Country Credits

6 min read

NMTCs go rural 

The public perception of New Market Tax Credits (NMTC) is that they are a federal program meant to revitalize urban areas. The credits have been used by community development entities to obtain financing that restores the vacant storefronts and aging business infrastructure of America’s inner cities. But more recently, NMTCs have actually been repurposed to favor non-metro America, defined as the counties that don’t have a core urban area of over 50,000, and are considered by the federal government to be “rural.”

This shift occurred in 2006, when Congress enacted The Tax Relief And Health Care Act, which amended NMTC to ensure that non-metro areas received a proportionate share by population percentage of the credit’s qualified low-income community investment. Since then, the spending share has actually swung to favor these remote areas, according to a 2017 document by the New Markets Tax Credit Coalition titled “New Markets Tax Credit: A Big Deal For Rural America.” It reports that in 2014, non-metro counties accounted for 27.3 percent of NMTC investment, despite rural communities making up only 19.3 percent of the U.S. population. Bob Rapoza, the spokesman for the NMTC coalition, said by phone that the figure has been 24 percent more recently.

This switch is not surprising, given that the purpose of NMTC is to provide financing not only in areas that are low-income, but also have trouble attracting traditional lenders. Rural America struggles with both problems.

According to U.S. Census Bureau data, the gap in poverty rates between metro and non-metro areas, while narrowing in recent decades, is still 2.9 percent – 14.3 percent in metros and 17.2 percent in non-metro areas. Rural businesses also have a tougher time than urban ones at getting financing. Traditionally, small towns and agricultural communities relied on community banks that had the advantage of local knowledge. But these banks have been declining in number for 30 years—to the tune of 300 per year on average—and this accelerated after the Dodd-Frank financial reform legislation, which inflicted greater regulatory compliance costs onto the industry.

Perhaps more crucially, rural America lacks a critical mass of population, and thus the ability to support complex modern needs. To name one example, rural America, according to that same NMTC report, has only ten percent of the nation’s physicians. NMTC financing is often designed to bolster businesses that support the core civic infrastructure of a municipality, so the credits specifically address this problem.

That said, NMTC projects take on a different complexion in big cities versus small towns, claimed Rapoza. The urban deals are generally larger, and go towards building high-density, mixed-use structures, as to take advantage of scarce land and high property values in cities. In a typical big-city NMTC scenario, “you would have a commercial facility on the first floor, which would be financed by the credit, and the upper floors of the building might be financed by LIHTC or market-rate housing.” NMTCs have also been used to build charter schools, an educational reform that first gained footing in larger metros. In rural communities, though, “you’ll see more manufacturing and industrial facilities,” alongside ones for timber, agriculture, health and social services.

Take Vermont, For Example
One state that’s been proactive about sticking NMTC-financed projects into remote areas—because it is almost completely rural anyway—is Vermont. A lengthy 2013 article by Timothy McQuiston, the editor of Vermont Business Magazine, detailed how NMTCs have been scattered throughout the state, from Franklin, Essex and Windham counties, all the way to Burlington, which is the state’s largest city, at a population of only 42,000.

In one case, the credit went to restore the Brooks House, a historic building in downtown Brattleboro that had been gutted by fire in 2010. NMTCs helped facilitate the financing from two local banks, Brattleboro Savings & Loan and Mascoma Savings Bank. In another case, Vermont Rural Ventures, which functions as a CDE operated by Housing Vermont, a nonprofit syndication and development company, provided the $34.5 million in NMTC financing to buy and then lease a new 800-ton hot press machine to WEIDMANN Electrical Technology. This helped WEIDMANN continue operating a paper mill, securing 260 jobs in the town of St. Johnsbury. Other examples include financing of a 39-acre campus for a youth services nonprofit in Johnson; an expanded facility for Commonwealth Dairy, which makes yogurt in Brattleboro; and a commercial facility in downtown Rutland that will be used by the Community College of Vermont. According to McQuiston, 70 percent of NMTC funds under Vermont Rural Ventures is being targeted to rural areas.

And Other Rural Communities
Vermont isn’t the only state, though, where NMTCs take on a rural orientation. An interactive project map on the NMTC Coalition’s website shows that they are scattered throughout America. The credits went to support Premium Peanut, a collective of peanut farmers in Georgia. In 2010, NMTC helped reopen what had been the last standing timber mill in Josephine County, OR, helping preserve a 92-year-old business hit by foreign competition. And in Jackson, MN, $14.4 million in NMTC financing helped AGCO, a large agricultural equipment manufacturer, expand its operations in a distressed community that was losing population.

Such profiles as these—in which NMTC finances blue-collar, resource-based industries in small towns—speaks to the federal government’s larger habit of subsidizing an aging and shrinking rural America. This area of the country has long received disproportionately greater subsidies for welfare, transportation and utilities. And this remains the case for a variety of economic development programs, too, which now includes NMTC. In the last progress report, concluded Rapoza, the Coalition found that $800 million in NMTC was funneled into rural areas. “That is larger than the rural development budget at the Agriculture Department.”

Again, this is not a surprising political outcome, given that rural America has greater economic needs, less of an ability to address them through population growth and greater per capita representation in federal and state legislatures. The beneficiaries are the companies and workers that have long driven small-town America.

Story Contacts:
Bob Rapoza
Spokesperson, New Markets Tax Credit Coalition