Treasury’s CDFI Fund Announces 2019 NMTC Awards

Investments in economically distressed rural, urban and minority communities

WASHINGTON, July 15, 2020 — The U.S. Department of the Treasury’s CDFI Fund announced the Calendar Year 2019 New Markets Tax Credit (NMTC) allocation awards today. The CDFI Fund awarded $3.5 billion to 76 Community Development Entities (CDEs) from 30 states and the District of Columbia. Additionally, 15 percent of allocatees are Minority CDEs that received allocations totaling $543 million.

“The federal New Markets Tax Credit is a unique and flexible community development tool with a successful track record, attracting investment capital and boosting economic activity in low-income areas,” said Bob Rapoza, spokesman for the NMTC Coalition. “In fact, the NMTC has leveraged an unprecedented level of investment to low-income communities—generating over $105 billion in total capital investment through public-private partnerships that created more than one million jobs.”

The CDFI Fund indicated 206 CDEs applied for allocations for a total demand of nearly $14.7 billion in credits. With 76 successful applications (37 percent) receiving $3.5 billion, meaning the availability of credits only meets a fraction of the demand. 

Established in 2000 in the Community Renewal Tax Relief Act (P.L.106-554), the New Markets Tax Credit is a bipartisan effort to stimulate investment and economic growth in low-income urban neighborhoods and rural communities. The NMTC provides a shallow federal tax credit of 39 percent, taken over seven years, for investments in census tracts where the individual poverty rate is at least 20 percent or where median family income does not exceed 80 percent of the area median. However, 75 percent of NMTC activity is in the poorest rural and urban communities in America, characterized by poverty of at least 30 percent and unemployment rates 1.5 times that the national average.  More than half of NMTC allocation goes to communities where a majority of residents are people of color. Of the $51 billion in NMTC allocation deployed through 2019, $27.8 billion went to went to majority-minority census tracts, creating 244,000 permanent jobs.

The vast majority of NMTC projects are in areas of extreme economic distress, with a recent independent report commissioned by the CDFI Fund to evaluate the operation and outcomes of the NMTC program found that CDEs are meeting and generally exceeding program requirements.

To date, the NMTC financed about 6,400 projects, including nearly 3,000 community services and facilities, such as hospitals, schools, daycare centers and non-profit service providers – all in areas that weren’t able to provide access to residents before NMTC was invested. As a result, more than 18 million patients have been treated in NMTC-financed healthcare projects, and over 200,000 children participate in youth enrichment programs or receive care in early childhood learning centers.

At the end of 2019, Congress extended the Credit through 2020 at $5 billion in annual credit authority, an increase of almost 40 percent. There is currently bipartisan legislation in Congress aimed at expanding the allocation level and investor base of the NMTC as well as making it permanent. The NMTC Extension Act of 2020, H.R. 1680 in the House and S. 750 in the Senate. There are presently 37 Senators signed on in support of S. 750, which was introduced by Senators Roy Blunt (R-MO) and Ben Cardin (D-MD). H.R. 1680 has 126 cosponsors and is led by Reps. Terri Sewell (D-AL) and Tom Reed (R-NY).

In addition, on July 1, the House passed a proposal to modernize America’s infrastructure, H.R. 2, the Moving Forward Act, which includes a permanent extension and expansion of the New Markets Tax Credit (NMTC) at $5 billion in annual allocation with additional credits totaling $3.5 billion provided over the next three years to help communities combat the economic downturn.  

“The NMTC is a great deal for the federal government, leveraging eight dollars in other investments in communities for every dollar in credits. But, most importantly, the NMTC is a critical tool for our country’s small, overlooked rural towns and blighted urban neighborhoods that have been left outside of the economic mainstream for far too long. One-fifth of the 2019 awards will be made in rural communities, with $708 million in NMTC investments going to revitalize non-metropolitan counties,” said Rapoza.

For examples of how the NMTC is making an impact in each state, see the NMTC Coalition’s NMTC at Work in Communities report or check out its Project Profile Map. The Coalition also released the sixteenth edition of its NMTC Progress Reporton June 30, which documents the NMTC impact in Calendar Year 2019 and features a special section on the 20th anniversary of the NMTC.

About New Markets Tax Credit Program 
the New Markets Tax Credit (NMTC) was enacted in 2000 in an effort to stimulate private investment and economic growth in low-income urban neighborhoods and rural communities that lack access to the patient capital needed to support and grow businesses, create jobs, and sustain healthy local economies. Since its inception, the NMTC has generated more than one million jobs. Today due to NMTC, more than $95 billion is hard at work in underserved communities in all 50 states, the District of Columbia, and Puerto Rico. For more information, visit www.NMTCCoalition.org.

Contact: Ayrianne Parks
[email protected] 
(202) 393-5225

CDFI Fund Announces More Than $3.5 Billion in New Markets Tax Credits

Wednesday, July 15, 2020

AWARDS WILL SPUR ECONOMIC AND COMMUNITY DEVELOPMENT NATIONWIDE (CDFI FUND PRESS RELEASE)

Washington– The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced $3,548,485,000 in New Markets Tax Credits today that will spur investment and economic growth in low-income urban and rural communities nationwide. A total of 76 Community Development Entities (CDEs) were awarded tax credit allocations, made through the calendar year (CY) 2019 round of the New Markets Tax Credit Program (NMTC Program).

“Today’s action demonstrates the Administration’s commitment to promoting economic growth and jobs in distressed communities, and to ensuring that every American can get back to work as quickly as possible,” said Treasury Secretary Steven T. Mnuchin.

”For almost 20 years, the New Markets Tax Credit has attracted private capital into businesses and communities as they recover from significant shocks to our economy,” said CDFI Fund Director Jodie Harris. “Projects that spur job creation, enable access to technology infrastructure and develop community facilities like federal qualified health centers, are examples of how New Markets Tax Credit investments are especially critical for low-income communities across the country.”

The 76 CDEs receiving awards today were selected from a pool of 206 applicants that requested an aggregate total of $14.7 billion in tax credit allocation authority. The award recipients are headquartered in 30 different states and the District of Columbia. One-fifth (20%) of the investments will be made in rural communities. It is estimated that these award recipients will make more than $706 million in New Markets Tax Credit investments in non-metropolitan counties.

Today’s announcement brings the total amount awarded through the NMTC Program to $61 billion. Historically, NMTC Program awards have generated $8 of private investment for every $1 invested by the federal government. Through the end of fiscal year 2018, the most recent data available, NMTC Program award recipients deployed nearly $52.5 billion in investments in low-income communities and businesses; with impacts such as the creation or retention of more than 836,000 jobs, and the construction or rehabilitation of more than 218.3 million square feet of commercial real estate.

2019 NMTC Program Award Resources

  • Award Book: View award list and learn key facts and statistics about the Allocatees
  • Review Process: Learn how the CDFI Fund evaluates Allocation Applications

About the New Markets Tax Credit Program

The New Markets Tax Credit Program, established by Congress in December 2000, permits individual and corporate taxpayers to receive a non-refundable tax credit against federal income taxes for making equity investments in financial intermediaries known as Community Development Entities (CDEs). CDEs that receive the tax credit allocation authority under the program are domestic corporations or partnerships that provide loans, investments, or financial counseling in low-income urban and rural communities. The tax credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year period. The CDEs in turn use the capital raised to make investments in low-income communities. CDEs must apply annually to the CDFI Fund to compete for New Markets Tax Credit Program allocation authority. Since the inception of the NMTC Program, the CDFI Fund has completed 16 allocation rounds and has made 1,254 awards totaling $61 billion in tax allocation authority. This includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority used for the recovery and redevelopment of the Gulf Opportunity Zone.

To learn more about the New Markets Tax Credit Program, please view the program Fact Sheet or visit www.cdfifund.gov/nmtc.

About the CDFI Fund

Organizations Urge Congress to Pass Emergency Expansion of New Markets Tax Credit

More than 700 businesses, investors and organizations call on Congress to extend and expand the community and economic development tax credit assisting communities hardest hit by COVID-19

WASHINGTON, June 24, 2020 – Today, the New Markets Tax Credit (NMTC) Coalition sent a letter addressed to Congressional leadership and Members of the 116th Congress urging them to take action to extend and provide an emergency expansion of the New Markets Tax Credit (NMTC) that will assist communities struggling with high poverty and unemployment due to the coronavirus pandemic – many of which also faced severe challenges in securing capital that pre-dated the pandemic.

The letter comes on the heels of the House proposal to modernize America’s infrastructure, H.R. 2, the Moving Forward Act, which includes a permanent extension and expansion of the New Markets Tax Credit (NMTC) at $5 billion in annual allocation with additional Credits provided over the next three years to help communities combat the economic downturn.  

More than 700 signatures came from banks and credit unions; nonprofits such as Habitat for Humanity chapters, YMCAs, Boys & Girls Clubs, food banks and heath care clinics; businesses, ranging from very large businesses to small, family-owned operations; city governments; state and local elected officials and agencies; and associations that represent thousands of members.

Beyond a permanent extension of the NMTC, the letter urges Congress to provide additional emergency NMTC allocations of $3.5 billion phased in over three years. The letter also calls on Congress to take steps to ensure more capital reaches businesses, nonprofits and revitalization projects by expanding the pool of eligible NMTC investors to allow more individuals to participate and by adopting temporary policies that enhance the liquidity of investors.

“Even before the COVID-19 pandemic hit, many of America’s urban neighborhoods and rural communities, struggling with high rates of poverty and unemployment, faced the loss of access to billions of dollars for high-impact, community revitalization projects,” said Bob Rapoza, spokesperson for the NMTC Coalition. “The New Markets Tax Credit provides assistance that no other federal tax incentive can to economically distressed rural and urban communities to promote economic revitalization. The NMTC provisions in HR 2 are a good first step. We urge Congress to take action now to ensure this important incentive is available for community revitalization that is needed now more than ever.” 

Established in 2000 in the Community Renewal Tax Relief Act (P.L.106-554), the NMTC is a bipartisan effort to stimulate investment and economic growth in low-income urban neighborhoods and rural communities. The Credit was most recently provided a one-year extension at the close of 2019, as well as a $1.5 billion increase in allocation. The NMTC, which is set to expire at the end of 2020 without congressional action, has an exemplary track record in driving investment to some of the poorest communities in our country, financing over 6,000 businesses, hospitals, daycare facilities and manufacturing expansions and creating more than one million jobs.

The NMTC works by providing a shallow federal tax credit of 39 percent, taken over seven years, for investments made in census tracts where the individual poverty rate is at least 20 percent or where median family income does not exceed 80 percent of the area median. In 2019, more than 80 percent of all NMTC investments were in communities exhibiting severe economic distress with extremely low-incomes, high unemployment, or high poverty.

For examples of how the NMTC is making an impact in each state, see the NMTC Coalition’s NMTC at Work in Communities report or check out its Project Profile Map.

Contact: Ayrianne Parks
[email protected] 
(202) 393-5225

NMTC-Sign-on-Letter-June-2020

The NTMC: Supporting Community-Based Organizations

More than half of New Markets Tax Credit projects expand access to healthcare, social services, childcare, job training, nonprofits, and social service providers working to lift people out of poverty. Federal resources for community development have been cut by more than 80 percent since 1980, and communities increasingly count on the NMTC to support new and improved services for their most vulnerable populations.

Some recent examples:

Ferguson Empowerment Center

Newly elected Ferguson Mayor Ella Jones (then on the city counsel) and others at an event unveiling the new Ferguson Empowerment Center.

Michael McMillan, president and CEO of the Urban League’s St. Louis chapter, said the location was critical. “It was extremely important–just as important symbolically as it was programmatically,” he said. “It was the first building burned and was on the national news.”

A burned-out convenience store that was the epicenter of 2014 racial protests and riots in Ferguson, Mo., became a community-focused “empowerment center,” thanks to the work of community leaders and financial support from the new markets tax credit .

A New Community Center

The Community Center at Ferguson offers a variety of basic social services such as emergency financial, utility, and rent/mortgage assistance. Case managers provide casework and referral services, including financial planning assistance, job placement strategies, and emotional support in cases of abuse or crisis. Families are referred to as the Pathway of Hope program when the crises or barrier requires more long-term support.

Spark Academy

Spark Academy is a free 8-week program that gives third and fourth-grade students an opportunity to discover their gifts and talents in a safe place after school Monday through Thursday. Spark encourages each participant to discover their gift and can build a solid foundation to grow.

The Believe Project

The Believe Project, a partnership with the St. Louis Black Authors of Children’s Literature, is a new literacy library created to be a safe space for children to enjoy the beauty of reading and will be featured at The Salvation Army Ferguson Community Empowerment Center through the Spark Academy and Ignite programs. The project’s vision is to ensure that “all children become confident and competent readers by the end of third grade” – focusing especially on books written by black authors and/or for black children’s audiences.


Federally Qualified Health Centers

NMTC-financing made nearly 400 FQHCs possible, expanding healthcare access for millions of low-income people.

Los Barrios Unidos Community Clinic

Los Barrios Unidos Community Clinic
Project Year:
2015
In late 2014, Los Barrios Unidos, an FQHC, secured NMTC financing for its new Family Health Center, a new 21,400 square foot clinic offering 15 exam rooms, 3 open Team ...
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Northside Community Health Center

Northside Community Health Center
Project Year:
2017
From its founding in 2002 by a group of area residents, faith-based groups, and health and social services providers, North Texas Area Community Health Centers (NTACHC) grew to provide care ...
Read More

Jessie Trice Community Health System

Jessie Trice Community Health System
Project Year:
2019
Jessie Trice Health Systems has served the Miami area since 1967 with healthcare from its FQHC (Federally Qualified Health Center) locations, currently providing services for over 45,000 patients. With NMTC ...
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CityLink Center

CityLink Center
Project Year:
2012
On November 13th, Cincinnati leaders gathered for the grand opening of the CityLink Center, a comprehensive social services mall which was built with the help of New Markets Tax Credits ...
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Food Banks and Emergency Services Providers

The NMTC has financed nearly 200 homeless shelters and community food pantries.

North Texas Food Bank

North Texas Food Bank
Project Year:
2017
Originally posted at Crescent Growth Capital Established in 1982 by Jo Curtis, Ambassador Kathryn Hall, Lorraine Griffin Kircher and Liz Minyard, the North Texas Food Bank (“NTFB”) addresses the critical ...
Read More

Metropolitan Ministries, Phase Two

Metropolitan Ministries, Phase Two
Project Year:
2014
Metropolitan Ministries has served homeless and needy populations in the Tampa Bay area for over 40 years. Phase One used NMTC to build a new homeless services and housing facility ...
Read More

Public Action to Deliver Shelter

Public Action to Deliver Shelter
Project Year:
2018
Awarded $100,000, Hesed House is a 501c(3) under the Public Action to Deliver Shelter (PADS) program dedicated to alleviating the plight of poor and homeless persons. Its mission is to ...
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Meals on Wheels Kitchen

Meals on Wheels Kitchen
Project Year:
2018
Meals on Wheels San Francisco (MOWSF) plans on making sure no homebound senior in the City goes hungry. The nonprofit has begun construction on a $41.5 million state-of-the-art industrial kitchen ...
Read More

Emergency NMTC Extension and Expansion Proposal

The NMTC has a 20-year track record of promoting revitalization in America’s economically distressed rural and urban communities. These communities – which were struggling with high poverty and unemployment before the recent economic collapse – now face severe challenges in securing capital, challenges that pre-dated the pandemic.

The NMTC expires at the end of this year. Congress should take action to address the crisis in these communities by passing legislation that permanently extends the NMTC, along the lines of the bipartisan New Markets Tax Credit Extension Act of 2019 (S.750/H.R. 1680), provides an emergency expansion of the NMTC and temporary policies (outlined below) to ensure communities can continue to access NMTC equity through a competitive investor market.

The NMTC ensures private-sector resources reach communities outside the economic mainstream, from remote rural areas of Alaska, to urban neighborhoods struggling with economic dislocation. Through September 2019, the NMTC delivered over $100 billion[1] in total project financing to over 6,000 businesses and projects in areas of deep distress. In 2018, 80 percent of NMTC activity was in areas of extreme poverty and unemployment that far exceed the statutory requirements for economic distress. The NMTC – and the organizations that use it to deploy capital to underserved communities – is well-suited to provide patient flexible capital to support the disaster relief and economic stabilization needed as the virus fades.

The NMTC Coalition recommends the following policies to help increase the flow of investment to low-income communities and ensure the NMTC investor market remains competitive and highly liquid:

Emergency Extension and Expansion of the NMTC

  1. Congress should permanently extend the NMTC along the lines of the NMTC Extension Act of 2019. The bill provides $5 billion in annual authority, an inflation adjustment in out years, and provides relief from AMT for NMTC investors;
  2. Congress should provide an emergency NMTC allocation of $1 billion to be added to the pending 2019 round (for a total of $4.5 billion). The CDFI Fund is currently evaluating the 2019 application round with awards scheduled for the summer. The CDFI Fund can administer the emergency round using existing applications and a supplemental questionnaire, a procedure they used when Congress provided an emergency NMTC authorization during the Great Recession as part of ARRA;
  3. Congress should help communities rebound by providing an additional NMTC allocation of $1.5 billion to be added to the 2020 round (for a total of $6.5 billion for 2020), and $1 billion to the 2021 round (for a total of $6 billion for 2021);
  4. Absent passage of the NMTC Extension Act of 2019, Congress should provide relief from the AMT consideration for NMTC investors. AMT relief would increase competition for NMTCs, bringing high-net-worth individuals into the NMTC investor pool, and driving more benefit to low-income communities for each federal dollar; and
  5. Congress should provide Community Development Entities with temporary relief from Treasury regulation § 1.1001-3 (Modifications of debt instruments), which would help them provide flexibility to borrowers to help them through the crisis.
  6. Congress should ensure communities have access investment capital by temporarily allowing investors to carryback credits for five years and exempting NMTC and other General Business Tax Credit investors from the 75 percent general business credit limitation (Sec. 38(c)(2)) through 2022. Uncertainty over potential near term tax liability can depress demand for the NMTC and drive down the equity price investors contribute in exchange for the credit. Allowing investors to carryback credits up to five years, and temporarily relaxing the 75 percent limitation would ensure demand remains high over the near term for NMTCs, maximizing the benefit to low-income communities. The same goes for other community development credits.

Community development entities (CDEs), investors, and NMTC practitioners have proven they can quickly deliver $7 billion in annual allocation to businesses and revitalization projects. In 2016, the CDFI Fund combined the 2015 and 2016 rounds and awarded $7 billion in allocation to over 100 organizations. It only took CDEs 18 months after signing their award agreements to deploy $7 billion to health clinics, manufacturing expansions, and small businesses. 

The NMTC investor market has weakened during the uncertainty and economic freefall instigated by the pandemic. While investments are continuing, and businesses are receiving financing, we have already seen evidence of pricing decreases in the equity market. The changes outlined above will help enhance market liquidity, improve equity pricing, increase the efficiency of the program, and facilitate financing businesses hard hit by the current health and economic crisis.

While the proposed emergency allocation would be generally available to help communities meet a wide variety of needs, it is important to note the NMTC’s track record in two particular areas of concern in the current environment: economic stabilization and healthcare financing.

[1] NMTC Coalition analysis of CDFI Fund data (2003-2016), its annual survey of CDEs (2017-2018), and OCC data (2018-2019).

Healthcare

Before COVID-19, almost 62 million people did not have regular access to primary health care.

The healthcare system in low-income communities is the least prepared to deal with the fallout from the Coronavirus – particularly in rural areas. As the disease stresses Intensive Care Units (ICUs), increasingly monopolizing the resources of hospitals and overwhelming primary care physicians with testing, the entire healthcare system could be stretched to its limit. The need extends beyond ventilators and upgraded ICUs to essential healthcare equipment and infrastructure. Without additional healthcare capacity, doctors will continue to be forced to delay treatments for further extended periods. When the pandemic begins to recede, health systems will be overwhelmed with demand for treatment, surgeries, and procedures postponed during the crisis. This is particularly the case in high-poverty areas already struggling with poor health outcomes and inadequate facilities.

Congress can act now to help distressed communities meet the oncoming tsunami of demand by providing additional resources to community development organizations through the NMTC.

NMTC Track Record on Federally Qualified Health Centers (FQHCs):: The NMTC is one of the most important sources of funding for the financing and equipping of FQHCs. To date, over $4 billion in NMTC investments have supported the financing of 387 FQHC projects serving over 8 million patients in low-income communities.

Healthcare Stores:

Economic Stabilization

When economic calamity strikes, commercial credit markets freeze, philanthropy tightens, and state and local tax revenue collapses. All of these counter-cyclical forces combine to exacerbate recessions by creating a liquidity crisis. The communities hit hardest by the economic fallout from the pandemic are the minority and low-income communities targeted by NMTC.

During the early stages of the Great Recession, Congress took a variety of actions to help capital-starved communities access the resources they desperately needed. The legislation included an authorization of an additional $1.5 billion in NMTC allocation for 2009 and 2010 to help more communities gain access financing to keep businesses open and support critical components of the social safety-net, including health centers, homeless shelters, and other community facilities.

NMTC Track Record After the Great Recession: The NMTC delivered $23.6 billion in total financing to over 1,200 businesses and revitalization projects in hard hit communities between 2009 and 2011. Those investments directly created or retained 85,000 permanent jobs and 94,000 construction jobs at a time when the economy was in a freefall.

[1] NMTC Coalition analysis of CDFI Fund data (2003-2016), its annual survey of CDEs (2017-2018), and OCC data (2018-2019).

Baltimore’s Lexington Market Groundbreaking

Today, officials in Baltimore attended a groundbreaking for the Lexington Market rejuvenation project. Cinnaire provided $11 million in NMTC financing to support the revitalization of the historic Baltimore market. The 238-year old structure will undergo a $40 million transformation to create a modern gathering place for all of Baltimore and a hub for community, culture, health, and wealth-building. Cinnaire Lending and Enterprise Community Loan Fund partnered to provide a $6.7 million loan to facilitate the NMTC financing.

Some highlights via Twitter:

JCT Report Highlights NMTC infrastructure Investment

Yesterday, the Joint Committee on Taxation released “OVERVIEW OF SELECTED PROVISIONS AND OPTIONS RELATING TO FUNDING AND FINANCING INFRASTRUCTURE INVESTMENTS.” The report highlights tax provisions employed for the financing of infrastructure. With the help of CDFI Fund data, the committee was able to identify 171 infrastructure projects financed by the NMTC totaling over $2 billion.

Below, we’ve highlighed a few examples.

Ports and Freight

Industrial waterfront property and long-neglected ports are often the most distressed and environmentally contaminated areas of an urban core. Municipal governments and Port Authorities have used the NMTC for brownfield remediation and to rejuvenate ports, freight terminals, and fishing docks.

Port of Hueneme

Port of Hueneme
Project City:
Port Hueneme
Project State:
CA
Project Year:
2013
The modernization of the Port of Hueneme retained $7 billion in trade business and 500 livable wage jobs. Clearinghouse CDFI provided $10 million of NMTC allocation for this $14.7 million ...
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America’s Central Port Complex

America’s Central Port Complex
Project City:
Madison
Project State:
IL
Project Year:
2015
The project includes million square feet of new, rail-served manufacturing and warehousing space in the industrial development along the Mississippi River’s Chain of Rocks shipping canal. The warehouse project is ...
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Eagle Railcar Services

Eagle Railcar Services
Project City:
Washington
Project State:
IN
Project Year:
2017
Eagle Railcar Services acquired, remediated and renovated the former B&O Railroad Servicing facility, with 10 miles of track and 200,000 square feet of buildings located in rural Washington, Indiana (pop, ...
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Broadband

Many rural communities still lack access to high-speed broadband connections. Increasingly, the NMTC has been used to finance broadband expansions into underserved and remote rural areas.

Terra NW

Terra NW
Project City:
Anchorage
Project State:
AK
Project Year:
2011
Installation & Operation of Fiber-Optic & Microwave Broadband Connection: GCI is the largest integrated telecom company in Alaska, having provided cellular service to over 100 rural communities in the past ...
Read More

Greatwave Communications

Greatwave Communications
Project City:
Cleveland
Project State:
OH
Project Year:
2016
GreatWave Communications is a long-standing operating business located in Conneaut, Ohio that provides high-quality telecommunications services to over 2,000 telephone customers, 1,650 cable television subscribers, and 3,200 broadband internet users ...
Read More

Continental Divide Electric Cooperative Broadband Project

Continental Divide Electric Cooperative Broadband Project
Project City:
Grants
Project State:
NM
Project Year:
2017
Currently, residents and owners of approximately 24,000 homes and business in Grants and the surrounding area have no broadband internet option and rely on satellite internet, the speed of which ...
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CRA Modernization Proposal Released

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are soliciting comment on a new proposal to modernize Community Reinvestment Act (CRA) regulations.

Changes to CRA are of great interest to NMTC practioners. Bank investors are important partners in the NMTC program and provide the private sector capital necessary for CDEs to invest in meaningful community and economic development projects in underservedareas. CRA serves as one of several primary motivators for NMTC equity investors. In recent years,demand for NMTCs from CRA-motivated financial institutions has been at or near an all-time high. Higher demand for NMTCs translates to more benefit for businesses, facilities and community revitalization efforts in low-income communities. It allows community development organizations to stretch each dollar of NMTC allocation further, producing a greater community impact and reaching areas of deeper distress. Robust demand for NMTCs also helps CDEs make the vast majority (more than 75 percent) of their loans and investments in severely distressed communities that far exceed the statutory requirements for distress.

The Proposal

The good news is that the NMTC – and activities associated with it – are mentioned throughout the proposal will continue to qualify for CRA consideration under the proposal. But it is not yet clear how the expansion of qualifying activities or the changes in geographic focus will impact demand for NMTCs.

The proposal eliminates the “investment test” and instead classifies all loans, investments, other development services benefiting LMI tracts or populations as “community development.”

We are reviewing the proposal and the Coalition will be providing comments. It includes 22 specific questions (scattered throughout) where the agencies are seeking comment. We’ve isolated them and you can download all the questions in a Word DOC below. The document includes citations where you can find the sections relevant to the questions.

Below are a few sections in the NPR related to the NMTC:

Qualifying activities criteria

(a) General. Retail loans, community development loans, community development investments, and community development services that help meet the credit needs of a bank’s entire community, including low- and moderate-income communities, are qualifying activities if they meet the criteria in this section at the time the activity is originated, made, or conducted. If the activity is subsequently purchased by another bank, it is a qualifying activity if it meets the criteria in this section at the time of purchase.

https://www.occ.gov/news-issuances/federal-register/2019/nr-ia-2019-147-federal-register.pdf (Page 193)

Qualifying Community Development Activities

The proposal broadly outlines the community development loans and investments that would qualify. Below, we’ve excerpted some sections relevant to CDEs and CDFIs:

Community development loans, community development investments, and community development services. A community development loan, community development investment, or community development service is a qualifying activity if it provides financing for or supports:

(1) Affordable housing, which means:

(ii) Owner-occupied housing purchased, refinanced, or improved by low- or moderate-income individuals or families, except for home mortgage loans provided directly to individuals or families;

(2) Another bank’s community development loan, community development investment, or community development service;

(4) Community support services which means activities, such as child care, education, health services, and housing services, that partially or primarily serve or assist low- or moderate-income individuals or families;

(5) Essential community facilities that partially or primarily benefit or serve:

(i) Low- or moderate-income individuals or families; or

(ii) Low- or moderate-income census tracts, distressed areas, underserved areas, disaster areas consistent with a disaster recovery plan, or Indian country; (

6) Essential infrastructure that benefits or serves:

(i) Low- or moderate-income individuals or families; or

(ii) Low- or moderate-income census tracts, distressed areas, underserved areas, disaster areas consistent with a disaster recovery plan, or Indian country;

,,,

(8) Federal, state, local, or tribal government programs, projects, or initiatives that:

(i) Partially or primarily benefit low- or moderate-income individuals or families;

(ii) Partially or primarily benefit small businesses or small farms as those terms are defined in the programs, projects or initiatives; or

(iii) Are consistent with a bona fide government revitalization, stabilization, or recovery plan for a low- or moderate-income census tract; a distressed area; an underserved area; a disaster area; or Indian country;

(9) Financial literacy programs or education or homebuyer counseling;

(12) A Small Business Administration Certified Development Company, as that term is defined in 13 CFR 120.10, a Small Business Investment Company, as described 13 CFR part 107, a New Markets Venture Capital company, as described in 13 CFR part 108, a qualified Community Development Entity, as defined in 26 CFR 45D(c), or a U.S. Department of Agriculture Rural Business Investment Company, as defined in 7 CFR 4290.50;

(13) Ventures undertaken, including capital investments and loan participations, by a bank in cooperation with: a minority depository institution, women’s depository institution, Community Development Financial Institution, or low-income credit union, if the activity helps to meet the credit needs of local communities in which such institutions are chartered, including activities that indirectly help to meet community credit needs by promoting the sustainability and profitability of those institutions and credit unions.

Qualifying Activities Illustrative List

The proposal also provides a non-exhaustive list of examples of activities that would qualify. A quick scan of that list reveals many activities that overlap with NMTC projects. Three examples explicitly mention the NMTC:

Loan to a small business to purchase real estate related to a New Markets Tax Credit project, as provided for in 26 U.S.C. 45D.

Public welfare investment, under 12 CFR part 24, to a qualified Community Development Entity that will provide financing for a food market to build a 180,000 square foot refrigerated warehouse and food distribution facility.

An investment in a New Markets Tax Credit-eligible Community Development Entity to fund a mixed-use project that will include affordable housing for LMI individuals and families and retail space for small businesses.

https://www.occ.gov/news-issuances/federal-register/2019/nr-ia-2019-147-federal-register.pdf (Pages 98 and 100)

Find the full list: https://www.occ.gov/news-issuances/federal-register/2019/nr-ia-2019-147-federal-register.pdf (pages 86-101)

Other Notable Proposals

Utilizing the NMTC’s poverty threshhold

Interestingly, the proposal references the NMTC’s criteria for poverty:

The proposal also would revise the definitions of distressed nonmetropolitan middle-income area and underserved nonmetropolitan middle-income area to include additional census tracts where there are unmet financial needs. Specifically, the requirement that a distressed area be a nonmetropolitan area would be removed to recognize that there may be urban areas that experience high rates of poverty, unemployment, or population loss and need financial resources. Although the agencies also considered lowering the poverty threshold in the definition of distressed area to as low as 15 percent, they decided to retain the 20 percent threshold because it is consistent with the threshold used in some other Federal programs that are intended to benefit low-income communities, such as the New Markets Tax Credit program.

Calculating the qualifying activities value

Qualifying activities would be quantified as follows:

• Qualifying loans and CD investments would be valued based on their average month-end on-balance sheet dollar value, except that qualifying retail loans originated and sold within 90 days of their origination date would be valued at 25 percent of their origination value.

• Legally-binding commitments to invest that are reported on the Call Report, Schedule RC-L, would be valued based on their average month-end dollar value.

• Qualifying commitments to lend would be valued based on the average month-end dollar value of the allowance for credit losses on those commitments that are reported on the Call Report, Schedule RC-G.

• CD services and monetary or in-kind donations would be credited at the value of the monetary donation or in-kind activity or at the hourly salary as estimated by the Bureau of Labor Statistics for the job category of the service provided for the number of hours provided. If a CD activity partially benefits the intended population or area, then the quantified value would be a pro-rata share of the full quantified dollar value of the activity, as described above, equal to the percentage of partial benefit.

….

A bank would calculate its bank-level and assessment area qualifying activities values by taking the sum of the quantified values of all qualifying activities, adjusted by any applicable multiplier, as follows:

Qualifying loans on balance sheet for at least 90 days and CD investments

PLUS

Twenty-five percent of the origination value of qualifying loans sold within 90 days of origination

PLUS

CD Services and Monetary and In-Kind Contributions

https://www.occ.gov/news-issuances/federal-register/2019/nr-ia-2019-147-federal-register.pdf (Pages 36-37)

Financial Literacy Programs

The proposal adds a criterion for financial literacy programs or education or homebuyer counseling that benefits individuals of all income levels. The agencies believe that financial literacy is an important issue irrespective of income level. Moreover, some stakeholders expressed support for providing CRA credit for financial literacy programs for all individuals. These stakeholders cited high levels of student and credit card debt and a lack of retirement and other savings as reasons for providing broader consideration of financial literacy-related activities.

https://www.occ.gov/news-issuances/federal-register/2019/nr-ia-2019-147-federal-register.pdf (Page 28)