The Community Development Financial Institutions (CDFI) Fund, a division of the US Department of Treasury, announced $5 billion in New Markets Tax Credit (NMTC) allocation authority on October 28, 2022.
The NMTC program is authorized through 2025, with $5 billion of allocation authority awarded annually to highly qualified Community Development Entities (CDEs), which in turn use that authority to catalyze investments in traditionally underserved communities throughout the United States.
The calendar-year 2021 NMTC awards are expected to spur investment and economic growth in low-income urban and rural communities across the nation. A total of 107 CDEs were awarded NMTC allocations ranging from $20 million to $60 million. The successful CDEs are headquartered in 35 different states and the District of Columbia.
In total, 199 CDEs applied for approximately $14.7 billion in allocation, demonstrating not only the competitive nature of the awards, but the demand for this valuable financing tool in these traditionally underserved communities.
All the successful awardees committed to providing at least 85% of their allocation to severely distressed communities and 17 awardees were designated as Rural CDEs, with a total of 51 CDEs committing to deploy approximately $994 million of allocation in rural communities.
History of the NMTC
The NMTC Program was established by Congress in 2000, aiming to spur investments in traditionally underserved, low-income communities. The 39% tax credit for investments in these communities incentivizes investors to help finance economic development projects that create jobs and provide services to low-income persons.
According to the CDFI Fund, “historically, low-income communities experience a lack of investment, as evidenced by vacant commercial properties, outdated manufacturing facilities, and inadequate access to education and health care service providers. The NMTC Program aims to break this cycle of disinvestment by attracting the private investment necessary to reinvigorate struggling local economies.”
Since the inception of the NMTC program, the CDFI Fund has awarded 18 rounds of allocation, totaling $71 billion in NMTC allocation authority. The CDFI Fund estimates the NMTC program has:
- Generated $8 of private investment for every dollar invested by the federal government
- Created or retained more than 336,000 permanent jobs
- Created over 600,000 construction jobs
- Supported the construction of more than 77 million square feet of manufacturing space, 118 million square feet of office space, and 77 million square feet of retail space
Community Development Entities
CDEs combine their allocation authority with investments from NMTC investors to provide low-interest loans to qualified for-profit and not-for-profit businesses located in or serving these low-income communities.
These loans provide critical capital to help projects fill financing gaps and catalyze change. The structure is normally unwound, and the loans are typically forgiven at the end of the seven-year compliance period, allowing the project to retain any remaining benefit from the investor’s initial equity contribution.
The annual NMTC allocation awards draw attention within the NMTC industry with CDEs looking for projects that can benefit from NMTC financing. Ask yourself the following questions to help determine if this powerful financing tool can help your organization realize its goals.
- Is your business (either for-profit or not-for profit) looking to expand or relocate?
- Is your business seeking to purchase equipment or in need of working capital?
- Is your Tribal government looking to expand services in your community?
We’re Here to Help
For more information on the NMTC allocation awards, reach out to your Moss Adams professional. You can also visit our Tax Planning for Businesses page.