The New Markets Tax Credit (NMTC) Program is a federal economic growth and community development initiative—overseen by the Community Development Financial Institutions (CDFI) Fund—that encourages private investment in economically distressed communities. According to the Program, low-income areas have historically lacked meaningful access to capital, leading to “vacant commercial properties, outdated manufacturing facilities, and inadequate access to education and healthcare service providers.”1
The NMTC Program aims to break this cycle of disinvestment by attracting private investment and allowing individual and corporate investors to receive a tax credit against their federal income tax.
How Does the NMTC Program Work?
Through the NMTC Program, the CDFI Fund allocates tax credit authority to Community Development Entities (CDEs) through a competitive application process. The Program notes that CDEs are financial intermediaries through which private capital flows from an investor to a qualified business located in a low-income community. CDEs use their authority to offer tax credits to investors in exchange for equity in the CDE. Using the capital from these equity investments, CDEs can make loans and investments to businesses operating in low-income communities at better rates, with flexible features and more favorable terms than traditional capital markets. “In exchange for investing in CDEs, investors claim a tax credit worth 39% of their original CDE equity stake, which is claimed over a seven-year period,” the Program states.2
Why Should My Organization Consider the NMTC Program?
Participation in the NMTC Program equates to a potential source of additional financing for large capital projects. In the more recent economic environment, two factors have worked against sponsoring organizations regarding potential new investment and/or expansion.
- Inflation has increased cost of construction, causing many entities to (1) delay or consider halting projects entirely due to inadequate funding or (2) significantly reduce, modify, or sacrifice key elements of their project plans.
- Higher interest rates mean the cost of borrowing to fund capital is similarly more expensive.
As a result, the injection of proceeds from NMTC Program participation can be a welcome relief to budgetary constraints. Worth noting, however, is that tax credit proceeds generated from a successful transaction are not designed to cover a project’s entire cost. Instead, interested parties should view this as a “gap-filler” style of financing that can generally help cover 15–20% of the project cost.
Who Can Participate in the NMTC Program?
The NMTC Program has broad applicability for organizations across the United States. With a few exceptions, nearly any business in any industry could be a potential benefactor from the NMTC Program as long as the proposed investment will be made in a low-income community. Note the term “low-income” is a statutorily defined area as outlined in 26 U.S. Code Section 45D:
“Any population census tract if: (a) the poverty rate for that tract is at least 20%, or (b) in the case of a tract not located within a metropolitan area, the median family income for the tract does not exceed 80% of statewide median family income, or in the case of a tract located within a metropolitan area, the median family income for the tract does not exceed 80% of the greater of statewide median family income or the metropolitan area median family income.”3
Organizations that wish to seek funding should first verify the location eligibility of a potential project. The CDFI Fund maintains a map for those interested in vetting possible locations on its site.
How Does Healthcare Fit With the Program?
Because of the impact they can have on their local communities, healthcare projects are well regarded. Hospital expansions, upgraded equipment, new community health centers or free clinic sites, and behavioral health developments are only a few of the recent example projects funded in part by the NMTC Program. In its 2024 New Markets Tax Credit Progress Report, the NMTC Coalition (an advocacy group for the Program) indicates that of the 322 projects it tracked in 2023, 89 of those were for projects in the healthcare sector. Specific descriptions of a selection of these 89 projects can be found by reviewing a copy of the report.4
Conclusion
Examples of NMTC-funded projects include new healthcare sites of service, new schools for those less privileged, new manufacturing facilities that create strong jobs, new social service locations to assist the most vulnerable, and many others.
In summary, the NMTC Program plays a crucial role in revitalizing struggling local economies, fostering job growth, and enhancing community well-being. By attracting private investment, it helps bridge the gap in historically disinvested areas.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
- 1“New Markets Tax Credit Program,” cdfifund.gov, 2024.
- 2“New Markets Tax Credit Program Fact Sheet: Community Revitalization by Rewarding Private Investment,” cdfifund.gov, October 13, 2022.
- 3“New Markets Tax Credit Program,” cdfifund.gov, 2024.
- 4“2024 NMTC Progress Report,” nmtcoalition.org, June 5, 2024.