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Impact of the Federal NMTC 2000 to 2012
In July 2014, the Community Development Financial Institution Fund (CDFI Fund) released a summary report and a downloadable database that includes each project on the use of the $31.1 billion raised by community development entities (CDEs) through the exchange of tax credits for a qualified equity investment in the CDE. The CDE uses these moneys to make qualified low income community investments (QLICIs) in qualified active low income community businesses (QALICBs).
1,731 QALICBs (45.0%) were Real Estate QALICBs, where the principal activity is the development or leasing of real estate. These QALICBs received $16,365,476,954 in NMTC investments (52.6%).
2,052 QALICBs (53.3%) were Non-Real Estate QALICBs, or operating businesses. These businesses received $14,047,522,137 in NMTC investments (45.1%).
- 66 QALICBs (1.7%) were the beneficiaries of loans or investments made by CDEs through other unrelated CDEs without allocations. These investments totaled $704,758,361 (2.3%).
The allocation process is highly competitive. In order for a CDE to achieve maximum points, many agree to invest in "severely distressed" communities, which are defined as having one of three characteristics: (i) poverty rates of 30 percent or greater, (ii) median family income at or below 60 percent of applicable area median income, or (iii) unemployment rates at least 1.5 times the national average.
2,799 (72.7%) of projects, in the amount of $22,850,568,764 (76.4%), were, at least partly, located in census tracts that met one of the three indicators of “severe distress.”
- 926 (24.1%) of projects, in the amount of $7,699,232,125 (24.7%), were, at least partly, located in census tracts that met all three indicators of “severe distress.”
For the latest allocation round for CY 2013, all 87 of the allocatees indicated that they would devote at least 75% of their investments to areas of higher distress.
Progress Report from the New Markets Tax Credit Coalition
The New Markets Tax Credit Coalition (NMTC Coalition) is a national membership organization that advocates on behalf of the NMTC Program. In order to provide a more detailed look at New Markets projects, the NMTC Coalition annually survey's all the CDE's that have received a previous tax credit coalition.
The most recent survey covered New Markets activity in 2013. The report includes information from the 64 CDEs who responded repenting $2.1 billion in QEIs and $4.9 billion in total project financing, which severed 280 businesses. One hundred percent of the investments were made in qualified low income communities. Further:
- 80% were made in severely distressed communities;
- 56% were made in communities with unemployment rates at least 1.5 times the national average;
- 54,643 jobs were created in 2013 including 25,268 full time jobs and 29,375 construction jobs; and
- $2.7 billion are reported to be in the pipeline for 2014.
Approximately 50% of the qualified equity dollars was raised through regulated financial institutions and 20% came from other private for-profit entities. In 2013, 93% of QEI was utilized in leveraged structures, which include multiple community development players. Of those CDEs that responded the 2013 survey, sourced of leveraged debt were as follows: 15.8% from a financial institution (separate from the NMTC investor), 10.7% from foundations, 37.8% from other private entities, 23.7% came from other sources including local governments, and 0.8% from venture capital funds,.
In general, capital was deployed by the reporting CDEs at a faster rate than required by federal law. In 2013, 62% if capital raised was deployed in less than one week and 69% was deployed within one month. Funds raised through the NMTC Program were primarily used to make loans and investments in businesses located in low income communities. Loans were offered under more flexible terms and generally at below market interest rates. More specifically:
- 55.1% of funds were made available at lower than standard debt service coverage ratios;
- 54.5% using nontraditional forms of collateral;
- 10.9% under more flexible borrower credit standards;
- 56.9% had longer than standard amortization periods;
- 70.4% had longer periods of interest only payments;
- 84.5% had lower than standard origination fees; and
- 97.7% had below market interest rates.
Based on the financial transactions of the businesses and organizations assisted by the CDEs who answered the survey, 23.2% of the businesses financed were manufacturing or industrial; 16.4% were health care facilities; and 13.9% were mixed use projects. More information on the 2014 survey covering 2013 program activity can be found on the NMTC Coalition website: http://nmtccoalition.org
Third Party - Independent Review
In 2013, the CDFI Fund contracted with The Urban Institute evaluate the first four years of the NMTC Program (2002-2006). This report is the first independent evaluation of the NMTC program requested by the CDFI Fund. More information and link to the report.