The New Markets Tax Credit (NMTC) program, established by Congress in the year 2000, is a critical financial mechanism designed to stimulate investment and economic growth in low-income urban and rural communities. This initiative provides tax credit incentives to investors for equity investments in certified Community Development Entities (CDEs), which in turn invest in low-income communities. Here's a comprehensive guide on how this program works and how communities can qualify for it.

What is the New Markets Tax Credit Program?

The NMTC program aims to address the lack of investment capital in economically distressed communities. It offers a 39% tax credit over seven years to investors (US Bank, Capital One, Chase, as examples) that make an equity investment in CDEs. The CDE’s, in turn, invest that equity along with capital provided by the Project Sponsor into projects to support businesses and property located in Low Income Census Tracts. 

The credit equals 5% of the amount invested for the first three years and 6% for the subsequent four years. This tax incentive encourages the flow of private capital into areas that traditional financial institutions often overlook.

How Does the Program Work?

The process begins with the Community Development Financial Institutions Fund (CDFI Fund), part of the U.S. Department of the Treasury, which administers the NMTC program. The CDFI Fund allocates an annual $5bn of tax credit allocation to qualified CDEs based on a competitive application process. These CDEs then seek projects located within low-income communities across the country. Investors receive tax credits in return for providing funding to the CDEs, which use these funds to finance business developments, real estate projects, and other community enhancements.

How Can You Qualify?

To benefit from the NMTC program, a project must reside in a community that  meets specific criteria:

1. Area's Income Levels: The community should be in a census tract with a poverty rate of at least 20% or median family income does not exceed 80% of the area median.  These levels are currently based on the US Census American Community Survey for the years 2015-2020.
2. Economic Distress Indicators: Communities might also qualify based on a census tract’s unemployment rate or other indicators of economic distress.
3. Designation as a Qualified Low-Income Community (LIC): This is the primary qualification for receiving investments through the NMTC program.

Steps to Take Advantage of NMTCs

1. Identify Eligible Areas: Applicants need to determine if they fall within the eligible census tracts by providing an address to a True Mountain Capital representative.
2. Develop Investment-ready Projects: Prepare project plans that are attractive to investors, demonstrating strong job creation and positive community impact that addresses the underlying issues affecting the surrounding area.
3. Advocacy and Partnerships: Engage local leaders and stakeholders to advocate for projects that qualify under the NMTC. Building partnerships can enhance the project's credibility and attract more investment.
4. Monitor and Report Outcomes: Once a project is funded, the CDE will require ongoing monitoring and reporting of financial and social impact help sustain investor confidence and can support future funding applications.

Please feel free to contact us at True Mountain Capital if you have eligible projects.   We can guide you through the complexities of the application process and present your project to prospective CDE’s.

Conclusion

The New Markets Tax Credit is a potent tool for community development, offering a substantial incentive for investors to invest in regions they might otherwise overlook. Understanding how to qualify and attract these investments is critical. By actively engaging in the NMTC process, communities can leverage this program to foster significant economic development and revitalization, turning areas of economic distress into hubs of opportunity.