Congress has an opportunity to provide resources to vulnerable, low-income communities dealing with the impact of the Coronavirus. It is clear that the pandemic will wreak havoc on local economies and low-income rural and urban communities will be the hardest hit.
These are the very communities that have benefited the most from the New Markets Tax Credit (NMTC). Through Sept. 2019, the NMTC delivered over $100 billion total project financing to over 6,000 projects in areas of deep distress. In 2018, eighty percent of NMTC activity is 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 for the sort of disaster relief and economic stabilization needed when the virus fades.
Emergency Extension and Expansion of the NMTC
- Congress should permanently extend the NMTC along the lines of the NMTC Extension Act of 2019, which provides $5B in annual authority, an inflation adjustment in out years, and relief from the AMT consideration for NMTC investors.
- The CDFI Fund is currently evaluating the 2019 application round with awards scheduled for the summer. 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 can administer the emergency round using existing applications and a supplemental questionnaire, a procedure they used when Congress provided an emergency NMTC authorization for the GO-ZONES in 2005.
- Congress should help communities rebound by providing an additional NMTC allocation $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).
- 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.
The NMTC industry has proven it can quickly deliver $7 billion in annual allocation to businesses and revitalization projects. Because of a delay in reauthorization, the CDFI Fund combined the 2015 and 2016 rounds and awarded $7B. It only took CDEs eighteen months after signing their award agreements for community development organizations to deploy $7 billion to health clinics, manufacturing expansions, and small businesses.
While the proposed emergency allocation would be generally available to help communities meet a wide variety of needs, it is important to note NMTC’s track record in two particular areas of concern in the current environment: economic stabilization and healthcare financing.
The healthcare system in low-income communities is the least prepared to deal with the fallout from the Coronavirus. As the disease overwhelms Intensive Care Units (ICUs) and increasingly monopolizes the resources of hospitals and testing overwhelms primary care physicians, the entire healthcare system could be stressed to its limit. The need will extend beyond ventilators and upgraded ICUs to basic healthcare equipment and infrastructure. Without additional healthcare capacity, doctors will be forced to put-off treatments for extended periods. When the pandemic recedes, health systems will be overwhelmed with demand for treatment, surgeries, and procedures postponed during the height of 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 FQHCs: The NMTC is one of the most important sources of funding for the financing and equipping of FQHCs. To date, over $3.9 billion in NMTC investments have supported the financing of 361 FQHC projects serving over 7.2 million patients in low-income communities.
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. 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. This included an authorization of an additional $1.5 billion in NMTC allocation for 2009 and 2010 to help more communities 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 project financing over 1,2000 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.