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 $71 billion in tax credit authority to certified CDEs. CSCDC was awarded a $35 million NMTC allocation in 2013, a $38 million NMTC allocation in 2014, a $70 million NMTC allocation in 2016, a $55 million NMTC allocation in 2021, and another $55 million NMTC allocation in 2022.
Download CSCDC NMTC Project Intake Form
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.
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.
Closing Date: May 4, 2023
Financing will support expansion of the nonprofit FQHC’s medical facility in Yuba City, California
Closing Date: Mar 28, 2023
Financing will support expansion of the nonprofit FQHC’s medical facility in Redding, California
Closing Date: Mar 9, 2023
Financing will support expansion of the nonprofit FQHC’s medical facility in Marysville, California
Closing Date: Oct 4, 2022
Financing will support expansion of Fireclay Tile’s manufacturing facility in Aromas, CA
Closing Date: Aug 31, 2022
Financing will support development of an innovative education facility in Indio, CA
Closing Date: Mar 21, 2022
Expanded facility will provide comprehensive services for individuals experiencing homelessness in Chico, CA
Closing Date: Mar 16, 2022
Financing will support expansion of the nonprofit FQHC’s medical facility in Sacramento County
Closing Date: Mar 14, 2022
New Markets Tax Credits will finance an innovative education facility in Redding, CA
Closing Date: Jun 15, 2018
New Markets Tax Credits will finance a new retail shopping center in critically underserved Los Angeles neighborhood
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
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
Closing Date: Aug 31, 2017
Financing will support the nonprofit’s new headquarters and multi-service community facility
Closing Date: Aug 16, 2017
Financing will provide affordable food manufacturing facilities to small businesses in Los Angeles
Closing Date: Apr 21, 2015
Financing will support the construction of affordable housing, commercial and community facility space
Closing Date: Dec 30, 2014
Financing will fund improvements to preserve and revitalize historic building in Eureka
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
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
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.
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.
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.
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
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 was awarded a $35 million NMTC allocation in 2013, a $38 million NMTC allocation in 2014, a $70 million NMTC allocation in 2016, a $55 million NMTC allocation in 2021, and another $55 million NMTC allocation in 2022.