New Markets Tax Credit Coalition Blog
A Comment on Reports by GAO and Senator Coburn
Today, two reports were released on the New Markets Tax Credit (NMTC), one by the Government Accountability Office (GAO) and another by Senator Tom Coburn (R-OK), respectively “Better Controls and Data are Needed to Ensure Effectiveness” and “Banking on the Poor.” In both his press release and report, which were released concurrently with the GAO report that he commissioned, Senator Coburn offered his long-standing criticism of the NMTC, claiming that businesses that receive financing are examples of the government choosing favorites.
WASHINGTON, D.C. –Two reports were released on the New Markets Tax Credit (NMTC), one by the Government Accountability Office (GAO) and another by Senator Tom Coburn (R-OK), respectively “Better Controls and Data are Needed to Ensure Effectiveness” and “Banking on the Poor.” In both his press release and report, which was released concurrently with the GAO report that he commissioned, Senator Coburn offered his long-standing criticism of the NMTC, claiming that the projects result in the government choosing favorites.
“Washington doesn’t pick the winners and losers when it comes to the NMTC. It is a market driven program based in a philosophy that communities know best, they just need access to capital,” said Bob Rapoza, spokesperson for the NMTC Coalition. “Through public-private partnerships, the Credit brings community revitalization projects to fruition that likely would not have gone forward if not for NMTC financing.”
The NMTC Coalition further substantiates this claim by pointing to a prior report in which the GAO found that 88 percent of investors would not have made their investments, but for the incentive of the Credit.
The Coburn report notes that the impetus for the New Markets Tax Credit is to help struggling communities. He contends it does not succeed in this, writing that “Most of the country, however, is considered a low-income community for purposes of the program.” However, data from the U.S. Department of Treasury indicates that the NMTC has delivered more than $60 billion in capital to businesses and revitalization projects nationwide in some of the poorest communities; these investments have generated over 550,000 jobs and of the 74,134 census tracts in America, only 30,099 (41%) qualify. Moreover, according to the NMTC Coalition’s survey of 2013 NMTC projects, 80 percent of investments went to severely distressed census tracts that far exceed the statutory requirements for investment.
The Senator’s report profiled 19 projects to which it objected. Yet, analysis of the profiles of those communities indicate they are among the poorest in the country, with an average poverty rate of over 32 percent and an unemployment rate of 11.7 percent at the time the project was financed. In these high distress communities, the NMTC delivered $770 million in financing and created over 7,700 jobs.
“The hallmark of the credit is its flexibility, which allows for diversity in projects based on needs and opportunities identified by citizens and local leaders—the vast majority of which include child and health care facilities, grocery stores, and manufacturing facilities,” said Rapoza.
Like the report from Senator Coburn, the GAO report ignores the challenges of investing in low-income communities and the success that the NMTC has in spurring revitalization in urban neighborhoods, small towns and farming communities. Furthermore, GAO does not provide an accurate analysis of the operations of the NMTC. In one such case, the GAO overestimated an investor return by 400 percent through faulty analysis. In this case, GAO authors used incomplete information based on one example in a second-party report that they could not independently verify. Consequently, GAO implies the financial structures used in NMTC transactions allow investors to receive an unduly large return on their investments, claiming a 24 percent annual return to the investor, when actual NMTC investor returns align with market rates of 6 to 7 percent annually.
“Unfortunately, some conclusions are based on misinterpreted data and flawed calculations. The Coburn report builds on those errors to cast a sensationalized and inaccurate portrayal of the NMTC,” Rapoza adds.
While authorization for the New Markets Tax Credit (NMTC) expired on December 31, 2013, NMTC practitioners continue their efforts to provide low income communities and neighborhoods with access to flexible, patient capital, helping grow businesses and create jobs in places that need it the most. On Thursday, the impact of the Credit will be evident as Howard Park community residents and local leaders join together to celebrate the grand opening of ShopRite, a 67,000-square-foot grocery store in Baltimore, Maryland that received NMTC financing.
NMTC Coalition board member, The Reinvestment Fund (TRF), was a key player in bringing an end to the Howard Park neighborhood’s decade-long struggle for easier access to fresh produce and meats. TRF along with City First Bank and investor JP Morgan Chase provided $14.65 million in New Markets Tax Credit financing with additional project financing and support provided by Opportunity Finance Network (OFN). City First Bank, Chase and OFN are also Coalition members. This project will not only provide residents with access to fresh foods in a former food desert, it is also bringing 250 new jobs, a health center, and a revitalized commercial presence to the neighborhood.
“We are incredibly proud of the role we played to make this community’s big dream come true,” shared Don Hinkle-Brown, President and CEO of TRF.
A formal ribbon-cutting ceremony will take place at the store at 12:00 p.m. tomorrow. The Klein family, owners and operators of the ShopRite store, will be joined by Mayor Stephanie Rawlings-Blake and other community leaders, including Lieutenant Governor Anthony G. Brown and City Council President Jack Young who are scheduled to join in the opening event.
The ShopRite is just one example of the impact the NMTC is having in communities around the country. On June 10th, the NMTC Coalition released the tenth edition of its NMTC Progress Report, which includes 2013 survey data from 64 CDEs. Respondents reported $4.9 billion in total project financing, helping finance 280 businesses and create 54,643 jobs in economically distressed communities. While all of these investments were made in qualified low income communities, the Report notes that 80 percent of these investments were made in severely distressed communities, 56 percent of which had unemployment rates of at least 1.5 times the national average.
Since the first allocation of New Markets Tax Credits in 2003, $31 billion of NMTC investments have been made in economically distressed urban and rural community across the country. These investments leverage more than $30 billion from other sources. The result: creation of over 550,000 jobs, improved commercial and industrial facilities – such as the supermarket in Baltimore—better schools, improved healthcare facilities and revitalization of communities often left behind.
The future of NMTC is contingent upon congressional action, but there are just a few days remaining before Congress leaves for a five-week recess and the NMTC is not expected to be addressed before their departure. With the last awards authorized by Congress awarded in June, this flexible, financial tool is running out of time.
Legislation that would provide a permanent authorization for the NMTC is pending in both the House and Senate. The New Markets Tax Credit Extension Act of 2014 (H.R. 4365) and the New Markets Tax Credit Extension Act of 2013 (S. 1133), have garnered broad support from both Democrats and Republicans—a positive indication that there is support for renewing the NMTC this fall.
Great projects like the ShopRite demonstrate the effectiveness and impact of NMTC. It is now up to Congress to take action to ensure that this important revitalization tool is extended. With Members of Congress in their home states and districts, we ask you to urge your Members of Congress to visit a project and see the NMTC in action at home.
“The New Markets Tax Credit: Creating Economic Opportunity in Rural America” Report Finds that NMTC Has Generated A Significant Amount of Jobs and Investment in Rural Communities
A report issued yesterday by a coalition of community development organizations and financial institutions details how the New Markets Tax Credit (NMTC) has spurred private investment in rural communities around the United States. This federal tax credit, which expired on December 31, 2013 and is awaiting congressional action, has generated over $7 billion in investments and 67,000 jobs in rural America.
Freeport Press, in Freeport, Ohio, is an excellent example of the impact New Markets Tax Credit investments can have in rural communities. (Photo from the Finance Fund)
“While there is ample data on the New Markets Tax Credit’s track record of delivering capital to our most challenged communities, there was little research on the economic impact of the NMTC in rural America in particular–until now,” explained Bob Rapoza, spokesperson for NMTC Coalition.
The report analyzes job creation and investment trends of the NMTC in rural America between 2003 and 2011. Specifically, it highlights the NMTC’s role in helping rural communities tackle two persistent problems: the loss of manufacturing jobs and inadequate access to healthcare facilities. During this time, the NMTC delivered over $1.4 billion in total project financing to rural manufacturing projects like Continental Tire in Sumter, South Carolina, and $536 million to rural healthcare facilities or clinics like the Delta Memorial Hospital in Dumas, Arkansas.
“Based on the findings of this report, it is clear the NMTC is a significant player in delivering capital to rural businesses and economic development projects,” said NMTC Coalition president Jose Villalobos.
One such project is Viracon, a rural, Minnesota-based manufacturer of energy-efficient specialty glass for skyscrapers, which is sold across the world. Midwest Minnesota Community Development Corporation (MMCDC), a board member of the NMTC Coalition, provided a low-cost, $14.4 million financing package for Viracon’s new 650 production lines at their plant in Owatonna, Minnesota. As a result, the company was able to preserve its global competitiveness and the 800 living-wage jobs it provides for U.S. workers.
The NMTC was enacted in 2000 in an effort to spur private investment and economic growth in communities with poverty rates of at least 20 percent or median incomes at or below 80 percent of the area median by offering a modest incentive on investments made in these communities.
Contact: Bob Rapoza
In a letter sent earlier this week to House Ways and Means Committee Chairman Dave Camp and Ranking Member Sander Levin, a bipartisan cohort of fifty members of the House urged the Committee to take up a New Markets Tax Credit extension. The letter – along with growing cosponsorship lists for NMTC extension legislation in the House and Senate – is yet another signal that there is broad bipartisan support for an extension on both chambers.
Many thanks to Reps. Mike Turner (R-OH) and Chaka Fattah (D-PA) who took the lead on circulating the letter.
Expired Federal Tax Credit Program Helped Bridge Financing Gap for Center
ATLANTA, GA—The grand opening of the National Center on Civil and Human Rights took place in downtown Atlanta yesterday. More than seven years in the making, the grand opening signals the successful completion of a mission to “create a safe space for visitors to explore the fundamental rights of all human beings.” But it might not have been possible without the New Markets Tax Credit (NMTC), a federal tax credit that helps leverage private investment for development projects in economically distressed neighborhoods.
Among those in attendance for the ribbon cutting and grand opening festivities were New Markets Tax Credit (NMTC) Coalition members, Invest Atlanta and PNC Financial Services Group, which together provided $24 million in NMTC financing for the $79 million project. Atlanta Emerging Markets, Inc., Invest Atlanta’s Community Development Entity (CDE) provided $13 million NMTCs, and PNC Bank’s CDE, Development Ventures, provided $11 million in credits. PNC also served as the investor for the project.
The museum will commemorate the American Civil Rights Movement and the historic struggle for equality. It will also include exhibits on the modern Global Human Rights Movement. The ribbon cutting for the 43,000-square-foot facility was attended by icons of the civil rights movement, including Rep. John Lewis (D-Ga.), an original Freedom Rider. Senator Johnny Isakson (R-Ga.), Mayor Kasim Reed and former mayor Shirley Franklin also spoke at the grand opening event.
“The Center on Civil and Human Rights’ opening is a victory for the city, celebrating its rich history and the connection to today’s challenge —it is a remarkable project that has been in the making for the last decade,” said Dale Royal, NMTC Coalition Board Member and Senior Project Manager, Redevelopment & President, Atlanta Emerging Markets, Inc. “The center will be a destination, attracting people from across the United states, and around the world, and the New Markets Tax Credit financing was a critical piece in making it happen.”
The NMTC expired on December 31, 2013, and the future of this important financial tool is contingent upon congressional action. Reauthorization efforts for the NMTC, as well as other 54 other expired tax credits, stalled in the Senate last month due to procedural hurdles. In the House, the Committee on Ways and Means is in the process of reviewing individual provisions; the NMTC is expected to be taken under consideration. Meanwhile, bills to provide a permanent authorization for the NMTC have been introduced in the House and Senate, respectively the New Markets Tax Credit Extension Act of 2014 (H.R. 4365) and the New Markets Tax Credit Extension Act of 2013 (S. 1133).
A new report released by the Coalition earlier this month found that, in the last calendar year alone, survey respondents reported $4.9 billion in total project financing through the NMTC, which helped finance more than 250 businesses and create over 54,000 jobs in economically distressed communities. While all of these investments were made in qualified low income communities, the Coalition noted that 80 percent were made in severely distressed communities, with 56 percent made in areas with unemployment rates 1.5 times the national average.
“The New Markets Tax Credit has resulted in an unprecedented level of investment in communities left outside the economic mainstream,” said Bob Rapoza, spokesperson for the NMTC Coalition. “Moreover, the NMTC is often the only opportunity available for credit-starved, small and medium-sized businesses. We are hopeful the NMTC will be extended so that it can continue to be used to revitalize communities and provide financing for funding gaps in the completion of landmark projects like the National Center for Civil and Human Rights.”