CDFI Fund Director Gives Details On NMTC Investments

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Tax Credit Advisor April, 2006: CDFI Fund Director Art Garcia has provided the first official breakdown of investments made as a result of New Markets Tax Credit (NMTC) allocations. Speaking before the National Housing & Rehabilitation Association’s (NH&RA) New Markets Tax Credit Symposium held last month in Miami Beach, Fla., he also provided data on how quickly these investments have been put to work.

The breakdown was based on preliminary information provided by Community Development Entities (CDEs) that have made Qualified Low-Income Community Investments (QLICI) during their 2003 and 2004 fiscal years. The information was collected by the CDFI Fund’s Community Investment Impact System (CIIS), an internet-based data collection system established in 2004.

Garcia said that a total of 50 allocatees, mostly from the CDFI Fund’s $2.5 billion First Round NMTC allocation announced in 2003, have invested $1.24 billion. He noted that the outlays were divided between $856 million in real estate investments and $302 million in business investments. The business investments were further broken down between $218 million in fixed debt invested in working capital and $84 million for construction or rehabilitation of facilities related to business.

The business investments have helped maintain 8,600 full-time jobs, and created 4,100 new jobs, Garcia said. In addition, 92 percent of the loans were made in areas of greater economic distress than minimally necessary, and 100 percent of the loans were made with better market terms than minimally necessary.

In order to minimally qualify for NMTC investments, projects must be located in census tracts with a poverty rate of 20 percent or greater or a median family income no more than 80 percent of area media family income. The CDFI Fund defines greater levels of distress than these minimal qualifications as: areas that have significantly higher poverty rates and lower median family incomes than the minimum; areas that have unemployment rates at least 1.5 times the national average; and/or areas that have been designated for economic development through other government programs such as Brownfields, Empowerment Zones, and Renewal Communities.

Investments including better-than-market terms feature at least one of the following features: equity and equity-equivalent terms and conditions; subordinated debt, below market interest rates, reduced origination fees, and higher than standard loan-to-value ratios.

Investments Meet Deadlines

In his remarks to NH&RA, Garcia reported that allocatees are making good progress in putting their NMTC allocations to work by specified deadlines. First Round allocatees must have issued and received cash from investors for at least 60 percent of their Qualified Equity Investments (QEIs) by September 2006, and Second Round Allocatees must have done so by September 2007. Garcia said that 44 of the 66 First Round allocatees have met the 60 percent goal, with 20 of those reaching 100 percent. Thirty of 63 Round Two allocatees have met the 60 percent mark, with 13 of those reaching 100 percent.

“One of the questions being asked by us of Congress is how fast these deals are being done,” he said. “These are impressive numbers that we can take up to anyone who will listen.”

In addition, Garcia provided some further details on the CDFI Fund’s plan to conduct an independent study of the NMTC program. He said that it hopes to soon have a contract signed with the firm chosen to conduct the study, perhaps as early as May or June.

“In the study, our goal is to look at how this can be a better program, and how can we tighten down the loose ends,” he said.

The CDFI Fund director also discussed the Fund’s decision to add $600 million in New Markets Tax Credits to the current allocation round, its fourth, after Congress passed legislation in December to authorize $1 billion in new NMTCs to help rebuild communities devastated by Hurricane Katrina. In a announcement early last month, the CDFI Fund said that no new applications will be accepted for the additional NMTCs: only those CDEs that have already applied under the Fourth Round will be eligible to contend for them.

Garcia said that the decision was based on the need to get funds out to Qualified Active Low-Income Community Businesses (QALICBs) as quickly as possible.