NMTC Needs Extension
NEW MARKETS TAX CREDIT (NMTC) SUPPORTERS are keeping a close eye on the calendar—waiting to see if the program is extended and for the latest round of allocations.
Legislation needed to extend the program was introduced in 2011. However, the various bills had not been passed at press time as Congress languished in its budget discussions.
“The overall feeling is, yes, it will get done,” says Gary Perlow, a principal with the Reznick Group, at the end of November. “It’s a matter of when. The concern is if it doesn’t get done [in 2011], how much momentum does the program lose?”
Bills H.R. 2655 and S. 996 called for extending the program through 2016, with $5 billion in annual authority. In October, Rep. Brian Higgins (D-N.Y.) introduced H.R. 3224, which also called for extending NMTCs through 2016 but at $10 billion each year.
In these tough budget times, some in the industry think that a shorter-term bill of one or two years at $3.5 billion is more realistic.
The New Markets Tax Credit Coalition is closely watching to see what develops and continues to work on getting the program extended, according to Robert Rapoza, a lobbyist for the group.
The only chance for an extension to get approved before the end of 2011 was for it to piggyback on other legislation, say observers. Without that happening, efforts to extend the NMTC program will drag into this year, which leaves the status of the program unsettled.
The NMTC industry is also waiting in anticipation for the latest, and possibly final, allocation round. The Community Development Financial Institutions Fund (CDFIFund) is expected to award $3.5 billion in NMTC authority in February.
The allocatees will be selected from 314 applications that the CDFIFund received under the 2011 round, the largest number of applications it has received since 2002, the first year of funding. The applicants requested $26.7 billion in authority, more than seven times the available amount.
GALENA, ALASKA—New Markets Tax Credits (NMTCs) are helping make an assisted-living facility possible in this remote area.
Five Alaska Native tribes joined forces to develop the Yukon-Koyukuk Elder Assisted Living Facility (YKEALF), a move that allows seniors to remain in their community. The next nearest facility is an airplane ride away.
The team used a $2 million NMTC investment to fund critical solar panels and a wood-based heating system at the $7.8 million facility. The tax credits will also help the project purchase medical supplies and equipment.
Travois New Markets, which received a $30 million NMTC allocation in 2007 and an $80 million allocation in 2009 from the federal Community Development Financial Institutions Fund , and investor U.S. Bancorp Community Development Corp. provided the NMTC financing.
“The theme that runs through this is sustainability,” says Phil Glynn, vice president of economic development at Travois. First, the development features environmentally sustainable products and technology. Second, those features make the project financially feasible for the long term. And, finally, the development helps sustain the area’s families by allowing relatives to stay close together and elders connected to their community and culture.
In an area like this, high energy costs can kill a project, Glynn says. The solar panels and woodburning boiler system make sense in an area that has abundant wood and 24 hours of light in the summer.
By keeping energy costs low, the project is financially healthier, and rents can be kept lower for residents. The recently opened facility serves up to 11 elders and is also a community center.
Individually, the tribes did not have the resources to develop a project like this. However, working closely with Alaska Growth Capital, they were able to piece together the deal, including obtaining grant funds. They were then able to use the grants to leverage the NMTC piece into a long-term, lowinterest loan (1.3 percent interest rate for 30 years), Glynn says.
Glynn says the structure developed by YKEALF, Alaska Growth Capital, and Travois fits perfectly into Travois’ traditional deal structure. “Our company routinely uses soft debt sources together with tax credits—both NMTC and low-income housing tax credits— to finance housing for native people.
We believe deals structured this way have the lowest possible risk and highest possible community impact of any tax credit deals in America.”
How NMTCs work
The NMTC program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax return in exchange for making equity investments in community development entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years.
The CDEs then use the proceeds from the sale of these credits to make loans or investments with belowmarket terms to businesses operating in low-income communities. The loans have often been structured to have a longer period of payment or as subordinated debt to help make the deals work. CDEs have a mandate to provide their capital on more favorable terms to projects of higher risk and with more flexible features than the typical market will allow.
Travois New Markets, which is a CDE, has focused on deploying its NMTC allocations in Native American communities, including three projects in Alaska.
