The Treasury Department announced $7 billion in tax credits under the latest round of the New Markets Tax Credit (NMTC) program, the largest single round allotment in the program's history. The amount includes awards to 120 organizations headquartered in 36 states, the District of Columbia and Puerto Rico.

The NMTC program, administered by Treasury's Community Development Financial Institutions (CDFI) Fund, was established in December 2000 by Congress. The program was designed to encourage investments into operating businesses and real estate projects located in low-income communities. It allows taxpayers to receive federal income tax credits for making qualified equity investments in investment vehicles called Community Development Entities (CDEs). An investor's credit totals 39% of the investment in a CDE and is claimed over seven years. Substantially all of the amount of investment must be used by a CDE to make qualified investments in low-income communities. The 13 rounds have allocated 1,032 awards totaling $50.5 billion in tax credit authority.

In the latest round, CDFI received a total of 238 applications, requesting a total of $17.6 billion. Of all the applicants, 120 CDEs (50.4% of the total applicant pool) received the $7 billion in allocations (about 40% of the total requested amount). The average allocation award in this round was approximately $58 million, with awards ranging from $15 million to $90 million. About 70% of the amounts awarded went to loans to, or equity investments in, business; 30% went to loans to, or equity investments in, real estate.

Implications

The award is for the largest amount at one time in the history of the program. As such, eligible projects will have more CDEs from which to potentially get favorable funding. It is incumbent on taxpayers with projects that may benefit from a sub-allocation of NMTCs to proactively seek out CDEs that received awards; despite this large award, funding is very competitive. We note that, while projects in all states are likely to receive funding under the program, so-called underserved states (Arkansas, Florida, Georgia, Idaho, Kansas, Nevada, Tennessee, Texas, West Virginia and Wyoming) will be more attractive to CDEs. We are happy to discuss how a project may benefit from favorable financing under the program.

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