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Preparing for the Next NMTC Allocation Application

Published by Diana R. Letsinger, CPA on Wednesday, October 4, 2017

Journal cover October 2017   Download PDF

Question: What can community development entities (CDEs) do to help prepare for the next new markets tax credit (NMTC) allocation application?

Answer: The NMTC industry is working hard to obtain permanent status for the NMTC program, but in the meantime there are still two NMTC allocation application rounds thanks to the Protecting Americans from Tax Hikes (PATH) Act of 2015, which extended the authorization for the NMTC program for five calendar years, through 2019, with $3.5 billion in annual NMTC authority. CDEs may be tempted to put their applications on the shelf after they submitted the 2017 round June 21 and dust them off when the next notice of allocation authority (NOAA) is announced (estimated summer of 2018). However, given the competitive nature of the previous rounds (the 2017 round had 230 applications submitted requesting $16.2 billion, which is 4.5 times the authority available), CDEs should spend time over the next few months working on strengthening their application.

Where should a CDE start? 

Through the scoring system, the Community Development Financial Institutions (CDFI) Fund has stressed the importance of the business strategy and community outcomes sections of the application. These two sections, which are scored during Phase 1 of the application review process, are used during Phase 2 to rank the applications. Given the significance of the business strategy and community outcomes, a CDE can maximize its efforts by working on strengthening these sections. A good place for a CDE to start is to focus on its system of tracking and projecting community outcomes.

The NOAA states that applicants will generally score well if, among other things, they have a track record of producing quantitative and qualitative community outcomes that are similar to those projected to be achieved with an NMTC allocation. The community outcomes question, which addresses track record and projected community outcomes (Question 25a in the 2017 NMTC application) has seen many iterations over the years. However, the question and associated FAQ instructions this past year added emphasis on having a robust system in place.

Given the guidance provided, CDEs should concentrate some of their efforts on evaluating the procedures in place to compile the community outcome track record. This includes either evaluating or developing methodologies and metrics for each of the following community outcomes, as applicable:

  • Job creation
  • Quality of jobs
  • Accessible jobs
  • Commercial goods/services to low-income communities
  • Health food financing
  • Community goods/services to low-income communities
  • Financing minority businesses
  • Flexible lease rates
  • Housing units
  • Environmentally sustainable outcomes

The expectation is that CDEs have a methodology to track the outcomes. The methodology can include obtaining information from the borrower, using economic impact modeling software such as IMPLAN or using the CDE’s track record of similar projects. In addition, CDEs are expected to validate the reasonableness of the projections using metrics. The CDFI Fund has defined metrics as the ratios used to verify that the projections are reasonable. Metrics are expected to have cited sources. Examples of metrics include: the number of jobs created per square footage of commercial real estate developed,  reduction in lease rates results in X number of nonprofit service provider, patients served per doctor/nurse hired, etc.

Although CDEs have generally tracked data such as the number of jobs created, commercial square feet and patients served, the guidance provided this past year raised the bar. CDEs should spend time evaluating the information they collected on their past track record projects and going back to the qualified active low-income community businesses (QALICBs) to gather more detailed information. Before CDEs fund qualified low-income community investments (QLICIs), they should also collect projected community outcomes from project sponsors and request metrics information. Updated community outcome information should be collected on an annual basis. The depth of the information collected should go beyond the number of jobs. The aim is to be able to articulate the stories behind the investments, the qualitative information that cannot be told with only numbers. The track record information collected (both projected and actual) can create valuable metrics and help your NMTC application stand out.

The NMTC application, NOAA, and the Allocation Application Frequently Asked Questions all give insight on how to respond to the NMTC application. Spend time before the next NOAA reviewing responses getting independent feedback, building track record information and evaluating and strengthening your systems for tracking and projecting community outcomes to prepare for your next NMTC application and give it an edge over the competition.

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