The U.S. Treasury Department's CDFI Fund's New Markets Tax Credit Program mission is to expand the availability of credit, investment capital, and financial services in distressed urban and rural communities. Specifically, the CDFI Fund's New Market Tax Credit Program was authorized by Congress to help attract private sector capital investment into urban and rural low-income areas to finance community development projects, stimulate economic opportunities and create jobs in areas with the greatest need.
The New Markets Tax Credit (NMTC) program, established by Congress in December 2000, gives individual and corporate taxpayers the opportunity to receive a credit against income taxes by investing in qualified investment entities. This program also allows NCIF to participate in large-scale projects that meet our triple bottom-line investment criteria.
Investors can earn attractive rates of return while meeting a community need, qualified businesses gain access to development funds at reasonable rates, and community development entities fulfill their mission by helping stimulate economic growth and job creation in specifically targeted lower-income communities. Projects must be in designated low-income areas (pre-qualified census tracts or specially-approved target areas).
The NMTC initiative is designed to mobilize up to $15 billion in development capital based on a direct federal income tax credit of 39 percent spread over seven years. The program is already proving to be a powerful tool that is helping underserved communities attract smart capital to good projects on favorable terms and is allowing investors to book new business with enhanced returns, while helping create greater opportunities for low-income communities.
The program is very flexible and allows the tax credits to be structured into a deal in a variety of ways to best meet the needs of the investors (banks and private equity), borrowers (project), and the NMTC allocatee, which in our case is Coastal Enterprises, Inc., an NCIF partner.
The tax credits, for instance, can be used to enhance an investor's Internal Rate of Return, provide a borrower with access to debt at a reduced interest rate (typically 1.00-3.00% below market), and/or repay equity investors with tax credits as opposed to actual cash. The financial success of a project depends on balancing all of the interests so that all needs are met.
The types of business investments eligible under the NMTC program are very broad, allowing virtually any real estate project or operating business. (Please note that there are some exceptions to this eligibility, such as insurance companies and others.) Projects can be undertaken by either for profit or nonprofit entities.
NCIF Partners to Offer New Markets Tax Credit Products
In 2008, NCIF established a formal working partnership with CEI Capital Management, LLC to provide access to New Markets Tax Credit-based loan funds in our four state service area. This partnership represents a unique opportunity to accelerate the development and implementation of triple bottom line projects in rural Appalachia and the Southeast. Read more>
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