2020 NMTC Allocation ...

2020 NMTC Allocation Awards Announced

September 1, 2021 | by Butler Snow

Today, the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) awarded 100 Community Development Entities (CDEs) $5 billion in New Markets Tax Credit (NMTC) allocation authority.  The allocation awards, made through the calendar year (CY) 2020 round of the NMTC Program, will help stimulate economic growth in low-income areas nationwide.  The 100 CDEs receiving CY 2020 awards were selected from a total of 208 applicants requesting an aggregate total of approximately $15.1 billion in NMTC allocation authority.  The awardees are headquartered in 34 different states and the District of Columbia.  The CDFI Fund estimates that these NMTC award recipients will provide more than $1 billion in NMTC investments in non-metropolitan areas.

Today’s announcement brings the total amount of allocation authority awarded through the NMTC program since inception to $66 billion.  Based on historical data, NMTC awards have generated over $8 of private investment for every $1 invested by the federal government.  As of the end of fiscal year 2020, NMTC program award recipients deployed more than $55.9 billion of investments in low-income businesses and communities, resulting in the retention or creation of almost 871,000 jobs and supporting the construction of 63 million square feet of manufacturing space, 69 million square feet of retail space and 98 million square feet of office space.

The NMTC program is designed to encourage capital investment in low-income areas that have traditionally had inadequate access to capital.  Established by Congress in 2000, the NMTC program permits institutional investors to receive a credit against federal income taxes for making equity investments in CDEs.  For every $1 invested into a CDE, a 39% tax credit is generated over a seven-year period.  CDEs that receive NMTC allocation authority use the capital raised to make investments in, or loans to, businesses located in low-income and marginalized communities.  The resulting subsidy to a project generated from the monetized NMTCs can amount to as much as 15% – 20% of the total project costs.

Although the NMTC is not a permanent part of the tax code, the program has been extended multiple times since inception.  The most recent extension came in December of 2020 when Congress extended the credit for five years at $5 billion in annual allocation authority.  The NMTC is currently set to expire on December 31, 2025, but the New Markets Tax Credit Extension Act of 2021 (H.R. 1321 and S. 456) would extend the program indefinitely and increase the allocation level.

The NMTC program has proven to be an effective means of rebuilding economically distressed communities, and new and rehabilitated projects are being developed throughout the country as a result of the NMTC program, including manufacturing facilities, healthcare and childcare facilities, community facilities, schools, mixed-use facilities and hotels.  Any developers that are considering constructing a new project or rehabilitating an existing project in a low-income area should consider pursuing NMTCs given the value available through the NMTC program.

For more information about New Market Tax Credits or Butler Snow’s Public Finance, Tax Incentives and Credit Markets group click here.