The U.S. Department of the Treasury's Community Development Financial Institutions (CDFI) Fund has announced the allocation of $5 billion in New Markets Tax Credits (NMTC) for the 2023 calendar year. This substantial investment is set to catalyze economic development in some of the nation's most underserved communities, potentially transforming local economies and creating job opportunities where they are most needed.
The NMTC program, a bipartisan initiative established in 2000, has become a critical tool for attracting private investment to low-income areas. This year's allocation will be distributed among 104 Community Development Entities (CDEs) across 35 states, Puerto Rico, and the District of Columbia. The program's reach is extensive, with the CDFI Fund estimating that $1.2 billion, or more than 20 percent of the total allocation, will be deployed to rural America. Moreover, at least 85 percent of the total $5 billion is earmarked for severely distressed communities, underlining the program's focus on areas facing the most significant economic challenges.
The impact of the NMTC program has been substantial since its inception. According to Bob Rapoza, spokesman for the NMTC Coalition, the program has leveraged more than $135 billion in total capital investment through public-private partnerships, resulting in the creation of over 1.2 million jobs. This track record demonstrates the NMTC's effectiveness in stimulating economic activity and improving living conditions in areas that have historically struggled to attract investment.
Despite the program's success, the demand for NMTCs continues to outstrip supply significantly. The CDFI Fund reported that 196 CDEs applied for allocations, requesting a total of $14.7 billion in tax credits. With only 104 applications approved, representing just over half of the applicants, it's clear that many worthy projects and communities may still lack access to this valuable resource.
The NMTC provides a federal tax credit of 39 percent, taken over seven years, for investments in census tracts where the individual poverty rate is at least 20 percent or where the median family income does not exceed 80 percent of the area median. This structure incentivizes private investors to direct capital to areas that might otherwise be overlooked, fostering economic development from the ground up.
The program's impact extends beyond pure economic metrics. Since its inception, the NMTC has financed more than 8,500 projects, including nearly 3,000 community services and facilities such as hospitals, schools, daycare centers, and non-profit service providers. These investments have brought vital services to communities that previously lacked access to quality facilities, improving the overall quality of life for residents.
While the current allocation is significant, the future of the NMTC program remains uncertain. The program was extended through 2025 at the end of 2020, with an annual credit authority of $5 billion – the largest extension in its history. However, without further congressional action, the program could expire in 2025. Recognizing the program's value, bipartisan legislation has been introduced in both the U.S. Senate and House to make the NMTC a permanent part of the Internal Revenue Code.
The potential permanence of the NMTC program could provide much-needed certainty for investors and communities alike. It would ensure a consistent flow of resources to low-income and marginalized areas, supporting long-term planning and sustained economic development efforts. As underserved communities continue to face significant challenges, the stability offered by a permanent NMTC program could be transformative.
As the 2023 NMTC allocations begin to take effect, communities across the nation will be watching closely to see how this infusion of capital translates into tangible improvements in local economies, job markets, and quality of life. The success of these investments could play a crucial role in shaping the future of the NMTC program and, by extension, the economic landscape of America's most vulnerable communities.
