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CDFI awards $5 billion in New Markets Tax Credits
The Community Development Financial Institutions Fund of the U.S. Department of Treasury awarded 100 community development entities (CDEs) $5 billion in New Market Tax Credits (NMTC) earlier this month. The purpose of this tax credit program is to stimulate investment and create jobs in low-income urban and rural communities that would benefit from economic revitalization — especially amid the financial hardships caused by the COVID-19 pandemic.
Of the $5 billion allotted by the federal government for this program, approximately $2.7 billion will be invested in major urban areas, $1.1 billion will be invested in minor urban areas, and $1.1 will be invested in rural areas. In regard to the investment activities of these CDEs, approximately 78 percent of NMTC investment proceeds will be used toward supporting operating businesses, while the remaining 22 percent will be used to support real estate projects. Of the 100 CDEs that received NMTC awards, 45 will focus their investment activities in a national service area, 26 will focus on a multi-state service area, 13 will focus on a statewide service area, while 16 will focus on local markets such as a city or a county. These CDEs are located in 34 states and in Washington, D.C. The distribution of these CDEs can be seen in the map below:
Through the NMTC program, taxpayers can make investments in CDEs and receive non-refundable tax credit for federal income taxes. According to a press release from the U.S. Department of Treasury, NMTC program awards have historically generated $8 in private investment for every $1 in tax credit. The 100 CDEs that were selected provide loans and consulting services to businesses in low-income urban and rural communities. The tax credits cover 39 percent of the cost of investment for the investor and is claimed over a seven-year period. In turn, the CDEs use the capital generated from this to provide further investments into their target communities. Eligible examples of NMTCs for innovation include incubation or lab space in low-income areas and capitalizing a revolving loan fund.
More information on the NMTC program and the recipient CDEs can be found in the U.S. Department of Treasury press release.