With time running out on the New Markets Tax Credit (NMTC), supporters are seeking to have the economic development program reauthorized.
The Senate recently approved extending the program for an additional year in its Tax Relief Act of 2005, giving it $3.5 billion in authority for 2008. In addition, the Senate proposal provides for another $1 billion in NMTCs to be used in the Gulf Coast over three years.
“The fact that we got it passed in the Senate is a good step forward,” said Robert Rapoza, president of Rapoza Associates, which manages the New Markets Tax Credit Coalition. The Coalition, an organization with more than 100 members, has been leading the effort to get the program extended beyond 2007.
Two pending bills, S. 1800 and H.R. 3957, would reauthorize the credit for five additional years, through 2012, with an annual credit volume of $3.5 billion per year.
The effort is being compared to the early years of the low-income housing tax credit program, which also had to campaign for reauthorization before finally becoming a permanent program.
Created in 2000, NMTCs seek to stimulate private investment and economic growth in low-income communities across the nation. A total of $15 billion in NMTC investment authority is available through 2007. Under the program, individual and corporate taxpayers can receive a credit against federal income taxes for making qualified equity investments in community development entities (CDEs). Substantially all of the investment must be used by the CDEs to make qualified investments in low-income communities. The credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year period.
The tax credits have been used to finance a wide variety of economic development projects, including a sustainable forestry project and paper mill in Maine, a charter school in Los Angeles, and the rehabilitation of an old mill into a glass gallery and market-rate housing in Tacoma, Wash.
The NMTC program is administered by the Treasury Department’s Community Development Financial Institutions (CDFI) Fund.
The big push is for reauthorization, but that’s not the only issue with the new program. One of the areas that users hope to get clarification on is the definition of “targeted populations,” according to Rapoza.
The ability to serve targeted populations in addition to geographically defined low-income communities gives CDEs flexibility in using the program. How to define “targeted populations,” however, is a question that’s being discussed by the industry.
Rapoza said the coalition is also planning to survey CDEs that have received an NMTC award. The study will follow on the heels of the group’s progress report of first-round winners that was released in May 2005.
To date, the CDFI Fund has completed three out of five scheduled funding rounds and has made 170 awards totaling $8 billion in allocation authority.
The fourth-round deadline was Sept. 21, 2005. The CDFI Fund received 241 applications requesting nearly $26 billion, which is more than seven times the $3.5 billion available in the round. Thirteen organizations that were affected by the 2005 hurricanes were provided extensions.
The fourth-round reservations are expected to be announced in the spring.
CDEs have five years from the date of allocation to receive qualified equity investments from investors. The program has seen good interest from investors, with CDEs having received close to $3 billion in investments for the $6 billion allocated in the first two rounds.
For more information, visit www.cdfifund.gov and www.newmarketstaxcreditcoalition.org.