The New Markets Tax Credit (NMTC) Program was passed as part of the Community Renewal Tax Relief Act of 2000. It was created as a new financing program to provide incentive for private-sector investments into economic development projects and businesses located in low-income communities. NMTCs are similar in concept to Low-Income Housing Tax Credits, which were created in 1986 to spur low-income housing development by creating project subsidies through tax credits sold to investors. Yet, the program is very different in its administration, structure, and types of investments. The NMTC program was initially authorized for five years and provided $15 billion of NMTC allocation authority for investment in targeted communities. Since the NMTC Program's inception, the CDFI Fund has made 594 awards allocating a total of $29.5 billion in tax credit authority to CDEs through a competitive application process. This $29.5 billion includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
The NMTC Program is overseen by the U.S. Department of the Treasury and directly administered by the Community Development Financial Institutions (CDFI) Fund.
A project that qualifies for NMTCs is defined as a Qualified Active Low-Income Community Business (QALICB). A QALICB can be either a real estate project or an operating business. For either type of investment several conditions must be met, starting with the QALICB being located in an eligible area known as a low-income community. In general, a low-income community is defined as a census tract with a poverty rate of at least 20%, or with median income of up to 80% of the area or statewide median (whichever is greater). Furthermore, a QALICB must derive at least 50% of its gross income from business in the eligible area and must have a "substantial portion" (40%) of its tangible property located in a low-income community. Finally, the business must perform a substantial portion (40%) of its services in any low-income community. Banks, Credit Unions and other financial institutions are excluded from the definition of QALICB.
At the highest level, NMTCs provide a subsidy to a QALICB that is approximately equal to 20% of the project financing need for project costs. The supplemental nature of NMTCs often leave them as one of the last sources of capital for a project, and the financing would not happen "but for" the NMTCs. The NMTCs allow the QALICB to be financed with very low rates, typically 50% of market, at interest-only for 7 years. Along with other flexible investment terms, the NMTCs allow a QALICB in a low-income community to receive capital at terms much better than typical underwriting standards would allow, generating an opportunity for the QALICB to achieve stabilized operations and further economic growth.
CTA CDE strives to serve the most economically distressed areas as much as possible. These areas deemed "highly distressed" by the CDFI fund are (1) characterized by at least one of items (i) - (iii) in the document below for each project,OR (2) characterized by at least two of items (iv) - (xviii) in the document below for each project.