Ten Tips to Help CDEs Prepare for the 2020 NMTC Allocation Application Round

Published by Rebecca Darling on Friday, March 6, 2020
Journal cover thumb March 2020

Question: What steps can community development entities (CDEs) do now to prepare for the 2020 new markets tax credit (NMTC) allocation application round?

Answer: A lot. CDEs can take advantage of the time before the 2020 NMTC allocation application is released to read, review, update and evaluate their previous application in preparation for the upcoming allocation round.

Recently, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended the NMTC through calendar year 2020 with $5 billion of allocation authority. Although only a one-year extension, the annual allocation authority increased by $1.5 billion from $3.5 billion. The Community Development Financial Institutions (CDFI) Fund named 73 allocatees in the $3.5 billion 2017 and 2018 allocation rounds and 120 allocatees in the $7 billion 2015/2016 round. Therefore, we can assume the number of 2020 allocation round awardees will be somewhere in the middle (perhaps between 85 and 105 awardees). However, with larger allocation authority, most likely more CDEs will apply in the upcoming allocation round, so CDEs will have increased competition for this already oversubscribed incentive. With the 2019 NMTC allocation awards expected this summer and the 2020 allocation round expected to open shortly thereafter, here are 10 ideas of action items for CDEs.

1. Read your previously submitted allocation application. The NMTC allocation application has not changed substantially in the last few years. Although, there will be revisions in each round, the previous application will be an excellent starting point. Even an applicant that has been previously successful will need to continuously update and improve their application in order to continue to be competitive. CDEs can re-read their most recently submitted application to identify areas of improvement or known revisions. Additionally, CDEs can ask their internal management team, advisory/governing board members, fellow CDEs and NMTC industry professionals to read their application and provide feedback. It is easier to discuss, evaluate and incorporate significant revisions now instead of once the application is released and CDEs have less than two months to complete the application.

2. Revisit the business strategy of the CDE. A CDE’s business strategy is one of the key aspects in the allocation application and is discussed throughout the application. Additionally, as time goes on, a CDE may decide to modify their business strategy, whether to contract or expand their efforts. However, such a change should not be rushed, but instead, the time should be taken to thoroughly evaluate the CDE’s business strategy and revisit the responses in the allocation application to ensure the language is consistent.

3. Continue to manage and build the list of pipeline investments. A CDE should constantly maintain a list of potential pipeline investments to consider for investment and discussion in the allocation application. A CDE can be gathering information on these potential investments, specifically related to information needed to complete Table A5 and support the responses in the community outcomes section of the application. Having detailed and comprehensive information will be key to a successful application. Please note the Novogradac 2020 New Markets Tax Credit Spring Conference will be June 4-5 in Washington, D.C. Conferences are an excellent opportunity for CDEs to meet potential pipeline investments and further develop their pipeline.

4. Update track record data. The 2019 NMTC allocation application was released Sept. 4, 2019. Therefore, in multiple areas of the application, information was only to be provided through this date. A CDE can gather the information to update Exhibit B and Table E1 with the activities from Sept. 5, 2019, through the calendar year end. Additionally, the CDE can collect the data to complete the 2019 activity for Table D1 as only information through fiscal year 2018 was previously reflected in this table. Lastly, the CDE should consider updating the application for the transactions closed since the 2019 NMTC allocation due date of Oct. 28, 2019, as this information is documented throughout the application and keeping detailed notes will enable the CDE to update their application more efficiently and effectively.

5. Review the list of innovative investments to consider if the CDE’s previously submitted approach is still appropriate. The CDFI Fund provides a specific list of innovative investments for CDEs to consider for their qualified low-income community investments (QLICIs). A successful response to this question may increase an applicant’s award size. Tip: Question #18 (from the 2019 NMTC allocation application) will not be evaluated and scored in Phase 1 of the allocation application review. Therefore, this question will not be used to determine whether an applicant scored highly enough to receive consideration for a NMTC allocation.

6. Consider if a service area amendment is warranted. A CDE can request to change its designated service area at any time; however, once an allocation round is opened, a CDE must submit the request to modify its service area by a specific deadline in order for the request to apply to the current application round. Therefore, consider if this modification is applicable to your CDE and if so, prepare and submit this request early.

7. Review investments made since the previous allocation application to verify if any transactions that have closed during this time would be considered the largest QLICI from an individual allocation award. Question 43a of the 2019 NMTC allocation application states an applicant must discuss the projects that have received the largest QLICIs in each of the applicant’s three most recent allocations. This question asks the CDE to provide details on a number of items; therefore, if a CDE knows the response to this question will change, they can consider updating the response now. 

8. Research third-party metrics to support the projected outcomes from the pipeline investments. One of the largest sources of heartburn during the 2019 allocation application cycle was the guidance that CDEs would score more favorably if metrics were obtained or informed by third-party sources rather than the CDE’s own track record. Although the specific metrics used are highly reliant on the pipeline investments, a CDE can use this time to research third-party metrics and gather data and sources for future use. If you are looking for help with third-party metrics, contact a Novogradac office. We have experience providing this service for allocation applications and NMTC transactions.

9. Re-evaluate the management team. A CDE can read its previously submitted management capacity section and Exhibit C to determine if any internal changes have occurred since their last application that should be revised in the application. The management team and board members may change and a CDE may update this information in the applicable questions and tables at this time instead of making all edits once the 2020 application is released.

10. Confirm the necessary members of the management team have access to the CDFI Fund’s Awards Management Information System (AMIS) and the data is accurate. Lastly, a CDE should log into its account in AMIS and verify the necessary members of the management team can access their accounts and the organization. Additionally, multiple items, such as addresses are prepopulated in AMIS and revisions require a service request.

If you are a CDE that will be applying for the first time in the 2020 NMTC allocation application round, the ideas above will give a helpful starting point to your application efforts.

Best of luck on your 2020 NMTC allocation application. If you have any questions about the NMTC program or the allocation application, please do not hesitate to reach out to a Novogradac NMTC professional.