New Markets Tax Credit Talking Points
The Coalition has internally compiled a list of arguments and talking points in favor of the NMTC, and we figured we’d share them with you on our blog (updated 5/19/2016)
- The New Markets Tax Credit (NMTC) was designed to increase the flow of capital to businesses and low income communities by providing a modest tax incentive to private investors. Over the last ten years, the NMTC has proven to be an effective, targeted and cost-efficient financing tool valued by businesses, communities and investors across the country.
- The NMTC has delivered an unprecedented level of investment to America’s low income communities. Between 2003 and 2014, total project investments in NMTC qualified businesses totaled nearly $75 billion, of which 50 percent was generated from sources other than direct NMTC investments. Without an extension, hard hit urban and rural communities will be deprived of billions in financing for important projects;
- Instead of Washington picking winners and losers, the New Markets Tax Credit empowers local decision-making on important economic development projects. From business expansions to new healthcare and childcare facilities, the program was designed as a flexible incentive for economic development that meets evolving community needs.
- Findings of the recent NMTC Coalition economic impact report (2014):
- According to a study from the NMTC Coalition, between 2003 and 2012, NMTC investments generated 744,000 jobs in low income communities at a cost to the federal government of less than $20,000 per job;
- The New Markets Tax Credit generates economic activity, providing a return on investment to the federal government. In 2012, NMTC-financed businesses generated $984 million in federal tax revenue which more than covered the estimated $800 million cost of the Credit in terms of lost tax revenue in 2012;
- The New Markets Tax Credit is an efficient use of federal resources. For every dollar that the NMTC costs the federal government, $8 dollars is leveraged from other sources. Between 2003 and 2012, it cost the federal government under $10 billion to generate $75 billion in investment in NMTC qualified businesses in low income communities;
- An independent evaluation of the NMTC concluded that it is working as intended. The Urban Institute was asked by the Department of Treasury to conduct an independent evaluation of the Credit. They found that:
“In its early years, the NMTC program operated as intended—encouraging investments in low-income areas for a diverse range of community- and economic-development projects associated with varying results. The most prevalent results were provision of advantageous financing, real estate development in low-income areas, additions to local tax bases, and job creation or retention. NMTC projects also added to or expanded community amenities, services, and facilities and supported small businesses and organizations.”
- By law, all NMTC investments must be made in economically distressed communities. However, more than 72 percent of all NMTC investments have been in communities exhibiting severe economic distress, including unemployment rates more than 1.5 times the national average, a poverty rate of 30 percent or more, or a median income at or below 60 percent of the area median.
- In 2010, the NMTC was named by Harvard’s Kennedy School as one of the Top 25 Innovations in Government.
- The NMTC enjoys wide support in every sector. In Mary 2015, more than 1,600 NMTC supporters including private businesses, investors, nonprofit service providers, local elected officials, and community leaders wrote to Congress in support of an NMTC extension.
- The program enjoys bipartisan support. The program originated in 2000 as part of the bipartisan Community Renewal Tax Relief Act and was supported by Presidents Clinton, Bush, and Obama. In the 112th Congress, more than 100 members of both parties cosponsored NMTC extension bills. The program was extended in December of 2015 for five years with support from both parties.
- The NMTC is unique in its targeting and purpose. The NMTC is designed to stimulate investment and economic growth in low income communities that are overlooked by conventional capital markets. The NMTC is the only federal incentive that is primarily intended to drive capital to credit-starved businesses in economically distressed urban and rural communities.
- With community development spending shrinking, the NMTC is the largest program for economic development. Over the past 30 years, community development spending has fallen by more than 75% as a share of GDP. The NMTC is filling that gap and meeting the needs of low income communities at a lower cost to the federal government.
- The NMTC has low programmatic overhead. A recent study by the Government Accountability Office found that 93% of the proceeds from NMTC investments reach a qualified businesses. A second study by the Urban Institute found that 97% of the proceeds go to low income businesses. Both of these findings show that CDEs are far exceeding the statutory requirement that “substantially all” (85%) of qualified equity investments are placed in a low income community business.
Current Status of the NMTC:
In December 2015, Congress signed the PATH Act, a package of tax provisions tied to the Omnibus spending bill. The legislation included a five-year extension of the NMTC, providing a total of $17.5 billion in allocation authority. Based on past experience, the PATH Act will ensure the delivery of more than $30 billion in new investments to businesses and projects in distressed neighborhoods and towns. Communities will put these dollars to work, creating tens of thousands of jobs through nearly 2,000 projects, including: new hospitals in medically underserved, rural areas; rejuvenated blighted urban corridors; revived manufacturing activity in regions where the last plant closed decades ago; and tens of thousands of square feet of newly constructed or renovated space for nonprofit service providers, schools, daycare centers, and other important community facilities.
The NMTC expires on December 31, 2019. Bipartisan extension legislation – The New Markets Tax Credit Extension Act – is pending in both chambers of Congress. Senators Roy Blunt (R-MO) and Chuck Schumer (D-NY) introduce legislation in the Senate (S. 591) and Representatives Pat Tiberi (R-OH), Richard Neal (D-MA), and Tom Reed (R-NY) introduced a companion bill the House (H.R. 855). Both bills provide a permanent authorization for NMTC, increase annual credit authority with inflation adjustments in future years, and exempt NMTC investments from the Alternative Minimum Tax (AMT). The proposal is in line with the Obama Administration’s Fiscal Year 2017 tax proposals would make the program permanent with an annual allocation of $5 billion.