The New Markets Tax Credit Program began in 2000 as a way to encourage investment in distressed or low-income communities. Under the program, both businesses and individual investors receive tax credits (about 39 percent of the total amount invested) in exchange for investing in Community Development Entities (CDEs). Since it began, the program has awarded over $29 billion in tax credits. Proponents want the program to continue, but until recently, its future was uncertain.
Back in May, Senator John D. Rockefeller, IV (WV) introduced legislation aimed at extending the New Markets Tax Credit Program (NMTC), which was set to expire at the end of 2011. Senate Bill 996 would extend the program through 2016 and allocate $5 billion per year for it. The House recently introduced its version of the bill, as well.
Introduced by Congressman Brian Higgins (NY-27), the House bill – H.R. 3224 – also extends the NMTC program through 2016. However, it allocates twice as much money – $10 billion – as the Senate version. Other than that, the bills are nearly identical.
Both bills have been referred to the respective House and Senate Committees that have jurisdiction over tax credits. In the Senate, it’s the Committee on Finance. In the House, it’s the Committee on Ways and Means. As of this writing, neither Committee has scheduled the bill for mark-up or a vote.
Only Community Development Entities (CDEs) received the benefits of New Market Tax Credits. Existing organizations can apply for the CDE distinction if they meet three requirements:
the organization must be “domestic,” owned and operated in the United States;
the organization’s main focus must be serving low-income people and communities either directly or through financial investments
the organization must have an advisory or governing board that reports out to the community about the organizations activities.
Though organizations applying for CDE status can be for-profit, they must demonstrate a real focus on working with low-income people and communities. In addition, organizations that received the CDE certification don’t have to apply for direct New Market Tax Credit allocations, but can instead apply for awards from other CDEs that do receive NMTCs.
Over the years, New Market Tax Credits have helped fund nearly 600 projects in low-income communities. The credits have paid for the development of everything from retail space to affordable housing. The 2011 round of allocations saw a 26 percent increase in the number of funding requests and a 14 percent increase in the total dollar amount requested. The high demand shows that the program is effective. It is also one of the few programs that uses federal money to leverage private investment, making the best use of federal dollars.