New Markets Tax Credit 10th Anniversary Report

Posted by on January 02, 2011

New Markets Tax Credit 10th Anniversary Report

This report was prepared by the New Markets Tax Credit Coalition, a national membership organization that conducts research on and advocacy for the New Markets Tax Credit (NMTC). The purpose of this report is to evaluate the success of the New Markets Tax Credit as an incentive to private sector investment in low income urban and rural communities.

December 2010 marks the 10th anniversary of the enactment of the New Markets Tax Credit. The legislation was proposed by President Bill Clinton, who worked with House Speaker Dennis Hastert (R-IL) on a package of incentives aimed at boosting economic circumstances in communities left behind by the prosperity of the 1990s. At a time of record budget surpluses, the two leaders chose to use the tax code, rather than federal grants, as an economic development tool; an innovative approach that has now become standard.

The NMTC statute created a new category of investment intermediaries called Community Development Entities (CDEs). CDEs can include community development corporations, community loan funds and private financial institutions. They must have a track record in community or economic development and be accountable to local advisory boards. CDEs compete for annual allocations of New Markets Tax Credits.

NMTC provides a 39% credit against federal income taxes to CDE investors. CDEs use the proceeds from this credit to make loans or investments with below-market terms and conditions to businesses operating in low income communities.

The Community Development Financial Institutions (CDFI) Fund of the Department of the Treasury administers the NMTC program. In September 2010 the New Markets Tax Credit Coalition filed a Freedom of Information Act (FOIA) request with the CDFI Fund, requesting data on transactions from the first allocation of tax credits in 2003 through the most recent round of credit allocations in 2009. The purpose was to understand the characteristics of the communities served under NMTC, the types of businesses receiving financing with the Credit and the overall cost effectiveness of the program.

The FOIA request produced data on over 4,000 transactions that financed close to 3,000 business enterprises. The NMTC investments and loans in those businesses totaled $15.5 billion and the total project cost for financing those businesses with additional private sector capital was almost $50 billion.

Read the full report at: http://nmtccoalition.org/wp-content/uploads/2010/12/NMTC-10th-Anniversary-Report-Final.pdf