Evaluations of the NMTC Model

Over the years the federal New Markets Tax Credit (NMTC) Program has been reviewed and evaluated by a number of sources including the Urban Institute, the Government Accounting Office, and Pacific Community Ventures.  As with any study, it is important to consider the questions being asked and the time period in which the report addresses.  On this page are summaries of several of these reports including studies by the:

The Urban Institute

The Urban Institute was asked by the CDFI Fund to evaluate the first four years of the program (2002-2006).  This 2013 report is the first independent evaluation of the NMTC program requested by the CDFI Fund.

New Markets Tax Credit (NMTC) Program Evaluation:  Final Report [The Urban Institute 2013]

"In its early years, the NMTC program operated as intended—encouraging investments in low-income areas for a diverse range of community- and economic-development projects associated with varying results. The most prevalent results were provision of advantageous financing, real estate development in low-income areas, additions to local tax bases, and job creation or retention.  NMTC projects also added to or expanded community amenities, services, and facilities and supported small businesses and organizations."

"The most prevalent result consisted of provision of advantageous financing: The vast majority of QALICBs (93%) either could not otherwise have obtained financing or, compared with other available financing, received better rates and terms in conjunction with NMTCs.  The second most prevalent result involved real estate development: 84% of projects constructed or rehabilitated either residential or commercial property in low-income neighborhoods.  The third most prevalent result consisted of additions to the local tax base: 77% of projects increased payroll, property, sales, corporate, or other taxes to the benefit of the local community. The fourth most prevalent result involved employment: 71% of projects created or retained at least one new permanent job. Using a different employment metric, 60% of projects saw an increase in their employment levels of more than 33% compared with pre-NMTC levels, due to jobs created or retained as result of their respective NMTC projects."

Further Research Recommendations:

  1. Possible upgrades to the CDFI monitoring and tracking systems.  Future research using the CIIS data will determine whether the latest changes have addressed earlier shortcomings.
  2. More detailed studies in localities that have a concentration of NMTC projects and/or are part of larger redevelopment initiatives.
  3. More detailed studies of jobs to refine and improve measures, develop industry benchmarks by types of projects, undertake area-wide and community outcomes to better define them and understand benefits.
  4. Longer-term trend analysis over the full NMTC period since 2002, to understand better project evolution—especially with respect to targeting and substitution.
  5. Follow-up studies of longer-term project outcomes and the sustainability of NMTC investments.

Government Accounting Office

Federal law requires the GAO to periodically review the federal NMTC Program.  Statute specifically calls of an audit and report of the program and the community development entities that have received tax credit allocations not later than January 1, 2004, 2007, and 2010.  In 2012, U.S. Senator Below is a summary of each report, recommendations, and link to the full report.

New Markets Tax Credit Program:  Progress Made in Implementation, but Further Actions Needed to Monitor Compliance [GAO-04-326: Published: Jan 30, 2004. Publicly Released: Jan 30, 2004.]

"The Community Renewal Tax Relief Act of 2000 authorized up to $15 billion under the NMTC program to stimulate capital investment in low-income and economically distressed communities. The act mandated that GAO report to Congress on the NMTC program by January 31, 2004, 2007, and 2010. Based on consultation with staff at appropriate congressional committees, this report (1) describes the status of the NMTC program, (2) profiles community development entities (CDE) that were selected to receive NMTC allocations in 2003, and (3) determines whether systems are in place or planned to ensure compliance and evaluate the success of the NMTC program.

Although Congress authorized the NMTC program to provide credit against federal taxes for billions of dollars starting in 2001 to spur investments in community development projects, CDFI Fund officials said that it is unlikely that many projects had started by the end of 2003 and that they will not know the status of projects for all CDEs until early 2005. Progress was made in developing data systems, selection processes, and program rules, but allocations were delayed because of the various start-up tasks associated with a new program, especially in establishing the rules on using the allocated credits.

CDEs that received NMTC allocations (allocatees) proposed projects to serve urban, rural, and mixed areas, as well as local, state, multiple-local, multistate, and national areas. The distribution of state and local allocations was not concentrated in any one state or in a few states. All allocatees reported at least some prior experience in low-income communities, particularly in providing capital to low-income communities. The CDFI Fund and IRS have identified data with which to monitor compliance with allocation agreements and tax laws, and are developing systems to collect the data. However, many details remain to be settled on how the data will actually be used to monitor compliance. Agency officials believe they have time to devise their compliance monitoring processes. However, they do not have schedules or documented plans for insuring that compliance monitoring processes will be in place when needed, and they have other tasks to complete. In terms of evaluating the NMTC program, the CDFI Fund intends to contract for an evaluation, and officials believe they are collecting significant amounts of data that will be useful for the evaluation and that CDEs will maintain additional relevant data."


The CDFI Fund and IRS should develop plans, including milestones, for designing and implementing compliance monitoring processes for the NMTC program.  (done)

New Markets Tax Credit Appears to Increase Investment by Investors in Low-Income Communities, but Opportunities Exist to Better Monitor Compliance [GAO-07-296: Published: Jan 31, 2007. Publicly Released: Jan 31, 2007]

"This report (1) describes the status of the NMTC program, (2) profiles NMTC program participants, (3) assesses the credit's effectiveness in attracting investment by participating investors, and (4) assesses IRS and the CDFI Fund compliance monitoring efforts. To conduct the analysis, GAO surveyed NMTC investors, conducted statistical analysis, and interviewed IRS and CDFI Fund officials.

As of January 2007, the CDFI Fund had awarded $12.1 billion of NMTC authority to 179 CDE. CDEs that received allocations began making NMTC investments in 2003, and the program has continued to grow since then. Investors use two main investment structures to make NMTC investments: direct investments to CDEs and tiered investments, which include equity investments and leveraged investments, where a portion of the investment amount originates from debt and a portion from equity. Banks and individuals constitute the largest proportion of NMTC investors, though banks and other corporations have made the largest share of NMTC investment. CDEs that received allocations applied for allocations in a competitive selection process and, through fiscal year 2005, most investment from CDEs to low-income communities had been used for either commercial real estate rehabilitation or new commercial real estate construction. The results of GAO's survey and statistical analysis indicate that the NMTC may be increasing investment in low-income communities by participating investors. Investors indicated that they have increased their investment budgets in low-income communities as a result of the credit, and GAO's analysis indicates that businesses may be shifting investment funds from other types of assets to invest in the NMTC, while individual investors may be using at least some new funds to invest in the NMTC. The CDFI Fund and IRS developed processes to monitor CDEs' compliance with their allocation agreements and the tax code. However, IRS's study of CDE compliance does not cover the full range of NMTC transactions, focusing instead on transactions that were readily available, and may not support the best decisions about enforcement in the future. Moreover, IRS and the CDFI Fund are not collecting data that would allow IRS to identify credit claimants and amounts to be claimed."


  1. Use CDFI Fund data and the results of NMTC compliance study to develop criteria for selecting which CDEs to audit as part of general monitoring efforts:  Done (2008)
  2. Identify cost effective methods for monitoring investor compliance including identification of NMTC claimants and the value of the qualifying equity investment each investor made:  IRS officials concluded that the potential benefits generated from developing a comprehensive system to track compliance for each NMTC transaction would likely be outweighed by the burden it would place on taxpayers and that existing processes should be adequate to ensure compliance. (2010)

New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in Low-Income Communities, but Could Be Simplified [GAO-10-334: Published: Jan 29, 2010. Publicly Released: Jan 29, 2010]

"This mandated report (1) describes where and how CDEs are using NMTCs, (2) assesses how CDEs use NMTCs to offer favorable financing terms to low-income community businesses and describes options for simplifying the NMTC, (3) describes how, if at all, NMTC investments support low-income community development, and (4) determines how effective IRS and the CDFI Fund have been in monitoring NMTC compliance. GAO analyzed CDFI Fund and CDE data, did case studies of CDEs, and interviewed relevant experts. Since 2003, CDEs have made NMTC investments in all 50 states, the District of Columbia, and Puerto Rico, with about 65% for real estate. NMTCs are often used as "gap financing," accounting for a portion of total project costs. NMTC investments in low-income community businesses generally use leveraged structures, where equity is left in the businesses, or subsidized interest rate structures, where below-market interest rate loans are offered. Recently, investors appear to be paying less for tax credits than in previous years and they made fewer NMTC investments in 2009 than in previous years. The CDFI Fund does not collect data that could identify the portion of the subsidy channeled to businesses, such as data on credit pricing, transaction fees, and the amount of equity left in businesses."


  1. Turn the tax credit program into a grant:  no action
  2. More effectively assess the outcomes generated by the NMTC program:  Established the Community Investment Impact System. (2012)
  3. Collect data on the failure rate of NMTC projects:  Implemented new reporting requirements related to project failure rates, status of loans, projects being refinanced, and the amount "charged-off" in cases where NMTC investments have been restructured. (2011 and 2012)

New Market Tax Credit:  Better Controls and Data Are Needed to Ensure Effectiveness
[GAO 14-500, published July 2014, publicly published August 11, 2014]

In the summer of 2014, the GAO issued a special report at the request of U.S. Senator Tom Coburn (R-OK) regarding the F-NMTC Program.  More specifically, the report was asked to assesses: "(1) the complexity and transparency of NMTC financial structures and controls over the size of federal subsidies; (2) what is known about the types and amounts of fees and other costs of the financial structures; (3) what is known about the equity remaining in low-income community businesses after the 7-year credit period; and (4) what is known about NMTC project failure rates. GAO reviewed Treasury NMTC data and surveyed CDEs that allocated credits to 305 projects in 2010-2012."


  1. Investments have become more complex and less transparent over time.  One reason is the practice of combining New Market Tax Credits (NMTCs) with other government assistance.  While the GAO agrees that this can help finance projects that would not otherwise be economically viable, it raises questions about whether some amount of these additional subsidies are unnecessary.
  2. The increasingly complex financial structures may also be masking investors' actual rates of return.  The GAO is concerned that the return on investment (ROI) may be above market and cite a 24% ROI reported by one investor.  The GAO reports that the IRS and U.S. Treasury have the authority, but have not updated guidance to reflect the inclusion of other government resources.
  3. GAO also recommends that the CDFI Fund collect additional data on fees and other charges collected by the CDEs.  Finally, the GAO report expresses concern over the lack and quality of data on equity remaining with the business in low-income areas and failure rates of NMTC projects.


The GAO recommended that the U.S. Treasury should issue further guidance to ensure:

  1. Appropriate means for combining the F-NMTC with other government programs; 
  2. Adequate controls to limit the risks of unnecessary duplication and above-market rates of return;
  3. That more complete and accurate data are collected on fees and costs, the equity remaining in the business after 7 years, and loan performance; and
  4. That the CDFI Fund issues instructions to clarify the reporting of loan performance and making the reporting of that data mandatory.

The U.S. Treasury agreed with GAO’s recommendations to improve data collection on loan performance and equity remaining with the low-income business.  The GAO also established a working group in response to the report to consider the other recommendations.

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