In fall 2017, many were on edge about the possible elimination of the New Markets Tax Credit (NMTC) program. Developers and leaders in low-income and rural communities held their breath as they awaited the verdict from the House Ways and Means Committee in December. And lucky for them, Christmas came early.
On Dec. 20, the NMTC was preserved through 2019. What’s more, this past February, the Community Development Financial Institutions (CDFI) Fund awarded 73 Community Development Entities (CDEs) $3.5 billion in NMTCs for calendar year 2017. This award is invaluable to rural communities, in particular, as it will significantly boost much-needed economic growth in these areas.
According to the Department of Treasury, the CDFI Fund has awarded $54 billion through the NMTC program, including the newly awarded $3.5 billion for 2017. Overall, the NMTC program has generated $8 of private investment for every $1 invested by the federal government since its creation. This program has also awarded $44.4 billion of investments in low-income communities and businesses.
In its 2017 report, the New Markets Tax Credit Coalition details the success of NMTC investments. From 2003 to 2015, these investments generated more than $156 billion in economic activity and created over 1 million jobs in low-income rural and urban communities. With this new February announcement, the list of success stories continues to grow for the NMTC and rural communities, areas that especially need this support in order to flourish.
To gain more insight into the positive impact the NMTC program has had on rural communities, we reached out to Abby Kepple, president of tax services at Enterprise Bank & Trust and executive director of Enterprise Financial CDE. Enterprise Financial CDE was created in 2008 when its principals noticed the strong need for funding in low-income metropolitan and rural areas. It has received four NMTC awards since then, the largest of which was $65 million in 2016. With each NMTC award, it invests 10% to 20%, sometimes more, in rural areas. An estimated $65 million has been invested in eight nonmetropolitan areas as of 2017. These projects included real estate and mixed-use developments, which are vital for these areas.
Enterprise Financial CDE has invested significant amounts of its NMTC awards in the past to two rural Kansas projects in Pittsburg and Atchison. First, Block22 is a unique learning community in Pittsburg that is centered on students and young businesses, and their entrepreneurial success. It encourages professional ventures, particularly for students of nearby Pittsburg State University. According to Kepple, Block22 has been largely successful in creating numerous opportunities for these students, young businesses, and the community as a whole. Since Block22’s initial construction, more developments are being seen downtown, made possible in part due to NMTCs.
Also inspiring is the revitalization of the Atchison YMCA. According to Kepple, before the renovations, the YMCA building had not been updated since its completion over 100 years ago. The building did not even have central air conditioning until its rehabilitation. For over two years, the community raised funds through pledged donations but still did not have enough. As the much-needed fairy godmother, Enterprise Financial CDE provided the necessary funds through NMTC awards to complete the YMCA’s revitalization. Construction came to an end in December, and the center serves more than 6,000 children, families, and individuals.
With its expanded space, renovated swimming pool, new gym and wellness center, and more, Atchison YMCA “represents the sole source of community development and family recreation. It is also a cornerstone in helping improve residents’ health and wellness,” according to the YMCA. Obesity is common in this area, as it is in many rural communities, and this YMCA offers a promising place for residents to begin remedying this issue. This would not have been possible without the help of the NMTC award provided by Enterprise Financial CDE.
However, revitalization through NMTCs can be challenging in rural communities because the majority of projects are the first to do so through the program. There is a lack of interest to be the first to invest in projects in most rural towns, but “NMTC paves the way to attract more private instruments to steer away from reliance on public municipalities,” Kepple says. This, in turn, increases local revenue to support its community in the long haul. While overcoming these obstacles can be difficult, there are extreme rewards once they’ve done so. What Kepple believes to be the best part of these NMTC successes is watching the communities grow by working together—observing “what an area was and seeing what it can be.”
These are only a couple of examples that illustrate the importance of the NMTC program, especially for rural communities. Now that the CDFI Fund has awarded another $3.5 billion to low-income and rural communities, we can expect to see even more positive results. According to the CDFI Fund, 70% of NMTC investment proceeds will likely be used for operating businesses in low-income communities, whereas the other 30% will likely be used for real estate projects in these areas. More specifically, approximately $680.5 million will be used to finance and support projects in rural areas. Rural areas have been a focus of the NMTC program in the last few years. This will be extremely advantageous to the people of these communities and our nation’s overall well-being. The economic growth this will promote can initiate a chain reaction that will likely benefit even more areas, not just rural. And who doesn’t want a slice of that lucrative pie?
Another $3.5 billion will be awarded for the calendar year 2018. How and where these funds will be allocated remains to be seen. The CDFI Fund recently opened the NMTC allocation round for 2018 on May 9. The deadline to submit an application is June 28,, and the allocation awards will be announced in winter 2019. Low-income and rural communities must once again hold their breath, but this time, they can rest easily knowing that the results will continue to be promising.
Georgia Coffman is an affordable housing content strategist at the Gill Group, and Cash Gill is a principal at the Gill Group. The company has worked with many of the largest developers, management companies, syndicators, and lenders. Its core services include appraisals, market feasibility studies, and rent comparability studies.