The Community Development Financial Institutions Fund (CDFI Fund) is preparing to award $7 billion in New Markets Tax Credit (NMTC) authority this fall.
The agency received 238 applications requesting $17.6 billion for the recently combined 2015-2016 round this year.
“The program continues to have very strong demand,” says Annie Donovan, director of the CDFI Fund, noting that officials have been working to distribute NMTCs across the map, including “underserved states” that have received the least NMTC allocation in proportion to their population living in low-income communities.
The program received a big boost last December when Congress authorized NMTCs for an additional five years at $3.5 billion annually. It was the first time that the program, which encourages economic development in low-income and distressed communities by making tax credits available to Community Development Entities (CDEs) for targeted investments in eligible areas, received such a long-term extension. Prior extensions have been for a year or two, notes Donovan.
The five-year extension opened the door for officials to combine the 2015 and 2016 rounds, a move that allows the CDFI Fund to announce the allocation of credits in the year for which they are authorized. This provides predictability for program participants who are working to put deals together, says Donovan.
Through the program’s first 12 application rounds, the CDFI Fund has made 912 awards, allocating $43.5 billion in NMTC authority to CDEs through a competitive process. This includes $3 billion that was provided through the American Recovery and Reinvestment Act of 2009 and $1 billion of special allocation authority for the recovery of the Gulf Opportunity Zone following Hurricane Katrina in 2005.
The CDFI Fund has done a good job getting investments into highly distressed communities, according to Donovan.
One way CDEs can meet their commitments to areas of higher distress is by investing in census tracts that meet at least one of three “severe distress” criteria: poverty rates of 30% or greater; median family income at or below 60% of applicable area median income; or unemployment rates of at least 1.5 times the national average.
Just over 73% of NMTC projects have been located in census tracts that met one of the three indicators of severe distress while nearly 25% have been in census tracts that met all three indicators, according to a recent CDFI Fund report.
Overall, real estate development has been the biggest area of investment. A little more than 61% of the total number of NMTC investments have been in real estate development and leasing activities. About 27% of the total number of NMTC investments went to operating businesses.
NMTCs finance S.F. health center
One of the most anticipated NMTC projects is a 50,000-square-foot health-care center that will serve low-income and homeless people in San Francisco. HealthRIGHT 360, the nonprofit behind the project, is on schedule to open the facility next spring, with the help of $51 million in NMTC financing.
Like many nonprofits, HealthRIGHT 360 was facing rising rents at several of the properties it was leasing. That meant a potential loss of capacity in serving people who depend on the organization for their health care, says Vitka Eisen, CEO of HealthRIGHT 360.
The new health center will allow the organization to integrate and expand many of its services under one roof, including primary medical care, mental health, and substance-abuse services. It will also allow the organization to add a dental clinic and a pharmacy.
The deal is one of the largest NMTC investments in fiscal 2016. Banc of America CDE provided a $10 million NMTC allocation, and $41 million of additional allocation was provided by four CDE partners through which Bank of America Community Development Corp. is the investor: Enterprise Community Investment ($12 million), Primary Care Development Corp. ($12 million), CSH ($9 million), and Northern California Community Loan Fund ($8 million).
“We couldn’t have done it without the NMTC,” says Eisen, who estimates the primary-care clinic alone will serve about 12,000 patients a year. HealthRIGHT 360 is engaged in a campaign to raise $10 million in additional funds, but it wouldn’t have been able to raise the total amount needed for the health center.
In addition to investing in the NMTCs, Bank of America also provided a $24 million construction loan. Other sources of financing include an $8.5 million loan provided by mission-based CDFI lenders Dignity Health and Nonprofit Finance Fund.
“The purpose of the NMTC is to help finance developments in low-income communities that create jobs or services for low-income people, and HealthRIGHT 360 fulfills that by providing health care to all, regardless of a patient’s ability to pay,” says Leigh Ann Smith, senior vice president, community development banking, at Bank of America. “HR360 serves some of San Francisco’s most vulnerable residents, including the homeless and those suffering from addiction. The new facility will provide a one-stop-shop for comprehensive, integrated health care—not just providing medical services, but also helping their patients with behavioral health services and connecting them with housing, employment, education, computer literacy, and wellness resources.”