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New Markets Tax Credit Program
Overview
Created by the U.S. Federal Government in 2000 as part of the Community Renewal Tax Relief Act, the New Markets Tax Credit (NMTC) program encourages investment in low-income communities. Through the NMTC Program, real estate projects or businesses in a low-income community are able to generate capital by providing investors – typically a bank or financial institution – a tax credit as an additional incentive for capital investment.
The authority to determine how tax credits are allocated is granted to financial intermediaries called Community Development Entities (CDEs). CDEs have been certified by the Community Development Financial Institutions Fund (CDFI Fund) of the U.S. Department of the Treasury after completing a rigorous application process and demonstrating their commitment and history of investing capital into low-income communities. CSCDC is a certified CDE.
Certified CDEs compete annually to receive awards under the NMTC Program and the CDFI Fund typically designates 70-120 CDEs to receive a NMTC allocation each year. Once awarded, a CDE may sub-allocate NMTC allocation authority to qualified projects or businesses that are aligned with the objectives of the NMTC program.
In the last 20 years, the CDFI Fund has awarded $75 billion in tax credit authority to certified CDEs. CSCDC has been awarded $313 million in NMTC allocation since the inception of the program.
NMTC Potential Benefits
The net NMTC benefit that can be generated for a specific project is a function of several different factors including:
- Amount invested to receive the tax credits
- Fee structure of the various CDEs involved in the transaction
- Complexity of combining other cash financing sources leveraged through the NMTC transaction structure
- Transaction closing costs
A general rule of thumb is that NMTCs can generate net proceeds that are equal to almost 20% of the capital stack of a project financing. For example, if a CDE decided to sub-allocate $10 million to an individual project, it would result in a net benefit of approximately $2 million in subsidy for the project.
Qualifications
The NMTC program can be used to support commercial real estate projects and operating businesses that are located in qualified census tracts. Community facilities, charter schools and healthcare centers are examples of the types of projects that CSCDC is pursuing with its NMTC allocation. Residential rental housing (over 80% residential), and projects that include liquor stores, gambling facilities, country clubs and massage parlors are not eligible for the NMTC program.
For a project to qualify for CSCDC’s NMTC allocation, it needs to be located in a qualifying census tract (QCT) that is considered highly distressed under one of the following primary criteria:
- the poverty rate is above 30%
- the area median income is less than 60% of benchmarked median income, or
- the unemployment rate is at least 1.5x the national average
If the QCT does not meet the primary criteria, secondary criteria can be considered.
Demand for NMTCs is significant and there are far more qualifying projects seeking NMTC allocation than there is available allocation – with some estimates indicating demand at 10-12 times availability. When selecting projects, CDEs will consider projects that will be financially viable – they can raise the remaining 80-85% of capital through other sources – and they will create significant community impact in low-income communities. Such community impacts can include the:
- Creation and retention of permanent jobs
- Provision of essential goods and services (such as retail goods, child care, education, health care or other human and community services)
- Meeting of a community’s economic development goals
Finally, a project must demonstrate that NMTCs are essential for it to move forward, as CDEs are charged with providing NMTCs only to projects that could not proceed without this valuable taxpayer subsidy.
How it Works
How It Works
Leveraged NMTC Structure
The amount of NMTC allocation that a project can support is a function of the cash sources that a project has available to “leverage” through a NMTC structure. The diagram below helps illustrate the following example:
- A project’s cash sources (80-85% of the capital stack) are first directed (“leveraged”) into a project specific Investment Fund.
- An investor makes a NMTC equity investment into the Investment Fund. In exchange, the investor receives tax credits over the next 7 years.
- The Investment Fund uses the aggregated capital to make an equity investment in a subsidiary of the CDE (sub-CDE) that has received a sub-allocation of the parent CDE’s NMTC authority.
- The sub-CDE then lends all of the cash sources, less certain transaction fees, to a Qualified Active Low Income Community Business (QALICB).
Sources of leverage may include any type of cash proceeds such as debt or bridge loans from a bank, bond proceeds, grants from city/state/federal agencies, sponsor or private equity, capital campaign proceeds, or other charitable contributions.
CSCDC Projects
CSCDC Announces $9,250,000 New Markets Tax Credit Financing For Siskiyou County Economic Development Council
Closing Date: August 29, 2024
Financing will renovate and revitalize the historic Carnegie Library in Yreka, CA
CSCDC Announces $22,000,000 New Markets Tax Credit Financing For Ceres Community Project
Closing Date: August 22, 2024
Financing will support new Center for Food, Youth, and Community in Santa Rosa, CA
CSCDC Announces $9,500,000 New Markets Tax Credit Financing For Pit River Health Service
Closing Date: July 11, 2024
Financing will support expansion of health facilities in Burney, CA
CSCDC Announces $11,000,000 New Markets Tax Credit Financing For College of the Desert
Closing Date: March 5, 2024
Financing will support expansion of community college facilities in Indio, CA
CSCDC Announces $12,000,000 New Markets Tax Credit Financing For Farmworkers Institute of Education and Leadership Development
Closing Date: December 12, 2023
Financing will support development of an innovative education facility in Bakersfield, California
CSCDC Announces $11,000,000 New Markets Tax Credit Financing For AMPLA Health
Closing Date: May 4, 2023
Financing will support expansion of the nonprofit FQHC’s medical facility in Yuba City, California
CSCDC Announces $11,000,000 New Markets Tax Credit Financing For Shasta Community Health Center
Closing Date: Mar 28, 2023
Financing will support expansion of the nonprofit FQHC’s medical facility in Redding, California
CSCDC Announces $7,500,000 New Markets Tax Credit Financing For AMPLA Health
Closing Date: Mar 9, 2023
Financing will support expansion of the nonprofit FQHC’s medical facility in Marysville, California
CSCDC Announces $8,500,000 New Markets Tax Credit Financing For Fireclay Tile, Inc.
Closing Date: Oct 4, 2022
Financing will support expansion of Fireclay Tile’s manufacturing facility in Aromas, CA
CSCDC Announces $8,500,000 New Markets Tax Credit Financing For College of the Desert Child Development Center
Closing Date: Aug 31, 2022
Financing will support development of an innovative education facility in Indio, CA
CSCDC Announces $8,500,000 New Markets Tax Credit Financing For Renewal Center Campus
Closing Date: Mar 21, 2022
Expanded facility will provide comprehensive services for individuals experiencing homelessness in Chico, CA
CSCDC Announces $11,000,000 New Markets Tax Credit Financing For Elica Health Centers
Closing Date: Mar 16, 2022
Financing will support expansion of the nonprofit FQHC’s medical facility in Sacramento County
CSCDC Announces $11,000,000 New Markets Tax Credit Financing For Shasta College Community Leadership Center
Closing Date: Mar 14, 2022
New Markets Tax Credits will finance an innovative education facility in Redding, CA
CSCDC Announces $15,000,000 New Markets Tax Credit Financing For Jordan Downs Plaza
Closing Date: Jun 15, 2018
New Markets Tax Credits will finance a new retail shopping center in critically underserved Los Angeles neighborhood
CSCDC Announces $16,500,000 New Markets Tax Credit Financing For LifeLong Medical Care
Closing Date: Dec 20, 2017
New Markets Tax Credits will finance a new permanent primary healthcare center which will serve 19,000 additional patients per year
CSCDC Announces $11,070,000 New Markets Tax Credit Financing For Livingston Community Health
Closing Date: Sep 29, 2017
Critical financing will fund the nonprofit health center’s new primary medical care campus which will serve 4,000 additional patients per year
CSCDC Announces $13,430,000 New Markets Tax Credit Financing For Lao Family Community Development
Closing Date: Aug 31, 2017
Financing will support the nonprofit’s new headquarters and multi-service community facility
CSCDC Announces $14 Million New Markets Tax Credit Financing For L.A. Prep South
Closing Date: Aug 16, 2017
Financing will provide affordable food manufacturing facilities to small businesses in Los Angeles
CSCDC Announces $12 Million New Market Tax Credit Financing for Worthington Square Mixed Use Project
Closing Date: Apr 21, 2015
Financing will support the construction of affordable housing, commercial and community facility space
CSCDC Announces $7 Million New Market Tax Credit Financing for Northern California Indian Development Council
Closing Date: Dec 30, 2014
Financing will fund improvements to preserve and revitalize historic building in Eureka
CSCDC Announces $8.5 Million New Markets Tax Credit Financing For Open Door Community Health Centers
Closing Date: Nov 10, 2014
Financing will support plans for the purchase and construction of new health clinics to expand healthcare services to underserved populations
CSCDC Announces $10.5 Million New Markets Tax Credit Financing For Big Brothers Big Sisters of Orange County
Closing Date: Oct 01, 2014
Plans for purchase and renovation of a new headquarters will expand services to more than 10,000 children in the next 5-10 years
CSCDC Announces $10 Million New Markets Tax Credit Financing For Farm of the Future
Closing Date: Dec 18, 2013
West Hills Community College District to offer agricultural job training for students and access to healthy foods for low-income families through its new Farm of the Future campus.
Shasta Community Health Center Receives $9 Million in New Markets Tax Credit Financing
Closing Date: Dec 05, 2013
Deeply subsidized NMTC financing to fund expansion project for nonprofit medical center in Redding — enabling facility to provide services to an additional 20,000 patients annually.
CSCDC Announces $6 Million New Markets Tax Credit Financing for Alliance College-Ready Public Schools
Closing Date: Dec 05, 2013
Plans for a high impact middle school become reality in East Los Angeles. NMTC subsidy will finance a charter school that will accommodate 450 students.
CSCDC Announces $10 Million New Markets Tax Credit Financing for Swan’s Marketplace in Oakland
Closing Date: Oct 31, 2013
Swan’s Marketplace in Downtown Oakland will receive deeply subsidized NMTC financing to carry out capital improvements and refinance existing high cost debt.1
About CSCDC
The California Statewide Communities Development Corporation (CSCDC) was created as an affiliate community development entity by the California Statewide Communities Development Authority (CSCDA) to facilitate investment in low income communities through the use of New Markets Tax Credits. The NMTC program, passed by Congress in 2000, encourages investments in low-income communities by providing a tax incentive for community development lenders and the capital markets to invest in communities that historically have had poor access to capital.
CSCDA is the joint powers authority conduit bond issuer created in 1988 by the League of California Cities and California State Association of Counties and is comprised of over 530 cities, counties and special districts throughout the state. CSCDA’s mission is to provide local governments and private entities access to low-cost, tax-exempt financing for projects that provide a tangible public benefit, contribute to social and economic growth and improve the overall quality of life in local communities throughout California.
CSCDC has been awarded $313 million in NMTC allocation since 2013.
