A total of 230 applications have been submitted under the 2017 New Markets Tax Credit (NMTC) allocation round, reports the Department of Treasury’s Community Development Financial Institutions Fund.
The Community Development Entities (CDEs) that applied have requested $16.2 billion in allocation authority, more than four and a half times the $3.5 billion available in the round. The applicants are headquartered in 42 states, the District of Columbia, Guam, and Puerto Rico.
The awards are expected to be announced by the end of the year.
The latest round comes after a record $7 billion in NMTC awards were announced in late 2016. Some of those deals started to close on their financing around March 2017, with more having continued to secure financing throughout the year, according to Ira Weinstein, a managing principal at CohnReznick, a national accounting and advisory firm.
“We’re coming off a very large round, which was effectively two years combined,” Weinstein says. “People thought about whether the market could absorb all of this. I think the market seems to be absorbing things pretty well.”
The NMTC program received a big boost in 2015 when Congress authorized the tax credits for an additional five years, at $3.5 billion annually. It was the first time the program, which encourages economic development in low-income and distressed communities by making tax credits available to CDEs for targeted investments in eligible areas, received such a long-term extension. Prior extensions had been for only a year or two.
The five-year extension enabled officials to combine the 2015 and 2016 rounds, which saw 120 organizations receive a share of the $7 billion in awards.
Bills have been introduced in the House (H.R. 1098) and Senate (S. 384) to make the NMTC program permanent. However, the recent Republican Unified Framework For Fixing Our Broken Tax Code envisions repealing most business credits, including NMTCs. The low-income housing tax credit and the research and development credit are the only two credits preserved in the tax reform outline.
Overall, the NMTC market didn’t experience the upheaval seen in the low-income housing tax credit market at the end of 2016 and early 2017 as concerns about tax reform increased, according to Weinstein.
Unlike the housing credit, the NMTC is taxable. As a result, if tax rates go down, in theory the investor yield will be higher. Still, there were some concerns about whether investors would have the same appetite with the prospects of tax reform looming, but investors have remained pretty bullish.
“I think investors felt like their institutions were supporting it,” Weinstein says. “These are good strategic investments that have the added benefit of supporting the Community Reinvestment Act requirements. I don’t think there’s all that much fear that the appetite for this tax credit program is at risk under a lower tax rate.”
Supporters note that the program has received strong bipartisan support because NMTC projects have addressed key concerns such as jobs, health care, and education. The tax credit has been used to spur the creation of everything from manufacturing plants to medical clinics.
A new school opens
In Milwaukee, NMTCs were instrumental in the financing of the new St. Augustine Preparatory Academy, a school that’s serving low-income students and others on the city’s south side.
The school has received the Department of Public Instruction Certification to participate in the School Choice Program, meaning about 95% of the students will receive vouchers to attend the school and about 85% will receive free lunches.
This Wisconsin Housing and Economic Development Authority (WHEDA), through its CDE, the Greater Wisconsin Opportunities Fund (GWOF), allocated $10 million in NMTCs to the project. GWOF is a coalition of seven Community Development Financial Institutions (CDFIs) and WHEDA.
The school, which was founded by local businessman Gus Ramirez, met the eligibility criteria of the NMTC program—location in an area where the median income is less than 80% of the area’s average, the poverty rate exceeds 25%, it’s in a medically underserved region, and it’s in a brownfield area.
Some of the key amenities included with the school are a soccer field, a swimming facility, a gym, a track, and a health-care center. Wheaton Franciscan Healthcare will lease space within the school to provide health-care services to students, staff, and families.
NMTCs have been important in not only urban areas but rural communities, as well. Eleven years ago, Congress enacted The Tax Relief and Health Care Act of 2006, which amended the NMTC statute to ensure that nonmetropolitan communities were allocated a proportional share of investments.
In July, the New Markets Tax Credit Coalition reported that between 2003 and 2011, the NMTC delivered $3.5 billion in capital to nonmetro census tracts, leveraging another $3.5 billion from other sources to provide $7 billion in capital investments to over 600 rural businesses. This created more than 67,000 jobs, including nearly 47,000 full-time positions and over 20,000 construction jobs. In addition, the NMTC helped finance 68 rural health-care facilities or clinics, totaling $536 million in project costs, between 2003 and 2011.