New Markets Tax Credit Coalition Blog
A statement by Bob Rapoza, spokesperson for the NMTC Coalition:
I read with interest the National Journal article today on the use of the tax code to help the middle class and low income people, especially since one of the tax credits discussed was the New Markets Tax Credit (NMTC). We appreciate the focus on NMTC and the discussion it prompts.
The title, “When Congress Plays Robin Hood … and Fails,” was a bit disconcerting. We are confident that the hundreds of thousands of low income Americans who have benefited from the Credit would characterize this program as a great success for them and their families. NMTC is a modest federal subsidy – the benefits from this Credit go to communities and low income people in terms of jobs, better services and facilities, and improved local economies.
Unfortunately, flawed and inaccurate GAO conclusions from its August 2014 report on the NMTC continue to circulate widely despite our best efforts to clarify the data and analysis they provided; we very much appreciate the author’s inclusion of the NMTC Coalition’s response. Using Department of Treasury data, the Coalition outlined several conclusions in that response which demonstrate the GAO’s lack of understanding when it comes to the NMTC program and how it works.
Specifically, the GAO’s conclusion found on its first page describing an investor that was able to claim $1.2 million of credits leveraged entirely with $2.5 million worth of state and federal historic tax credits was “walked back” later in the report. Their description of the transaction was at variance with industry practice and based on incomplete information. For that reason, the GAO conceded on page 13 of the report that such a large return probably was not the case.
A complete response on the GAO and Coburn reports can be found here.
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:
- 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.
- 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 a recent NMTC Coalition economic impact report (2014):
- According to a newly released 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;
- Between 2003 and 2012, total project investments in NMTC qualified businesses totaled $63 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;
- 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 approximately $8 billion to generate $63 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.”
- 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 November 2014, more than 1,500 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 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.
FOR IMMEDIATE RELEASE
March 4, 2015 – Contact Bob Rapoza, (202) 393-5225
Bipartisan Legislation Introduced to Leverage Private Investment in Economically Distressed Communities, Expand Businesses and Create Jobs
Washington, D.C. – Senators Roy Blunt (R-MO) and Chuck Schumer (D-NY) circulated a Dear Colleague today, asking their colleagues to cosponsor new legislation they are leading in the Senate that would make the New Markets Tax Credit (NMTC) permanent. New Markets Tax Credit Extension Act of 2015 (S. 591) would ensure that economically distressed rural and urban communities have access to financing to grow their economies and create jobs. This bill follows the introduction of companion legislation in the House (H.R. 855) and a call for permanency in the 2016 President’s Budget.
“The broad level of bipartisan support for the New Markets Tax Credit is a direct result of the effectiveness of the Credit in addressing the needs of small town, farming communities and urban neighborhoods left outside the economic mainstream,” said Bob Rapoza, spokesperson for the NMTC Coalition. “The fact is that the NMTC fosters public-private partnerships, grows local economies, resulting in nearly 750,000 jobs in communities that need it the most.”
The NMTC began as bipartisan collaboration between Democratic President Bill Clinton and Republican Speaker of the House Dennis Hastert to attract private capital investment in low income communities and continues to garner support from lawmakers on both sides of the aisle. Since it was implemented, the NMTC has secured $31 billion in direct NMTC investments to businesses in low-income areas and leveraged a total of $63 billion.
- NMTC investments have generated over 744,000 jobs, at a cost of less than $20,000 per job.
- Between 2003 and 2012, more than 1,200 NMTC projects involved community amenities like healthcare facilities, schools, nonprofit service providers, and daycare centers.
- More than 72 percent of all NMTC investments have been in communities exhibiting severe economic distress, including unemployment rates at least 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.
- The NMTC pays for itself. For example, in 2012, the NMTC produced $15.2 billion in economic activity, and this activity generated $984 million in federal tax revenue, more than enough cover the $800 million annual cost of the program in 2012.
“The NMTC is one of several dozen tax credits that have an unknown fate, after Congress only passed a one-year, retroactive extension in the last weeks of the 113th Congress, leaving the credit expired just a few weeks later on December 31, 2014,” said José Villalobos, President of the NMTC Coalition and Senior Vice President of TELACU. “The introduction adds to a growing demand for a more definite answer on tax reform and provides hope that lawmakers can find common ground that benefits the communities and people they represent.”
Senators Steve Daines (R-MT) and Ben Cardin (D-MD) joined as original cosponsors of the Senate NMTC bill. For examples of how the NMTC is making an impact your state, see the NMTC Coalition’s Project Profile Map.
Yesterday, the New York Times wrote about the recovery of downtown Cincinnati, and the Over the Rhine neighborhood in particular. Although the article does not mention it explicitly, many of the catalytic projects described by the Times would not have been possible without financing provided through the New Markets Tax Credit (NMTC).
Below is a map of some of the projects covered in the piece along with an assortment of other Cincinnati projects. Click a green icon to learn more:
According to the latest data from the CDFI Fund, between 2003 and 2012, the NMTC delivered a total of $474 million in financing to Cincinnati businesses and economic development projects. Community Development Entities using NMTC allocation in Cincinnati between 2003 and 2012 include:
- Cincinnati Development Fund
- Cincinnati New Markets Fund, LLC (3CDC)
- Coastal Enterprises, Inc. (CEI)
- Consortium America, LLC (Trammell Crow Company)
- Fifth Third New Markets Development Company LLC
- HEDC New Markets, Inc (National Development Council)
- Key Community Development New Markets LLC
- Local Initiatives Support Corporation (New Markets Support Company)
- Merrill Lynch Community Development Company (Now BAML)
- National City New Market Fund, Inc. (Now PNC)
- National New Markets Tax Credit Fund, Inc (Community Reinvestment Fund, USA)
- Ohio Community Development Finance Fund (Finance Fund)
- PNC Community Partners, Inc.
- Stonehenge Community Development, LLC
- Uptown Consortium, Inc.
- Urban Development Fund, LLC
- WNC National Community Development Advisors, LLC
Thanks to NMTC Coalition board member Dave Gibson (PNC Financial Services Group) for alerting us to this article.
Washington, D.C. – Three members of the House Ways and Means Committee, including Congressmen Pat Tiberi (R-OH), Tom Reed (R-NY) and Richard Neal (D-MA), introduced a bill to secure the future of the New Markets Tax Credit (NMTC) today. New Markets Tax Credit Extension Act of 2015 would ensure that rural communities and urban neighborhoods left outside the economic mainstream have access to financing to grow their economies and create jobs.
A new report by the New Markets Tax Credit Coalition shows the economic impact of the NMTC between 2003 and 2012. The program created nearly three-quarters of a million jobs in rural and urban communities.