The calendar year (CY) 2022 round of the new markets tax credit (NMTC) marks the second year of the incentive’s five-year extension at $5 billion annually.

While demand for the tax credit remains robust, there continues to be a slight downward trend in the number of community development entities (CDEs) applying for the tax credit each year, ever since the CY 2013 round that received 310 applications. The lone exception was when the number of applicants in CY 2020 (208) edged out CY 2019 (206).

The U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund announced March 14 that 197 CDEs applied for allocation in the CY 2022 round, which is slightly lower than the 199 applicants in CY 2021. The CDFI Fund opened the CY 2022 round only three weeks after the announcement of the CY 2021 round awards, about six weeks sooner than was seen in the prior year. It’s possible that this surprisingly quick opening of the CY 2022 round made it difficult for some CDEs to feel prepared to submit a competitive application.

While application numbers may be down slightly, demand for the NMTC remains high. In CY 2022, CDEs requested $14.8 billion in total NMTC allocation authority, nearly triple the $5 billion available under CY 2022. CY 2022 applicants are headquartered in 44 states, the District of Columbia, Guam and Puerto Rico.

Below is a look at how CY 2022 demand compares to the historical NMTC applications and allocations:

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The three recent rounds (CY 2020, 2021, 2022 rounds) that have received $5 billion in allocation authority have been very consistent in terms of demand.

In the CY 2020 round, CDEs requested $15.1 billion in allocation authority, which is only marginally higher than the $14.7 billion requested in CY 2021. Therefore, it’s not surprising to see $14.8 billion requested in CY 2022. Furthermore, in the CY 2020 round, 100 CDEs received an NMTC allocation and CY 2021 was similar with 107 CDEs receiving an allocation. Since the average award size has been consistently near $50 million, it’s expected that the CY 2022 round will likely have a similar showing in terms of the number of CDEs that will get awarded an allocation.

NMTC Working Group Recommendation 

The NMTC Working Group in February sent a letter to the CDFI Fund outlining a recommendation that will increase the effectiveness and efficiency in which the remaining NMTC allocation authority could be administered.

The NMTC Working Group recommends dividing the now remaining $15 billion in NMTC allocation currently authorized through 2025 (CY 2023, CY 2024 and CY 2025) into two rounds with $7.5 billion in allocation authority each rather than three rounds with $5 billion in allocation authority each.

The letter said that combining the remaining three rounds into two rounds has five key benefits:

1. Enables the CDFI Fund to shorten the timeline for awarding the remaining $15 billion in NMTC allocation authority by more than a year;
2. Reduces the CDFI Fund’s administration costs by reducing the number of rounds from three to two;
3. Opening the last round before the NMTC expires at the end of 2025 supports the need to make the tax credit permanent before 2026;
4. By increasing the amount of allocation available in the proposed combined rounds and keeping the average award size consistent with the most recent allocation rounds, the CDFI Fund increases the likelihood of additional applicants receiving allocation, including Black, Indigenous and people of color-led CDEs and CDEs who have not previously received allocation; and
5. Will provide stakeholders with greater predictability regarding timing of allocation rounds and the amount of allocation in each round by announcing that the remaining three rounds will be allocated in two rounds.

NMTC Permanence

While the NMTC is only in year two of the five-year extension that was enacted at the end of 2020, community development advocates have been constantly pushing for permanence and other key legislative priorities. Sens. Ben Cardin, D-Maryland; Steve Danes, R-Montana; Chuck Schumer, D-New York; Bill Cassidy, R-Louisiana; Maria Cantwell, D-Washington; Tim Scott, R-South Carolina; Robert Menendez, D-New Jersey, and Marsha Blackburn, R-Tennessee, reintroduced Feb. 2 the New Markets Tax Credit Extension Act (S. 234), which would make the NMTC a permanent part of the tax code, set the initial annual allocation authority at $5 billion, index it for inflation annually and allow NMTCs to be taken against alternative minimum tax liability. Reps. Claudia Tenney, R-New York; Terri Sewell, D-Alabama; Mike Kelly, R-Pennsylvania; and Danny Davis, D-Illinois, are expected to introduce the companion House bill soon.

Furthermore, President Joe Biden unveiled a  $6.9 trillion fiscal year (FY) 2024 budget blueprint March 9 that includes making the NMTC permanent at $5 billion per year indexed for inflation after 2026.  While the outlook for tax legislation is clouded due to a focus on addressing the nation’s debt ceiling, which will likely need to occur as early as June to as late as August, the NMTC legislation is a key bipartisan, bicameral priority this Congress for whenever tax legislation is advanced.  To stay up to date on the push for program permanence and other key NMTC policy priorities, join the NMTC Working Group.