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IMPLAN Blog

A Look at Procuring New Markets Tax Credit (NMTC) Funding

April 20, 2018 by Sarah K. M. Gross

In the spirit of Tax Season ending this week, and the new tax year ahead, let’s revisit the topic of the New Markets Tax Credit (NMTC) Program. Across the country, low income communities lack much needed investment, funding, and care as is apparent by the state of disrepair many of them have fallen into. Enter the New Markets Tax Credit Program. As stated by the Community Development Financial Institution (CDFI Fund’s) website, “the New Markets Tax Credit Program (NMTC Program) aims to break [the] cycle of disinvestment” in low income communities “by attracting the private investment necessary to reinvigorate struggling local economies”. The NMTC Program is jointly administered by the CDFI Fund and the Internal Revenue Service (IRS). While many communities and initiatives attempt to secure this elusive funding, only few are granted it due to the rigorous process that must be undergone to qualify.


Qualifying for NMTC Allocation Can be Complicated

Those institutions which receive investments from the CDFI Fund reinvest in qualifying projects across the country to lift economically distressed census tracts. Qualified tracts are those in which the income is lower than 80% of the area median income (relative to the greater region whether state or metropolitan statistical area), or has a poverty level of 20 percent or greater. Because its federal funds are at stake, the allocation process for CDEs and other lending institutions which participate in the program is heavily regulated. So regulated, in fact, that since 2002 no more than 30% on average of the CDEs which apply for allocations received them. And of those allocations awarded, no more than 50% of developers or project managers who apply for funding have been approved since the program’s inception.

 

A Valuable Tool—Using Economic Impact Analysis to Bolster Your NMTC Application

Because this process is so rigorous, IMPLAN published a white paper last year detailing how conducting an economic impact analysis early in the stages of NMTC application can serve as a valuable tool for CDE’s in demonstrating how NMTC allocations would be spent and positively impact their communities. A report highlighting the projected path of the allocations can give a CDE an edge in securing New Markets Tax Credits. To conduct an analysis for such purposes, the CDE must provide the following:

  • The Region of Interest: What is the geographic region the analysis will examine? Consider selecting the county in which the census tract-of-interest is located, if not an even larger geography. While this is a larger area of study than where the projects will be directly concentrated, it will likely still be the best choice for a study.
  • The Project Cost: What is the cost or projected dollar spend that is pertinent to the project that is being modeled? The most important thing to consider when providing this information is which portions of a funded project qualify for NMTC allocations versus which portions do not.
  • Short- and Long-Term Spending: Refine and elaborate on the information provided in the NMTC Eligible Expenses Section. There are generally two broad categories into which any given effect can be classified (especially with development projects requiring any sort of construction phase): short-term and long-term. In order for the results of a CDE’s impact analysis to be as accurate as possible, it’ll want to consider which of the project’s (NMTC-eligible) expenses pertain to the construction phase and which pertain to the completed structure’s operations.

These three inputs are, at the highest level, what the CDE must provide before conducting an impact analysis. To get more in-depth information about these, what the analysis does with them, and how to interpret and shape what can be said with the results generated, download the white paper Secure New Markets Tax Credit Allocations (and Lots of Them) for Your CDE.

 

CDE’s Have Done This and Been Successful—Yours Can Too

So, have CDE’s have taken this approach and been successful? Yes. A great example of a CDE initiative that used economic impact analysis to successfully secure NMTC funding is the “12W” project. Named after the location of the resulting structure (SW 12th & Washington Avenues), the 12W project saw the development of a brand new mixed-use commercial office, retail, and residential facility in a recognized census tract west of Portland, Oregon’s central downtown district. Overseen by the United Fund Advisors (UFA), a CDE that invests in numerous development projects each year, the effort aimed to create 274 units of new affordably priced rental housing, provide 85,000 square feet of new office space, and to connect Portland’s Pearl District with the Central Business District. By performing an economic impact analysis, UFA was able to show the CDFI, down to the dollar, the exact amount that their allocations could stimulate and the industries the project might affect most greatly. To read more about how UFA accomplished this, read the case study, Great Buildings. Great Places: The Economic Benefits of an NMTC-Funded Development Effort.

Like Cheese? We will be continuing the NMTC discussion as this tax month comes to a close. Stay tuned for our newest case study detailing how a dairy manufacturer in Muscoda, Wisconsin took economic impact analysis and NMTC Funding to new heights by creating sustainable processes, educating and employing local workers, and greatly benefiting their community in the process.

 

Close the funding gap with economic impact analysis and tax incentives.

Topics: Data, Funding, New Market Tax Credit

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