTC allocation in 2019 to finance 288 projects in nearly 200 cities in 48 states and territories (26 percent of NMTC financing went to non-metropolitan counties with an additional 5 percent in rural areas of metropolitan counties) amounting to $4.5 billion in total project investment (including $2.7 billion in NMTC allocation at a cost to the federal government of $679 million) with 86 percent of the projects located in severely distressed LICs;

Manufacturing was the most popular use of NMTC allocation (25.9 percent of 2019 qualified low-income community investments [QLICIs]) followed by healthcare (16 percent), mixed-use (10.2 percent), and childcare, youth, and family services (10 percent).

Approximately 1.7 million people were served by NMTC-financed community facilities including 1.1 million patients in healthcare facilities and 116,000 children in childcare, schools, recreational facilities, mentorship programs, and other youth-related social services. More than half—55 percent—of mixed-use projects included at least one community facility, nonprofit or social service component. These new community resources add up to more than 300 nonprofit facilities, health centers, childcare centers, libraries, community centers, and other community facilities.

CDEs reported rehabilitating or constructing 15.1 million square feet of real estate and the construction of 848 affordable housing units; financing 232 manufacturing and industrial businesses with loans for working capital, new equipment and 7 million sq. ft. of new space, often through incubators and multi-business facilities, and creating more than 11,000 manufacturing jobs.

Overall, NMTC financing resulted in the creation of 57,414 total jobs including 35,440 permanent full-time-equivalent jobs and 21,973 construction jobs. The federal cost per job comes to $12,144.

Last week, President Donald Trump signed a temporary, stop-gap funding bill to keep the government funded through Dec. 11. The continuing resolution prevents a government shutdown for now and will keep federal agencies running under 2020 funding levels into the lame duck session of Congress. What does this mean for the NMTC, which is due to expire at the end of 2020? Exactly what can be accomplished during the lame duck session will largely depend on the election results.

For insight into what the next few months may hold for NMTCs, the Novogradac special report “Blue Wave Effects: What a Democratic Sweep Could Mean for Affordable Housing, Community Development, Renewable Energy and Historic Preservation” describes what might be in store for general tax policy as well as current and proposed tax-incentive provisions for affordable housing and community development, budgeting and regulatory issues, should there be a Democratic sweep of the House of Representatives, Senate and White House in November’s election.  

The prospect of a Democratic sweep, and other factors affecting community development will be also be covered at the upcoming Novogradac New Markets Tax Credit Fall Virtual Conference. Taking place Oct. 29-30, panels include the Washington Report, moderated by Michael Novogradac, where the discussion will cover how the outcome of the presidential election could affect community development incentives, including the NMTC. Participants will also hear about the chances of passage for legislation to expand and enhance the NMTC before the end of 2020.