by Warren Kirshenbaum
The Community Development Financial Institutions Fund (“CDFI Fund”), a program of the U.S. Department of Treasury released its 2010 Performance and Accountability Report on January 18, 2011, providing key insight into economic revitalization in 2010. The CDFI Fund promotes economic revitalization and community development through investment in, and assistance to community development financial institutions.
The Performance and Accountability Report demonstrated a continued level of interest in investment into low-income communities and showed a substantial increase in rewarded tax credits over 2009. In 2010, the CDFI Fund, which administers the New Markets Tax Credit Program (“NMTC”) distributed all $26 billion in its authority in 495 separate awards.
The NMTC was created as part of the Community Renewal Tax Relief Act of 2000 to provide a tax credit to taxpayers who provide investments to businesses in low-income communities.
Specifically, the NMTC stimulates capital investment in low-income communities by providing tax credits against federal income taxes to taxpayers who make equity investments (referred to as “QEI’s” or “qualified equity investments”) into a designated community development entity (“CDE”). Substantially all of the investments made by the taxpayer must be used to benefit low income communities in order to receive the tax credit, and that determination is made by reference to census tracts. The Performance and Accountability Report of 2010 announced that the demand for the NMTC is increasing. In 2010 over two thousand applications were submitted, containing requests totaling $202.6 billion in tax credit allocation. Accordingly, only 27% of applicants were selected to receive the awards with the average tax credit allocation award being $52.5 million. The tax credit allocations are limited, so they are approved by a competitive application process. This process of approving tax credit allocation is set up so that the most qualified organizations receive first consideration.
This past year also saw another record for investments raised – in the first three quarters of 2010, $3.1 billion in qualified equity investments were raised, surpassing the $2.8 billion raised for all of 2009. Furthermore, tax credit recipients reported making $3.5 billion of loans and investments in Qualified Active Low Income Community Businesseses – 64% of which went into real estate businesses. Lastly, in 2010, recipients also reported making over $168 million in direct investments into other CDE’s, and providing $12 million in financial counseling and other services to 7,139 businesses in low-income communities.
The 2010 report announced by the CDFI Fund shows the growing demand for investment capital in low-income communities. In sum, since the program’s inception, there has been a total of $15.8 billion of cumulative investments made via the New Market Tax Credit Program. If you are interested in how to qualify for these or any other potential tax credits, please call Warren today or fill out a Contact Us form.