New Markets Tax Cred ...

New Markets Tax Credit Program Once Again Extended, Spurring Continued Economic Growth

April 27, 2021 | by Julia Fendler Denzl

The New Markets Tax Credit (NMTC) program is a shining light for struggling communities, spurring economic development and producing job growth in low-income communities, many of which are areas that have been hit the hardest during the COVID-19 pandemic. Established by the Community Renewal and Tax Relief Act of 2000, the program has been extended several times since its establishment, with the longest extension in its history effective Dec. 27, 2020 through the Consolidated Appropriations Act. This act included a five-year, $25 billion extension of the NMTC program as defined by section 45D of the Internal Revenue Code.

The Credit has proven to be an extremely effective tool in spurring economic development in low-income communities since its inception. This is not a new development for this program, but it is one that makes the NMTC very relevant at this time in history and in our current economic climate. Low-income communities have been hit especially hard by the COVID-19 pandemic – unemployment is higher, poverty rates are increasing, businesses have shuttered at a greater rate, all in areas already experiencing economic struggles. However, the New Markets Tax Credit can help. When a borrower in a low-income community is able to effectively utilize NMTCs to finance or refinance a project, a ripple effect begins that ultimately leads to increased investment and revitalization throughout the surrounding areas and generally leads to a subsidy of 18-25% benefit to the project. By its very foundation, the Credit exists to aid economic communities and bring private investment into areas that need it most.

According to a recent release by the U.S. Bureau of Labor Statistics, 9.8% of U.S. households had at least one member unemployed in 2020 – twice the number found in 2019.[i]  To give a little bit of perspective on the power of the NMTC with regard to job creation, according to the CDFI Fund, the division of the U.S. Treasury that administers the program, more than 830,000 jobs have been “created or retained” as a result of the NMTC program since 2003.[ii]  The Act will only add to this total as more projects lead to more job creation that ultimately results in numerous permanent and construction jobs.

The New Markets Tax Credit Coalition estimates that the five-year extension will create approximately 590,000 jobs, and those numbers only reflect numbers from projects directly financed by NMTCs.[iii]  The aforementioned job numbers do not take into account the follow-on ripple effect that is one of the most remarkable aspects of the Credit.  In essence, once a project in a low-income community is put into service, the area around it is likely to begin to experience positive changes.  Employees of the NMTC financed project, many of whom live in the same community in which the project has been completed, now have income that they can spend back into the local economy, thus leading to a revival of the surrounding area.

While there can be little doubt as to the ability of the NMTC to create and retain jobs in economically distressed areas, the Credit is also a valuable tool in rejuvenating areas that have become empty and blighted, much of which has increasingly occurred as a result of the Pandemic.  The great migration of workers from office to home has led to numerous shuttered offices, as well as businesses that depend on those offices, and the employees who work within them, to survive.  The long-term ramifications of such migration are not yet known, however, in the short term, many cities are faced with an abundance of empty and distressed properties. The day of reckoning for commercial real estate properties is likely on the not-so-distant horizon.  The NMTC can be used effectively here, too, however, to assuage some of the blight with projects offering new goods and services, and it can be used to finance a multitude of things.  From childcare and community facilities to hospitals and addiction treatment centers to manufacturing and retail, even hospitality projects, a sector that has been hit especially hard, can benefit from the NMTC.  It is important to note the NMTC cannot be used for businesses or facilities featuring gaming, massage parlors, suntan or hot tub facilities, country clubs, any store whose principal purpose is the sale of alcoholic beverages (for offsite consumption) or farming.  The NMTC also cannot be utilized to finance residential rental property.

Too, the NMTC is a more achievable financing option for borrowers with projects in low-income communities that struggle to complete their capital stack with conventional financing.  The Credit can, and habitually does, step in as a substitute for mezzanine debt.  In addition to acting as a gap filler, the loans to NMTC Borrowers, known as qualified low-income community investments or “QLICIs,” offer flexible terms and almost always have substantially lower interest rates than conventional financing (usually around 1%) and a 7-year interest only payment period.   Over the course of the program, 91.92% of all QLICIs were made with below market interest rates.[iv]  Other non-traditional terms offered included: origination fees and debt service coverage ratios lower than conventional financing, non-traditional collateral packages, and lengthier periods of financing that are interest only than conventional loans.  All of these things make the financing much more attractive and attainable to borrowers with projects in low income communities than going through conventional means.

The NMTC is a 39% tax credit, however, unlike most incentives, the tax credit benefit does not flow directly to the project borrower.  NMTCs are awarded to conduit entities called community development entities or “CDEs”.  CDEs submit applications for allocations of tax credits to the CDFI Fund annually and the CDFI Fund then awards an allocation of credits to chosen CDEs.  The process is extremely competitive.  Once a CDE has received an allocation of NMTCs, they choose projects in low-income communities located in qualified census tracts in which to make capital infusions.  NMTC Borrowers, or QALICBs[v] can be real estate or operating businesses. Once a CDE is identified for a particular project, a tax credit investor makes a capital infusion into the CDE.  NMTC investors are typically large corporations, most often one of the larger banks. The investor is able to claim the tax credit against their federal tax liability.[vi]

Eligibility for an NMTC project is based on qualified census tracts (“QCTs”), of which approximately 43% of all U.S. census tracts qualify.[vii]  QCTs use census data to determine whether an address is eligible for NMTCs.  A QCT either suffers from a poverty rate greater than 20% or an income at or below 80% of the area median income.[viii]  Although all tracts meeting the aforementioned qualifications will be eligible, most CDEs choose projects that fall into areas of even higher distress known as severely distressed census tracts, which has the following characteristics:

  • The poverty rate is greater than 30%;
  • Median family income is at or below 60% of the median family income;
  • The unemployment rate in the census tract is at least 1.5 times the national average;
  • The census tract is located in a qualified non-metropolitan county;
  • The project qualifies for targeted populations.[ix]

Through 2017, over 75% of NMTC investments had been made into areas classified as severely distressed.[x]

The NMTC is currently set to expire on December 31, 2025, but in a renewed effort to make the NMTC permanent, Reps. Sewell and Reed recently introduced The New Markets Tax Credit Extension Act of 2021(H.R. 1321) in the House[xi] and Sens. Blunt and Cardin introduced legislation in the Senate (S. 456)[xii].

The NMTC has created approximately $8 in private investment in low-income communities for every $1 of federal funding,[xiii] including directly financing over 5,400 businesses. There is no doubt that the utilization of the New Markets Tax Credit in low income communities is a critical tool to have in our toolbox as we emerge from the pandemic and one that all public finance attorneys should consider when advising clients on various projects. With the dire economic numbers that the U.S. is facing as the COVID-19 crisis continues, the NMTC is an example of a powerful economic tool that can be utilized to stimulate the economy in low-income communities and help lead the U.S. through the recovery period and beyond.

[i] U.S. Bureau of Labor and Statistics (April 21, 2021). Employment Characteristics of Families Summary.

[ii] Community Development Financial Institutions Fund. New Markets Tax Credit Program. Retrieved from

[iii] Rapoza, B (March 24, 2021). Possibility of Permanent Extension of New Markets Tax Credit Offers Great Opportunities.

[iv] Community Development Financial Institutions Fund (2019) New Markets Tax Credit NMTC Public Data Release

[v] Qualified Active Low-Income Community Business.

[vi] The investor claims 5% for each of years 1-3 and 6% for years 4-7.

[vii] Tax Policy Center Urban Institute & Brookings Institution, What is the new markets tax credit, and how does it work? Retrieved from,billion%20(in%202020%20dollars).

[viii] The median family income is based on the percent of statewide median family income.

[ix] Targeted Populations, however, has largely fallen out of favor with CDEs in the last few years.


[xi] New Markets Tax Credit Extension Act of 2021, H.R. 1321, 117th Congress (2021-2022).

[xii] New Markets Tax Credit Extension Act of 2021, S.456, 117th Congress (2021-2022).