In-depth analysis of the New Markets Tax Credit finds projects sampled are in full compliance, with most projects far exceeding requirements for economic distress and CDFI Fund mandates
Washington, D.C. – The NMTC Coalition was pleased to see a new independent report commissioned by the U.S. Department of the Treasury’s CDFI Fund to evaluate the operation and outcomes of the New Markets Tax Credit (NMTC) program. The purpose of the NMTC is to provide an incentive for private sector investment in economically distressed rural and urban communities. The report was conducted by Summit Consulting, LLC, a specialized analytics advisory firm comprised of economists, econometricians, and research scientists that assist federal agencies, financial institutions, and litigators in modeling risk, evaluating program performance, and predicting future performance.Summit - Compliance Review of New Markets Tax Credit Program - August
The CDFI Fund announced the report via press release today. CDFI Fund Director Annie Donovan was quoted on the findings, saying:
“The report released today demonstrates that New Markets Tax Credits are being used as Congress intended: to attract private investment into projects in economically distressed communities. It also documents the ways that Community Development Entities (CDEs) that utilize the program are meeting and generally exceeding NMTC Program requirements.”
Summit Consulting writes that the firm focused on answering several questions posed by the CDFI Fund and several raised from a largely inconclusive report conducted by the GAO in 2014. The report also outlines the methodology used by the firm to conduct its comprehensive evaluation of the NMTC program, which also included a close assessment of a representative sample of NMTC projects and award recipients. Key findings from the report include:
- 100 percent of projects examined were in full compliance and most projects far exceeded both the statutory requirements for economic distress and the compliance mandates of the CDFI Fund;
- CDEs are supporting businesses beyond the seven-year NMTC compliance period by leaving a significant portion of residual capital with businesses;
- NMTC projects significantly lower the cost of capital for businesses in distressed communities; and
- CDEs evaluated “appear to make NMTC investments in highly distressed census tracts surrounded by other distressed areas.
“This independent report reaffirms what practitioners in the field already know—that the NMTC is a very successful program that regularly results in performance that far surpasses statutory requirements. In fact, CDFI Fund data shows that more than 72 percent of NMTC investments go to the poorest and most economically distressed rural and urban communities in America,” said Bob Rapoza, spokesperson for the NMTC Coalition. “In addition, the report found that NMTC practitioners have established effective loan policies and procedures, and employ a rigorous ‘but-for’ test to ensure the NMTC financing is essential for the project to proceed and to have a significantly beneficial impact on the community.”
Established in 2000 in the Community Renewal Tax Relief Act (P.L.106-554), the NMTC was created as a bipartisan effort to stimulate investment and economic growth in low-income urban neighborhoods and rural communities. Congress extended the NMTC for five years as part of The PATH Act. (P.L. 114-113) in December 2015.
Since the federal NMTC was first implemented, the CDFI Fund has provided $50.5 billion in tax credit allocation authority to promote public-private partnerships and spur investment to some of our nation’s hardest hit and persistently poor communities. During this period, the program has leveraged a total of $80 billion in investments to locally-driven projects and created some 750,000 jobs in areas with unemployment rates at least 1.5 times the national average or with poverty rates of at least 30 percent.
In FY 2016 alone, the CDFI Fund, which operates the program at Treasury, reported that the NMTC delivered $3.16 billion in financing to 530 businesses, community facilities, and economic revitalization projects. Communities put that capital to work, creating nearly 11,000 permanent jobs and almost 27,000 construction jobs in areas with high levels of unemployment and poverty.