The federal government has created many tools for economic stimulus, but none that foster public-private partnerships as New Markets Tax Credits do. New Markets Tax Credits (“NMTC”) are distributed through a federal program that
generates funds for community and economic development projects. The subsidy may be used to support commercial, industrial and retail real estate projects, as well as business loans or equity investments, among others. It may also be used to subsidize the cost of providing technical assistance and financial counseling to qualifying commercial or industrial activities. The tax credits are available through a program established by Congress in
2000, and continued during the Bush administration. The program has strong bipartisan support and is expected to be reauthorized.
The program’s purpose is to encourage private investment in qualified low-income communities through federal income tax credits. A Low-Income Community is a census tract in which the median income is 80 percent of the area median, or in which 20 percent of the households have incomes below the poverty line. Since many brownfields sites are located in qualifying census tracts, NMTCs are emerging as a powerful new tool for brownfields redevelopment.
The legislation authorized tax credits equal to approximately 39 percent of a total of $15 billion
over a period of seven years. The program is administered by the Community Development Financial Institution Fund, within the U.S. Treasury Department (the “CDFI Fund”).
In order to use the credits, an applicant must create a Community Development Entity (“CDE”). The CDE must invest substantially all of its assets into eligible projects and activities. There is a safe harbor of 85 percent of gross assets, to meet the “substantially all” test. The CDFI Fund is raising the bar on this measurement through the competitive application process.
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