What are New Markets Tax Credits and how do they work?

The $85 billion New Markets Tax Credit (NMTC) program represents the largest federal investment in low-income communities over the last 40 years. It is designed to provide last-in gap financing for high-impact, catalytic projects in severely distressed communities that could not proceed without the NMTC subsidy. NMTCs provide 20%- 25% of project costs in very flexible financing that is typically forgiven at the end of a seven-year compliance period. In order to be eligible a project must be located in a Census Tract that has at least 20% poverty, or 80% or less of the area’s median family income. It should be noted that 75% of NMTC's are reserved for Census Tracts with 30% poverty or more or 60% or less of the median family income, and 20% are reserved for rural areas. The program is administered through private companies called Community Development Entities (CDEs) that compete annually for allocations of authority under the program. In order to be certified as a CDE, an entity must 1) have a stated primary mission of serving low-income communities, 2) be accountable to those communities through at least 20% representation on a Governing or Advisory Board by individuals who are “accountable” to the low-income community through involvement in economic development efforts, operating a business or living in the low-income area. Last year $5 billion in authority was awarded to 100 groups. CDEs are looking for projects with multiple positive community benefits, including 1) economic in terms of job creation, 2) social in terms of education, health and culture, and 3) environmental in terms of remediation of contaminated sites and environmentally friendly buildings.

What can New Markets Tax Credits be used for?

NMTCs can be used for almost any business, EXCEPT for residential rental housing, which already has the low-income housing tax credit, farms, and a list of “sin” businesses the program does not want to encourage in low-income communities such as race tracks, gambling facilities, massage parlors and liquor stores.

Are airports eligible for New Markets Tax Credits?

Airports can be eligible for markets tax credits; however, the recipient must be a corporation or partnership, not a governmental entity, which often applies to rural areas. For example, NMTCs helped to fund the expansion of an airport runway in Good News Bay, Alaska, which allowed the airport to accommodate large commercial aircraft to expand a thriving commercial fishing industry.

Are New Market Tax Credits transferable?

NMTCs are not directly transferable, however if they are owned by an entity the capital stock of that entity can be transferred, which would also transfer the tax credit benefits.

Can a “sin” business comply with new market tax credit?

It depends – ineligible businesses under NMTC regulations are defined as (i) operating a country club, golf course, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or liquor store, (ii) a business that develops, licenses or sells intangibles, or (iii) certain farming businesses with assets over $500,000, due to the fact that there are other federal programs to support farms.

Can data centers be eligible for New Markets Tax Credits?

Yes, if they are located in a low-income census tract, which is defined by having at least 20% poverty and less than 80% of the median family income for the area. 75% of NMTCs are reserved for areas of higher distress, with at least 30% poverty, and 60% or less than the median family income.

Can existing business apply for new market tax credit loan?

Yes. Existing businesses can apply for loans for operating purposes to include equipment and working capital, or to purchase real estate to expand facilities if they are located in an eligible low-income Census Tract.

Can office buildings receive New Markets Tax Credits?

Yes. Office buildings are an eligible project type, if they are located in an eligible low-income Census Tract.

Can you close on New Markets Tax Credits twice?

Yes. A single project can have multiple NMTC financings, which are sometimes broken up into tranches to match project phases.

Do new market tax credit investors require environmental insurance?

All projects require environmental review as part of the building permit process, but the NMTC program does not impose any environmental impact report requirements.

How do cities use New Markets Tax Credits?

Cities have been very successful in securing allocations of authority under the New Markets Tax Credit program through their Economic and Industrial Development Authorities, by forming a private entity (typically LLC) to become certified as a Community Development Entity (CDE) and applying for a direct allocation of NMTCs. CBO Financial has assisted municipalities secure NMTCs, including in Louisiana, Tennessee, and Puerto Rico.

How many New Market Tax Credit zones are there?

The minimum requirement for the NMTC program is that a project is located in a Census Tract with at least 20% poverty and less than 80% of the median family income for the area. 75% of NMTCs are reserved for areas that are “Severely Distressed,” with at least 30% poverty, and 60% or less than the median family income. In the U.S. (and territories) 43% of Census Tracts qualify at the minimum level, and 29% are Severely Distressed.

How do New Market Tax Credits leveraged funds work?

When the NMTC program was originally established by the U.S. Congress it was designed to incentivize investment in low-income communities by providing a 5% interest rate premium of the amount loaned in each of the first three years and then in extra 6% for the next four years during the seven-year compliance period. The thinking was that if investors receive a higher rate of return, they will be willing to take more risk and provide investment to low-income communities which often have difficulty attracting capital. In this scenario the NMTC investor/lender would have capital at risk and would thoroughly underwrite the credit quality of the transaction before making an investment, the NMTC program would simply provide a premium to the interest rate to allow the lender to take risks and make loans they would not otherwise make.

How to apply for New Market Tax Credits?

The NMTC program is administered by independent companies known as Community Development Entities (CDEs) that compete annually for authority under the program; there is currently $4 billion in unallocated credits on the market, with another $5B to be awarded annually through 2025, after which the program may be extended or become permanent. Eligibility for the program is based on location; the minimum requirement is that the Census Tract where a project is located must have at least a 20% poverty and/or median family income that is 80% or less than area income; however, 75% of NMTCs are typically reserved for “Severely Distressed” areas with higher poverty and lower income (>30% and <60% respectively), and 20% of credits are reserved for “Non-Metro” or rural areas. There are two ways to secure NMTCs: the first is to form a Community Development Entity (CDE) and apply to the U.S. Treasury Department for an allocation of authority under the program, which is appropriate for groups that have a pipeline of projects. The program is extremely competitive, and the applications are a major undertaking. Groups seeking NMTC subsidy for individual projects can reach out to CDEs that have NMTC allocations and appeal to them for funding. The process to attract NMTCs from CDEs is as follows: 1) Develop a comprehensive project plan & financing request package (FRP) 2) Secure commitment letters for debt financing (if needed) 3) Conduct request for proposals to potential NMTC equity investors, review proposals and select investor 4) Update the financing request package to include the above commitments 5) Identify all CDEs with allocation available and project site in their service area 6) Distribute to all potential CDEs 7) Follow up with each CDE recipient to secure term sheets 8) Coordinate documentation & funding

How to calculate New Markets Tax Credits?

The NMTC program pays an investor 5% of the amount of NMTCs in each of the first three years, and 5% in each of the next four years, for a total of 39%. The investor pays the net present value of this stream of dollar for dollar federal tax reduction, in the current market investors are paying approximately 76 cents per dollar of NMTC value to be received. For example, in a $10M transaction the investor would pay just under $3M for the $3.9M stream of tax credits to be received over the seven-year compliance period. The investor receives 100% of its return of principal and interest in the form of tax credits.

How to use New Markets Tax Credits?

NMTCs can be used for almost any type of project except for “sin” businesses the program does not want to encourage in low-income communities such as race tracks, gambling facilities, massage parlors and liquor stores. NMTCs are meant to provide last-in “gap” financing for projects that will help to revitalize low-income communities but cannot secure sufficient capital from conventional sources to proceed.

How to use New Markets Tax Credits for infrastructure projects?

While NMTCs technically can be used for infrastructure projects it is not common, in part due to the fact that the NMTC borrower must be a partnership or a corporation, municipalities are not eligible recipients.

Is an address qualified for New Markets Tax Credits?

Eligibility for NMTCs is based on the poverty level of the Census Tract in which the project is located. The Census Tract must have at least 20% poverty, or 80% or less of the area’s median family income; it should be noted that 75% of NMTC's are reserved for Census Tracts with 30% poverty or more or 60% or less of the median family income, and 20% are reserved for rural areas. Here are two online mapping tools that will allow you to enter an address to determine poverty levels and NMTC eligibility: • https://www.cohnreznick.com/nmtc-map • https://www.policymap.com/widget?sid=117&wkey=4D2AFE10710D41918F180775F0A353F2

What are New Market Tax Credits?

The $75 billion NMTC New Markets Tax Credit program is intended to spur investment in low-income communities that would not otherwise occur, by providing up to 25% of project costs in very flexible financing, which is typically forgiven at the end of a seven-year compliance period. The program is administered by independent companies known as Community Development Entities (CDEs) that compete annually for authority under the program; there is currently $4 billion in unallocated credits on the market, with another $5B to be awarded annually through 2025, at which point the program may be extended or go permanent. Eligibility for the program is based on location; the minimum requirement is that the Census Tract where a project is located must have at least a 20% poverty and/or median family income that is 80% or less than area income; however, 75% of NMTCs are typically reserved for “Severely Distressed” areas with higher poverty and lower income (>30% and <60% respectively), and 20% of credits are reserved for “Non-Metro” or rural areas.

What are New Markets Tax Credits projects?

A project is eligible if it is located in an eligible Census Tract with a minimum 20% poverty rate or 80% or less of the area’s median family income, or if it serves or employs a majority low-income persons, and can document it on an ongoing basis.

What happens after New Markets Tax Credits are distributed?

The NMTC Equity Investor claims 5% of the NMTCs on their annual federal tax return for the first three years, and 6% in each of the next four years of the seven-year compliance period.

What happens when New Markets Tax Credits are unwound?

There is a put/call agreement between the borrower and NMTC investor whereby at the end of the seven-year compliance period the investor can “put,” or transfer ownership of the Investment Fund to the borrower, which then allows the NMTC portion of the loan to be forgiven.

What is a New Markets Tax Credit loan?

In the NMTC structure a CDE makes a series of loans to the borrower; these loans are called Qualified Low-income Community Investments, or QLICIs.

When do New Markets Tax Credits expire?

The NMTC program is currently authorized to issue $5 billion in new allocation annually through 2025, at which time it may be extended or go permanent.

When to apply for New Markets Tax Credits?

CDEs accept applications year-round, for groups with a pipeline of projects that wish to apply directly to the US Treasury Department there is an annual application round, with roughly 60 days from release of a Notice of Allocation Availability to when applications must be submitted online.

Who buys New Markets Tax Credits?

NMTC Equity Investors are typically banks or other financial institutions. Individuals cannot get the full value of NMTCs due to not being exempt from the Alternative Minimum Tax.

Will New Markets Tax Credits be discontinued?

The program is currently authorized through 2025, at which time it should be extended or may go permanent.

Has CBO Financial ever a received NMTC award?

The U.S. Treasury Department has awarded CBO Financials’ subsidiary, Community Development Funding, LLC, with $150M in authority under the NMTC program in six separate awards, one of only a few dozen organizations in the country to have received six or more awards, including awards in the first (2003) and second rounds, meaning the CBO team has been deeply involved since the program’s inception. In addition, CBO has taken a leadership role in securing 18 additional direct NMTC allocations for clients totaling $405M and has placed $250M in transactions with CDEs for clients. CBO can serve as an access point to these programs, in part by developing and marketing a comprehensive Financing Request Package that highlights the positive economic, social and environmental impacts of the project being financed.

What is a Community Development Entity (CDE)?

In order to be eligible to apply for a direct allocation of NMTCs, an applicant must be certified as a “Community Development Entity” (CDE). - CDEs can be corporations or partnerships - CDEs must be for-profit entities (but can be a for-profit subsidiary of non-profit) - Certified CDEs can apply for an allocation of NMTCs - CDEs are required to demonstrate that they: -- Have a primary mission of serving, or providing investment capital for, LICs or Low-Income Persons -- Are accountable to residents of the LICs that they serve by having at 20% of the Governing or Advisory board populated by residents of, or people directly involved in providing services or capital to low-income communities.

Can NMTCs be combined with other federal or local government funding programs?

Yes, NMTCs can be combined with a wide variety of government funding programs, with the exception of the federal Low-income Housing Tax Credit program. For example, NMTCs can be combined with: – State-level NMTCs – EB- 5 financing – Renewable Energy Tax Credits – Historic Tax Credits – Film Tax Credits – Community Development Block Grants (CDBG) – Hazard Mitigation Grant Program (HMGP) – PACE energy loans – Opportunity Zones

Do individual states have NMTC programs?

Yes, some states have enacted NMTC programs to enhance the impact of federal NMTCs. The following states have enacted programs: • Alabama • Alaska • Arkansas • Florida • Georgia • Illinois • Kentucky • Louisiana • Maine • Mississippi • Nebraska • Nevada • Ohio • Utah

What are CDEs looking for in a project?

As part of the application process CDEs present their mission and service area, and a identify potential investments to serve as examples of the types of projects that they will fund if an allocation is awarded. For the most part CDEs are looking for: - Projects that are consistent with the CDE’s mission and geographic service area - Projects located in a “Severely Distressed” census tract - Leveraged debt investors in place - NMTC equity investor in place - Building permit ready - Substantial community impacts - Projects that can’t move forward without a NMTC subsidy (the “but-for”)

How can I get New Markets Tax Credits?

The first step is to determine if your project is NMTC eligible by going to a mapping tool like this one: https://www.cohnreznick.com/nmtc-map - Develop a comprehensive project plan & financing request package (FRP) - Secure other sources of financing including debt, equity, capital campaign donations, etc. - Conduct request for proposals to potential NMTC equity investors, review proposals and select investor - Update FRP to reflect other financing commitments - Identify all CDEs with allocation available and your project’s site in their service area - Distribute to all potential CDEs - Follow up to secure term sheets - Coordinate documentation & funding

What should a request package for New Markets Tax Credits include?

- Project Overview - Architectural renderings - Site/Location Overview - Project Sponsor Overview - NMTC Eligibility Analysis | Copy of CDFI Fund “Geocoder” report - CDE/Investor Intake Form - Financial Analysis | Project budget | NMTC – based Sources & Uses of Funds | Anticipated NMTC equity | NMTC based Cash Flow Forecast & Debt Service Coverage Analysis - Impacts – Social, Environmental and Economic - Program overview - Organization history, management etc. - Competition analysis - Summary - Appendices -- Commitments from NMTC investor and/or debt provider -- Three years of audited financial statements

How can I get certified as a Community Development Entity (CDE)?

In order to be eligible to apply for NMTCs a company must first become certified as a Community Development Entity. There are two primary requirements to becoming a certified CDE: 1) The entity must have a board-approved primary mission of serving low-income communities 2) The entity must demonstrate accountability to the targeted low-income communities by populating at least 20% of an Advisory or Governing board with individuals who live in or are otherwise engaged in those communities. The geographic scope of the “accountable” members of the Advisory or Governing Boards determines the CDE’s service area. For example, a CDE seeking a national service area would form a board with individuals who are engaged in providing services to low-income communities on a national basis, a smaller service area such as a state or county would form a board with people actively engaged on that level. Organizations certified as a CDFI by the CDFI Fund or designated as a Specialized Small Business Investment Company (SSBIC) by the Small Business Administration automatically qualify as CDEs. CDE certification applications are accepted on a rolling basis.

What is included in a New Markets Tax Credit Allocation Application?

The NMTC Allocation Application has five main sections: – Part I: Business Strategy (Exhibit A & Exhibit B) – Part II: Community Outcomes – Part III: Management Capacity (Exhibit C & Exhibit D) – Part IV: Capitalization Strategy (Exhibit E) – Part V: Information Regarding Previous Awards Applicants are also required to complete the Application Registration, Applicant Information, and Assurances/Certification sections.

American Samoa NMTC

New Markets Tax Credit Program for American Samoa

In order to be qualified to apply for American Samoa NMTCs a project must be found in a census area having at minimum a 20% poverty rate, or average family wages that is eighty-percent or less than the region reaching family income. Yet, it needs to be kept in mind that seventy-five percent of New Markets Tax Credits are saved for significantly affected localities that have 30% or higher impoverishment rate or 60% or less of the community's median family wages in American Samoa. It must be recorded that 75% of NMTC credits are withheld for significantly affected vicinities that have thirty percent or more hardship rate or 60% or lower than the location's median family wages in American Samoa.

Get a Free Project Analysis

New Markets Tax Credits supply a financier with a 39% tax credit paid over 7 years, at a rate of 5% in each of the very first 3 years and 6% over the next 4 years. The investor pays an affordable quantity up front for the stream of tax credits over the seven-year compliance duration; the financier typically gets return of both primary and interest in the type of tax credits, enabling the NMTC portion of the backing to be forgiven.

Additional Details in the context of American Samoa

Additional information about: New Market Tax Credits consulting

What is American Samoa neighborhood advancement?

City development in American Samoa is a course of action that intends to improve the quality of life in a American Samoa neighborhood by improving its social, economic, and ecological resources. A variety of organizations and programs work to support community advancement in American Samoa, consisting of federal governments, nonprofit companies, and businesses. Neighborhood development is frequently concentrated on enhancing the lifestyle for citizens in low-income and disadvantaged neighborhoods in American Samoa consisting of governments, nonprofit organizations, and companies.

Why is American Samoa community advancement important?

There are many methods for people in a community to get involved in community advancement. Another way to get included is to volunteer with regional organizations that work on neighborhood advancement jobs.

How can you get involved in American Samoa community advancement?

By talking to your neighbors, you can learn about their concerns and work together to discover options.

The Importance of Local Community Improvement

Metropolitan area leaders and area participants have to collaborate to determine and also attend to the obstacles facing their communities. This might consist of boosting public security, boosting access to high quality education and learning and budget-friendly real estate, creating jobs as well as financial chances, and promoting healthy way of livings.

The Harmful Impacts of Poverty-Stricken Neighborhoods in American Samoa

The social and also economic problems brought on by bad neighborhoods can be tough to address. Nevertheless, it is essential for cities to apply to improve these areas. This can be done by purchasing education and learning and employment programs, creating area hubs, as well as encouraging community pride.

The Good Outcomes of Improved Neighborhoods in American Samoa

On the other hand, inadequate neighborhoods have greater crime rates, even worse institutions, and less organizations. They additionally have more pollution and much less eco-friendly room. This makes it harder for every person in the city to be healthy.

Additional Insights Concerning American Samoa

American Samoa (Samoan: Amerika Sāmoa, [aˈmɛɾika ˈsaːmʊa]; likewise Amelika Sāmoa or Sāmoa Amelika) is an unincorporated area of the United States located in the South Pacific Ocean, southeast of the independent state ofSamoa. Its place is focused on 14 ° 18 ′ S 170 ° 42 ′ W/14.3 ° S 170.7 ° W/-14.3; -170.7. Itis east of the International Date Line,while Samoa is west of the Line. The overall land area is 199 square kilometers(76.8 sq mi ), somewhat more than Washington, D.C. American Samoa is the southernmost area of the United States and one of 2 U.S. territories south of the Equator, along with the uninhabited Jarvis Island. Tuna products are the primary exports, and the primary trading partner is the remainder of the United States. American Samoa consists of 5 primary islands and two coral atolls.

As of 2021, the population of American Samoa is roughly 46,366 people. American Samoa is kept in mind for having the highest rate of military enlistment of any U.S. state or territory. American Samoa is the just significant area of the United States in which citizenship is not given at birth, and people born there are thought about "non-citizen nationals".

American Samoa consists of five main islands and two coral atolls.

As of 2021, the population of American Samoa is approximately 46,366 individuals. American Samoa is kept in mind for having the highest rate of military enlistment of any U.S. state or area. American Samoa is the only significant territory of the United States in which citizenship is not approved at birth, and individuals born there are thought about "non-citizen nationals".

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Does Your American Samoa Project Qualify for Low-Cost Financing or New Markets Tax Credits?

Contact our American Samoa NMTC experts to evaluate how we can work together.