Underserved communities across the United States and its territories face a persistent paradox: they possess significant potential for economic growth and development, yet they consistently struggle to attract the capital necessary to realize that potential. Traditional financing mechanisms often fail to support these communities, as lenders and investors perceive them as too risky or insufficiently profitable, despite genuine opportunities for both financial returns and social impact. The New Markets Tax Credit (NMTC) program was created specifically to address this market failure, providing powerful financial incentives that invest in economically attractive underserved communities while catalyzing development that transforms lives and neighborhoods.
Understanding Underserved Community Designation
The NMTC program defines underserved communities primarily through census tract qualification based on poverty rates and median family income levels. Census tracts are considered low-income if they have a poverty rate of 20% or higher, or a median family income at or below 80% of the area median. This geographic targeting ensures that NMTC benefits flow to areas with the greatest need, where residents face limited economic opportunity and where conventional capital markets underinvest.
Beyond these baseline criteria, the program recognizes additional forms of economic distress, including high unemployment rates, population loss and decline, pervasive poverty and blight, and limited access to essential services such as healthcare, education, and healthy food. Communities exhibiting multiple indicators of distress often qualify for additional consideration in New Markets Tax Credit allocations, as Community Development Entities (CDEs) seek to demonstrate significant community impact in their applications to the CDFI Fund.
Understanding qualification is critical for communities seeking to access NMTC financing. Local economic development officials, community organizations, and project sponsors should familiarize themselves with census tract data for their areas, identifying which neighborhoods qualify and what specific distress indicators exist. This knowledge enables strategic targeting of NMTC investments where they can achieve the most significant impact while meeting program requirements.
The Barriers Facing Underserved Communities
To effectively unlock tax credits for underserved communities, stakeholders must understand the systemic barriers that create and perpetuate economic disadvantage. These barriers are not simply matters of individual circumstances but reflect structural inequities embedded in monetary and financial systems. Historical discrimination in housing, lending, and public investment has created geographic concentrations of poverty and disinvestment. Redlining and other racist policies excluded communities of color from homeownership and wealth building for generations, effects that persist today.
Contemporary barriers compound these historical injustices. Risk-based lending models systematically disfavor low-income areas regardless of actual project quality or sponsor capability. A higher perceived risk translates to higher interest rates or outright credit denial, rendering projects financially unfeasible. Limited collateral and personal wealth among residents restrict entrepreneurship and business expansion. Inadequate infrastructure—from aging buildings and poor transportation to limited broadband access—increases operating costs and reduces competitiveness. These layered disadvantages create self-reinforcing cycles where lack of investment perpetuates conditions that discourage future investment.
Educational gaps, health disparities, and limited social capital further constrain economic opportunity in underserved communities. Residents may lack the credentials or networks necessary to secure employment in growing industries. Poor health reduces workforce participation and productivity. Weak institutions provide insufficient support for business development or community organizing. NMTC alone cannot address all these challenges, but it gives crucial capital that enables communities to begin breaking cycles of poverty and building foundations for sustained prosperity.
Strategic Pathways for Accessing NMTC Financing
Successfully accessing NMTC financing requires strategic planning and relationship building that often begins years before actual project funding. Communities should start by cultivating relationships with CDEs and CDFI funds that have geographic focus or mission alignment with their area. Different CDEs specialize in other regions, project types, and community development strategies. Identifying CDEs whose priorities match local conditions and opportunities increases the likelihood of securing financing when projects materialize.
Building a local project pipeline represents another critical strategy. CDEs need quality investment opportunities to deploy their allocation, creating demand for well-conceived projects in underserved areas. Communities that can present multiple viable opportunities become attractive partners for CDEs seeking to deploy capital efficiently. This requires capacity for project identification and predevelopment work, often through dedicated economic development staff, community development corporations, or local development intermediaries.
Documentation and data collection strengthen communities’ ability to access NMTC. CDEs and their investors conduct extensive due diligence on projects, requiring demographic data, market analysis, community support documentation, and detailed financial projections. Communities that maintain current economic and demographic information, conduct regular market assessments, and document community development priorities can respond quickly when funding opportunities arise, avoiding delays that might cause projects to lose momentum or financing windows to close.
Building Competitive Project Proposals
Projects seeking NMTC financing compete for a limited allocation in a program where demand consistently exceeds supply. Successful projects distinguish themselves through a clear demonstration of significant community impact, strong project economics and feasibility, experienced and credible sponsors, alignment with CDE’s mission and priorities, and realistic timelines and readiness to proceed. Communities and sponsors should invest time in developing proposals that comprehensively address these criteria.
Impact documentation proves particularly important for projects in underserved communities. CDEs must demonstrate to the CDFI Fund that their allocation generates meaningful benefits in qualifying areas. Projects should clearly articulate the jobs to be created, including details on wage levels and local hiring, as well as the services to be provided and the populations served. Additionally, they should outline neighborhood revitalization and catalytic effects, along with measurable outcomes that can be tracked and reported. Quantifying impact increases project competitiveness while providing accountability mechanisms that ensure benefits actually materialize.
Sector Opportunities in Underserved Communities
Specific sectors present significant opportunities for NMTC deployment in underserved communities, driven by apparent market gaps and substantial potential for community benefits. Healthcare facilities address critical service gaps in medically underserved areas while creating high-quality employment opportunities. Community health centers, dental clinics, behavioral health facilities, and specialized care centers, which are financed through NMTC, improve health outcomes by employing physicians, nurses, and support staff from local communities. These facilities often serve as economic anchors, stabilizing neighborhoods and attracting complementary development.
Educational and training facilities build human capital essential for long-term economic mobility. Charter schools in underserved neighborhoods provide quality educational alternatives. Early childhood education centers support working families while promoting child development and growth. Workforce training facilities prepare adults for employment in growing industries. These investments address root causes of economic disadvantage by expanding skills and credentials that enable residents to access better opportunities.
Manufacturing and industrial facilities create particularly valuable employment in many underserved communities. Production jobs often provide family-sustaining wages without requiring advanced degrees, making them accessible to workers with limited educational attainment. Manufacturing also generates demand for local suppliers and services, creating multiplier effects throughout local economies. Food processing, light manufacturing, and production of construction materials or clean energy components represent sectors where NMTC has successfully supported job creation in underserved areas.
Combining NMTC with Community Development Strategies
Tax credits have the most significant impact when integrated with comprehensive community development strategies, rather than being deployed as isolated interventions. This holistic approach recognizes that sustainable economic development requires addressing multiple dimensions of community wellbeing simultaneously. NMTC financing might support the physical infrastructure while complementary programs address workforce development, small business support, housing affordability, and social services. Working with experienced professionals in NMTC advisory services helps communities develop integrated strategies that maximize impact.
Many communities successfully combine NMTC with place-based initiatives, including Promise Zones, Choice Neighborhoods, or local comprehensive planning efforts. These frameworks provide structure for coordinating multiple funding sources and programs around shared goals. NMTC becomes one tool among many, deployed strategically where it adds most value within broader development plans. This integration requires strong local leadership and coordination capacity, but generates returns that exceed what fragmented, opportunistic approaches can achieve.
Addressing Displacement and Ensuring Equitable Outcomes
A critical challenge in unlocking tax credits for underserved communities involves ensuring that development benefits existing residents rather than displacing them. As neighborhoods improve through NMTC and other investments, property values may increase, leading to higher rents and property taxes that price low-income residents out. This gentrification dynamic can result in the perverse outcome where successful community development forces out the very people it intended to help.
Preventing displacement requires proactive strategies, including affordable housing preservation and development, community land trusts that remove housing from speculative markets, anti-displacement policies such as rent stabilization or property tax relief for long-term residents, and local hiring commitments that ensure residents benefit from new employment opportunities. Communities should demand these protections as conditions for supporting NMTC projects, recognizing that development without equity perpetuates rather than reduces inequality. Successful examples from NMTC projects demonstrate that equitable development is achievable when pursued intentionally.
Community Ownership and Wealth Building
The most transformative approach to ensuring equitable outcomes involves structuring NMTC investments to build community ownership and wealth. When financing supports community development corporations, worker cooperatives, or community-controlled businesses, economic benefits remain within communities rather than being extracted to distant investors. Residents gain not just employment but ownership stakes that build wealth and financial security. Decision-making power stays local, ensuring development serves community priorities rather than external interests.
This wealth-building approach requires different capital structures and investor expectations than conventional development. Projects may generate competitive but not maximized returns, prioritizing community benefit alongside financial performance. Patient capital willing to accept longer timelines and modest exits proves essential. CDEs committed to this model exist, but communities must intentionally seek them out and advocate for ownership-based structures that foster lasting prosperity.
Building Community Capacity for NMTC Access
Sustained success in accessing NMTC requires building local capacity to identify opportunities, develop projects, and navigate complex financing processes. Many underserved communities lack this capacity due to resource constraints and limited experience with sophisticated financial tools. Capacity building might include technical assistance for community organizations and local developers, training programs on NMTC mechanics and requirements, relationship building with CDEs and investors, and support for financial modeling and project underwriting.
This capacity development represents investment in long-term community economic development infrastructure rather than just individual projects. Communities with strong development capacity can proactively shape their financial futures rather than passively accepting whatever external actors propose. They can negotiate better terms and ensure accountability for community benefits. They can build on initial successes with subsequent projects that further development goals. This institutional strengthening may ultimately prove more valuable than any single NMTC project.
Overcoming Common Access Barriers
Communities seeking to unlock NMTC financing often encounter predictable obstacles that can be overcome with appropriate strategies. Limited awareness of the program and its potential can be addressed through education and outreach by economic development agencies, CDFIs, and community organizations. Lack of project pipeline requires proactive opportunity identification and developer recruitment. Insufficient predevelopment resources might be addressed through local revolving loan funds or foundation support for planning and feasibility work.
Community mistrust of development, rooted in past experiences of displacement or broken promises, requires transparent and authentic engagement that demonstrates a genuine commitment to community benefit. Sponsors and CDEs must invest time in relationship-building and accountability mechanisms that rebuild trust. This patience and cultural competency may determine whether communities embrace or resist development opportunities that could improve their circumstances.
Conclusion
Unlocking tax credits for underserved communities represents both an opportunity and an obligation—a chance to channel substantial private capital toward areas that need it most, and a responsibility to ensure that this capital serves community interests and fosters equitable prosperity. The NMTC program offers powerful financial tools, but realizing their full potential requires strategic planning, authentic community engagement, integration with broader development strategies, and a steadfast commitment to outcomes that benefit existing residents. Communities across the United States and its territories that approach NMTC with this comprehensive perspective can leverage the program to achieve transformative development that creates jobs, delivers essential services, builds wealth, and fundamentally improves quality of life for people who have waited too long for genuine economic opportunity. Those ready to explore NMTC opportunities should contact experienced advisors who can help translate community aspirations into fundable projects that deliver both financial returns and lasting community benefit.