A Report by the New Markets Tax Credit Coalition – December 2012
The purpose of this report is to profile the businesses, projects, and communities that have received assistance through the New Markets Tax Credit (NMTC). These businesses and projects are located in some of the most economically distressed urban neighborhoods and rural communities in America. Our thanks to the community development entities, investors, businesses and others who assisted in preparing this report.
The NMTC was originally authorized in the Community Renewal Tax Relief Act of 2000 (P.L. 106-554), the product of bipartisan collaboration between Democratic President Bill Clinton and Republican Speaker of the House Dennis Hastert (R-IL), aimed to reduce poverty by spurring economic growth through private-sector investment in low-income communities.
Enactment of the Community Renewal Tax Relief Act was testimony to the policy prescriptions of former Congressman and HUD Secretary Jack Kemp who long argued for employing the tax code to encourage private-sector investment in low-income communities. Beginning with the Tax Reform Act of 1986 (P.L. 99-514), which established the Low Income Housing Tax Credit – now the nation’s largest financier of affordable housing – Congress increasingly followed Kemp’s lead. Later, the Omnibus Reconciliation Act of 1993 (P.L. 103-66) permanently codified the LIHTC and created additional Renewal Communities, Empowerment Zones, and Enterprise Communities programs to further encourage revitalization.
The idea behind the New Markets Tax Credits is that there are good business opportunities in low-income communities, but the cost and availability of capital in these ‘New Markets’ is an impediment to economic growth. NMTC employs a modest federal subsidy to stimulate private sector investment in communities through a delivery system of private for-profit and non-profit entities that provides patient, flexible capital to businesses and projects in urban neighborhood and rural communities.
By all accounts, NMTC has played a significant role in improving the flow of capital to communities. According to the Community Development Financial Institutions (CDFI) Fund – which administers the NMTC – as of 2010, a total of $45 billion has been invested in NMTC-financed businesses. NMTC capital accounts of $20 billion of this amount, with the balance coming from other sources. These businesses have directly created or retained some 300,000 jobs.
In 2010, 72 percent of NMTC investments were made in communities even more distressed than required by law. Of the total $9.5 billion invested in eligible census tracts, more than half was invested in communities with unemployment rates at least 1.5 times the national average. More than $4.7 billion was invested in businesses in communities where incomes were less than 60 percent of area median. More than $3.9 billion was invested in businesses located in communities where poverty rates exceeded 30 percent. Over $1 billion went to non-metro communities. Overall, these investments created nearly 70,000 jobs, at a cost of $17,000 per job.
Over the life of the program, about 60 percent of NMTC investments have gone to real estate businesses, commercial and industrial facilities, retail space, and mixed-use facilities. Most often, these investments are in the form of loans with below-market terms and conditions. Other NMTC investments include small business loan funds and financing for equipment upgrades.
Among the many outstanding projects and businesses financed by NMTC and profiled in this report are a steel factory in Washington State, a library in Texas, a community center in New York, a family and children’s center in California, micro-loan programs in Oregon and Rhode Island, and a seafood-processing plant in Alaska. In all 50 states, in urban and rural areas, NMTC investments are improving local economies, creating jobs and business opportunities, and having a positive impact on communities.