Remarks by Director Gambrell at the 2011 New Markets Tax Credit Coalition Annual Conference
Monday, December 5, 2011
This event always offers an excellent opportunity for us to look back at the accomplishments of the New Markets Tax Credit Program, as well as to look forward at some of the issues that lie before us. Of course, to those of us who are fortunate enough to work in this industry, the success of the NMTC Program has never been in question.
Every day we can see its impact. Every day, we can see how it is creating economic opportunity in communities where that opportunity is needed most.
Just last October, on a trip to New Orleans, I saw first-hand how the NMTC Program is at work in places that are still fighting to recover from Hurricane Katrina.
I saw first-hand how $5.7 million in NMTC financing helped the Ursuline Academy, a 283-year-old school for girls, create a new Early Childhood Development Center in a building that was flooded during Katrina and had remained vacant. The Center is meeting a desperate need for childcare facilities—only about half of the childcare facilities remained in Orleans Parish post-Katrina—and has preserved 96 jobs and created three full time jobs and 34 construction jobs.
And I saw first-hand how $12.9 million in NMTC financing to help the non-profit organization Make It Right build 150 green, affordable homes in the Lower 9th Ward, which was devastated by Katrina and remained deserted because most of the former residents could not afford to rebuild. The project created 190 construction jobs, and created or maintained 46 jobs.
These three projects were the work of AMCREF Community Capital, a mission-driven, specialty finance firm that has received four allocations of New Markets Tax Credits totaling $162.5 million to finance businesses located in low-income communities in Alabama, Florida, Louisiana, Mississippi, North Carolina, and Texas.
AMCREF’s work is just one example of the impact of the NMTC Program, and one example of why the program was again named one of the Top 25 candidates for the Innovations in American Government Award, administered by the Ash Center for Democratic Governance and Innovation at the John F. Kennedy School of Government, Harvard University.
I would like to thank all of you who have done so much to make the success of the NMTC Program possible. And let us all hope that the true impact of the NMTC Program continues to be recognized by an even wider audience in the years ahead.
NMTC Program Update
Since its inception more than a decade ago, the NMTC Program has been one of the CDFI Fund’s most successful programs. And the eighth and most recent allocation round—the 2010 round, which concluded in February 2011—has extended the program’s strong track record.
For the 2010 allocation round, the CDFI Fund received 250 applications requesting $23.5 billion in tax credit authority, and we awarded $3.5 billion to 99 Community Development Entities (CDEs) headquartered in 28 states and the District Columbia. These organizations anticipate making awards in 47 states and D.C.
What is particularly impressive is that these 99 allocatees have committed to achieving results above and beyond the minimum requirements of the NMTC Program. For example, all 99 allocatees in the 2010 round committed to providing at least 75 percent of their investments to areas of higher economic distress than are minimally required under NMTC Program rules.
And all 99 allocatees indicated that they will invest more than the minimally required 85 percent of their Qualified Equity Investment (QEI) dollars into Qualified Low-Income Community Investments (QLICIs), and 98 of the 99 allocatees indicated that they would invest at least 95 percent of QEI dollars into QLICIs. This means that at least $630 million beyond what is minimally required by the NMTC Program rules will be invested into low-income communities.
I will add that 46 of the 99 allocatees will deploy some or all of their investments in non-metropolitan counties. This ensures that approximately $682 million will be deployed in rural communities.
As I mentioned, the 2010 allocation round builds upon a strong record. In the NMTC Program’s eight rounds to date, the CDFI Fund has made 594 allocation awards totaling $29.5 billion in tax credit authority.
At the end of November, the CDFI Fund released data on NMTC projects financed through 2010 that gives a clear picture of how much has been invested through the eight rounds of the program and how it has been invested. The data show that, through the FY 2010 reporting period, CDEs disbursed a total of $20.9 billion in QEI proceeds to 3,060 Qualified Active Low-Income Community Businesses (QALICBs). Of those 3,060 businesses, 45.9 percent were real estate QALICIBS and 50.8 percent were non-real estate QALICBs or operating businesses.
You will be hearing a detailed discussion of these data during this conference, but one thing I will point out here is that these NMTC investments have supported a wide variety of projects in low-income communities, ranging from charter schools, health care facilities, and child care providers; to manufacturers, energy companies, shopping centers, and business incubators; to florists, convenience stores, and other small businesses.
As we look ahead to the new year, I am pleased to report that the 2011 round of the NMTC promises to be another strong one. The 2011 round opened on May 31 and closed on July 27. Currently, we are evaluating the applications and are on schedule to make an award announcement in February 2012.
But it is already quite clear that the NMTC Program is continuing to grow. For the 2011 round—the program’s ninth round—we received 314 applications, which is the most we have received since 2002, the program’s first year, and an increase of 26 percent over last year’s total. The aggregate total of $26.6 billion in NMTC allocation authority requested by the applicants for calendar year 2011 is an increase of 14 percent over the amount requested last year and is more than seven times greater than the $3.5 billion of NMTC allocation authority available under the 2011 allocation round.
So the demand for tax credits remains very strong.
But as the new year approaches, the NMTC Program faces a degree of uncertainty—just as it did at this time last year. As I am sure you all know, Congress has not yet re-authorized the program for calendar year 2012. However, the President’s budget does include the NMTC Program, and I can assure you that the CDFI Fund has been doing everything we can to ensure that Congress understands the vital role the program plays in our nation’s low-income communities. Despite the difficult budget negotiations, we remain optimistic that the NMTC Program will be extended.
There are a number of other important issues that should be on your radar.
On November 7, the CDFI Fund issued a request for public comment on the NMTC Program. Our goal is to increase the effectiveness of the program while reducing the cost and the burden on program participants, and we are particularly interested in comments on the following aspects of the program:
Indeed, the CDFI Fund is committed to ensuring that the NMTC Program remains as effective a tool as possible for reaching the communities that are most in need, and that the voices of local decision makers and community residents are included in the process. To that end, we will utilize the current request for public comment to identify ways to strengthen CDE accountability.
- Census tract eligibility and commitment to areas of higher distress;
- The treatment of certain businesses;
- Community accountability;
- Transaction costs;
- The evaluation of financial products; and
- The use of other federally subsidized financing in conjunction with the NMTCs.
Please note that the comment period will remain open for 90 days. Written comments will need to be received on or before February 6, 2012, to be assured of consideration. I encourage all of you to submit your comments. You will find details about how to submit your written comments on the CDFI Fund’s website.
As you may know, the Internal Revenue Service has already proposed a variety of changes to NMTC Program to encourage more investment in non-real estate businesses in low-income communities. These changes include revising reinvestment requirements for CDEs investing in operating businesses, streamlining substantiation requirements, and modifying ownership rules to reduce noncompliance risk over the course of an investment.
I know that many of you have been wondering when the CDFI Fund will begin using data from the 2010 U.S. census to determine investment qualifications, and I am afraid I can’t give you a definite answer yet.
What I can say is that once the Census Bureau completes its data release of the five-year American Community Survey for 2006-2010, the CDFI Fund’s CIMS data system will be updated. We will need to develop a policy for grandfathering current projects aligned with currently eligible tracts, and for maintaining the 2000 census data alongside the new ACS data and the 2010 decennial data. The CDFI Fund’s Financial Strategies and Research Department is taking the lead on this initiative.
Until further notice, then, allocatees will still be required to use 2000 U.S. census data to determine investment qualifications.
Staying true to mission
A moment ago, I mentioned the CDFI Fund’s commitment to ensuring that the NMTC Program continues to serve the communities that are most in need, and I would like to conclude my remarks today by giving a tip of the hat to two very dedicated and very innovative organizations whose work embodies that commitment.
Coastal Enterprises Inc. (CEI), of Wiscasset, Maine, was founded in 1977 to develop job-creating natural resources and small businesses in rural Maine, and has since grown to serve the entire state as well as parts of northern New England and upstate New York.
CEI has a long history of involvement with the NMTC Program. The organization was one of the principal architects of the program, and has been one of its largest allocatees, awarding a total of $683 million in tax credits. Now, through its new Working Partners Initiative, CEI has created another way to put the NMTC Program to work in rural communities.
The basic idea behind the Working Partners Initiative is that CEI sets aside a portion of the fee income it earns from its NMTC projects and passes it on to its “working partners”—seven other rural CDFIs with whom it has established formal partnerships—so they can undertake their own projects. The Initiative has already helped to launch projects in 12 states and is directing new resources to rural communities that would otherwise have limited access to capital. It is proving to be an innovative use of the NMTC Program.
Since 1986, Montana Community Development Corporation (Montana CDC), in Missoula, Montana, has served thousands of entrepreneurs with loans, consulting, and training. Montana CDC has loaned more than $25 million to more than 400 businesses, and has funded $64.5 million in NMTC projects in low-income areas of Montana.
One of the organization’s recent NMTC projects is the expansion of Stinger Welding, a manufacturing company in Libby, Montana, that designs, fabricates, and installs bridges and bridge components.
Libby was once a thriving community. But it lost its main employer when a mine closed in 1999, and declined further when journalists discovered that the mine was exposing townspeople to asbestos. The Environmental Protection Agency declared Libby a Superfund site in 2002 and a public health emergency in 2009.
Although state and federal funding has enabled Libby to clean up the mine and reduce the health risks, the town’s economy has been slow to recover, with unemployment rates reaching 20 percent. But Montana CDC is helping to change all of that with its support for Stinger Welding.
When attempts to finance the expansion of Stinger Welding stalled, Montana CDC stepped in with $17 million in NMTC financing credits, as well as a tax credit investor—the Urban Investment Group at Goldman Sachs, which it had met at Senator Max Baucus's Butte Economic Summit the previous year—that was willing to invest in Libby.
Since the deal closed in July, Stinger Welding has put 40 people to work. When the plant is fully operational, it will be the largest employer in Libby and will employ one out of ten people in the town. Equally important, the project is restoring hope in a town where hope had all but vanished.
In addition to serving as models for the kind of impact the NMTC Program was designed to create, CEI and Montana CDC share another important distinction. Both have received prestigious awards for their work.
In November, in recognition of its Working Partners Initiative, CEI received the $5.5 million NEXT Award for Opportunity Finance from the Wachovia Wells Fargo Foundation and the John D. and Catherine T. MacArthur Foundation.
And in October, in recognition of its support for the Stinger Welding project, Montana CDC received the Novogradac Community Development Foundation’s top award for Qualified Low-Income Community Investment of the Year in the operating business category.
I want to stress that, for all their successes, CEI and Montana CDC are not unique. They are just two CDEs among hundreds that are demonstrating what the NMTC Program is all about and how it is serving low-income communities.
And I believe it has never been more important for our industry to continue demonstrating what the NMTC Program is all about. Always remember why the NMTC Program was created and who it is intended to serve.
To be sure, each of you must pay attention to your organization’s bottom line, but you cannot focus only on the bottom line.
You must stay true to your mission and ensure that the projects you undertake are consistent with your highest standards and with the original intent of the NMTC Program.
And you must continue to accomplish great things for the people and communities you have been called to serve.