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NMTC Award Allocations and QEIs–A Look at CDFI Fund Data through the 11th Round

Published by Colette Drexel and Semra Guler on Wednesday, October 1, 2014

Journal cover October 2014   Download PDF

The 2014 New Markets Tax Credit (NMTC) allocation application is was due Oct. 1 for the 12th round of NMTC credit authority, pending congressional reauthorization of the program. In light of the current buzz of community development entity (CDE) activity in applying for NMTC awards, now seems an appropriate time to look back and assess prior NMTC award cycles from 2002 – 2013 and the levels of qualified equity investments (QEIs) made with these past awards.

For every month since March 2007, the Community Development Financial Institutions (CDFI) Fund has published QEI issuance reports detailing which CDEs have received allocation awards. The reports list the award amounts per CDE by allocation round and the amount “finalized,” meaning QEIs closed as of the date of the report. Novogradac & Company collected the data from the available January reports (capturing QEIs closed as of Dec. 31 each year) and from the July 2014 report (capturing the 2013, Round 11 awards that had been announced earlier this year).

There are some discrepancies between amounts reported by the CDFI Fund in its QEI issuance reports verses elsewhere. For example, one 2002 allocatee received an award of $74,776,505 according the issuance reports, but the CDFI Funds’s online allocatee search tool lists the same allocate as receiving $75 million. Novogradac & Company estimates a 0.15 percent margin of error in the data analyzed for this discussion.

To the extent practical, CDEs that are related to each other (such as XYZ CDE Fund I and XYZ CDE Fund II), or that were found to have the same controlling entity, are treated as one CDE. This article summarizes the results of the data collected.

General Findings
A grand total of $40 billion of NMTC allocations have been awarded to 302 CDEs over the 11 rounds since inception of the NMTC program. There has been an average of 76 allocatees per round. The sixth round in 2008 had the most awardees with 102 because of the addition of $1.5 billion in 2008 NMTC authority provided by the American Recovery and Reinvestment Act of 2009 allowing 32 additional CDEs to receive round allocations in the sixth round. Allocatees dropped to 70 in 2011, and there were 85 and 87 for the last two rounds, 2012 and 2013, respectively.

The largest single award ever allocated was $170 million to a Maricopa County, Ariz. CDE. The smallest single award ever allocated was $500,000 to an Allegheny County, Pa. CDE. Interestingly, both of these awards were made in the first NMTC round, in 2002, and both CDEs had local service areas.

More recently, since the eighth round in 2010, the largest award has been $100 million and the smallest $10 million. Since 2011 there has been a downward trend in the largest award sizes, with awards topping out at $60 million per CDE in the 11th round in 2013. Overall, the average award has been about $50 million, with a median of $43,000,000.

QEIs Finalized
Closing of QEIs was relatively low, e.g., $2.7 million, in 2009. During 2011, however, $5.8 billion in QEIs were finalized.

As experienced NMTC industry participants know, the trend over the last couple of years has been one of increasingly competitive pressure to finalize QEIs as quickly as possible (within the first year or two of award issuance).

For the 2011 and 2012 rounds, easily more than 50 percent of all allocation authority had been finalized as QEIs within the first year of the allocation; more than 90 percent within two years. For 2013, it is too soon to tell as the allocations were announced only a few months ago. It’s worth noting that CDFI Fund staff stated during the Aug. 14, 2014 public teleconference about the 2014 NMTC allocation application that the CDFI Fund doesn’t encourage CDEs rushing to finalize QEIs. There are, however, minimum levels of QEI issuance required by the CDFI Fund as stated in the 2014 notice of allocation authority; in general, 30 percent is required by the end of the first year of allocation and 50 percent is required by the end of the second year of allocation.

Service Areas
When examined by service area, the average rate of QEIs finalized has been faster for CDEs with a national service area that that for CDEs with local service areas. Often, local service area CDEs are local governmental entities. Layers of governmental approvals often slow down deal closings for cities in comparison to more nimble, private CDEs with larger pools of pipeline projects.

In the table above, the number of CDEs includes repeat allocatees, some of which changed service area from one round to another. The majority of awards have gone to CDEs with a national service area. The other three main service areas—local, multi-state and statewide—have each received roughly 20 percent of total number, and 15 percent of total dollar amount, of awards across all rounds. Of all repeat allocatees, 55.2 percent have had a national service area, with the other three main service area types representing about 15 percent each by dollar amount of awards. In general, a smaller service area typically equates to a smaller amount of allocation awarded in relation to CDEs with larger service areas.

Despite the success of repeat allocatees, it is important to note that 42 percent of all 302 CDE allocatees have been one-time allocatees, receiving an average award of $33 million. Good luck to all the CDEs that submitted a 2014 allocation application.

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