The Maine New Markets Capital Investment Program was established in 2011 to encourage private investment in low-income communities which lack good-paying jobs and have high rates of poverty. The Maine new markets program is modeled on the federal new markets tax credit, which has helped to create over half a million jobs since 2001.
Both the federal and Maine new markets programs provide investors with a tax credit equal to 39% of the equity investment they make in a “community development entity” (“CDE”) which uses the proceeds of the equity investment to make loans to businesses located in low-income communities. The investors are typically large financial institutions, e.g., banks and insurance companies.
CDEs are entities certified by the U.S. Treasury Department and/or the Finance Authority of Maine, and given the ability to allocate tax credits to investors. The CDEs act as gatekeepers of the new markets programs, choosing projects/borrowers that will have the greatest positive community impact. Low-income communities are census tracts in which the poverty rate is greater than 20% or in which the median income is less than 80% of the statewide average.
Almost any type of business or non-profit can qualify for new markets tax credit financing provided it operates in a low-income community. Businesses that have received new markets tax credit financing include those in the forest products industries, manufacturing, and commercial real estate.
When the Legislature created the Maine new markets program, they hoped that it would draw additional federal new markets financing to the state because a project can qualify for both programs. Thus, an investor can receive a 78% tax credit (39% federal and 39% Maine) for making a qualified equity investment in Maine. Although, the program is in its early stages, that hope appears to be realized. CDEs are actively seeking out Maine-based businesses to receive new markets financing. If a business qualifies for new markets financing, the benefits are substantial, and include:
Interest rates substantially below market rate
The ability to subordinate new markets debt to other forms of traditional debt
The possibility of debt forgiveness of a significant portion of the debt at the end of a 7-year compliance period
For more information on the Maine New Markets Capital Investment Program, contact Kris Eimicke or a member of our State & Local Tax Group.