COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND www.cdfifund.gov Community Development Financial Institutions (CDFI) Fund Introduction to New Markets Tax Credits Presentation PRESENTED BY David Meyer PRESENTED ON March 13, 2014
Presentation Roadmap Overview of NMTC Program Applying for NMTC Allocations Sample NMTC Projects 2
Activities to Date In allocation calendar year rounds 2002-2012, the CDFI Fund received 2,670 applications for allocations of NMTCs. These entities collectively requested nearly $250.5 billion in allocation authority. The CDFI Fund has made 749 awards totaling $36.5 billion in allocation authority. Over $35 billion in QEIs have been made into CDEs since the NMTC Program s inception. Through the fiscal year 2012 reporting period, CDEs disbursed a total of $31.1 billion in QEI proceeds to 4,706 Qualified Active Low-Income Businesses (QALICBs). 7
Tax Credit Amount Example The CDFI Fund awards an allocation of $1 million to a CDE. The CDE offers the tax credit to a single investor in exchange for a $1 million equity investment. How much can the investor claim as a credit on its Federal taxes? - Years 1-3 Tax Credit at 5% Value $50,000 per year - Years 4-7 Tax Credit at 6% Value $60,000 per year - TOTAL VALUE OVER 7 YEARS..$390,000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 TOTAL $50,000 $50,000 $50,000 $60,000 $60,000 $60,000 $60,000 $390,000 4
Ineligible Activities Residential rental property: Buildings or structures which derive 80% or more of its gross rental income from renting dwelling units Certain types of businesses: Golf courses Race tracks Gambling facilities Certain farming businesses Country clubs Massage Parlors Hot tub facilities Suntan facilities Stores where the principal business is the sale of alcoholic beverages for consumption off premises Refer to IRS regulations for additional details 5
Summary Graphic CDFI Fund CDE must offer credits to investors within 5 years Community Development Entity (For-profit only) CDEs must make QLICIs within 12 months of receipt of Investor QEIs Investing in or Lending to QALICBs Purchasing Loans from CDEs Financial Counseling Private Investors QEI must stay invested in CDE for 7 years Investing in or Lending to CDEs 6
NMTC Allocation Authority Enacted on 12/21/2000; Part of the Community Renewal Tax Relief Act of 2000 2002 $2.5 billion 2003/4 $3.5 billion 2005 $2 billion 2006 $4.1 billion 2007 $3.9 billion 2008 $5.0 billion 2009 $5.0 billion 2010 $3.5 billion Includes 2001 Round Includes 2003 & 2004 Round (includes $600 million GO Zone) (includes $400 million GO Zone) (includes $1.5 billion Recovery Act) (includes $1.5 billion Recovery Act) 2011 $3.5 billion (plus $123M from prior rounds) 2012 $3.5 billion 2013 $3.5 billion TOTAL $40 billion 8
NMTC Program Overview The NMTC Program encourages private investment by providing a credit against Federal income taxes to investors that make Qualified Equity Investments (QEIs) into Community Development Entities (CDEs). CDEs are an intermediary vehicle for the provision of loans, investments or financial counseling in Low-Income Communities (LICs). LICs are census tracts with at least 20% poverty rate; or where the median family income does not exceed 80% of the area median family income; or where the median family income does not exceed 85% of the area median family income, provided the census tract is located in a high migration rural county. CDEs use the proceeds of QEIs to make Qualified Low-Income Community Investments (QLICIs). QLICIs include, among other things, investments in operating businesses and real estate projects e.g., develops or rehabilitates commercial, industrial, retail, community facilities, mixed-use, and for-sale housing in low-income communities. 3
Presentation Roadmap Overview of NMTC Program Applying for NMTC Allocations Sample NMTC Projects 12
Who Can Apply? Both for-profit and non-profit entities may apply. In its Allocation Application, a non-profit applicant must discuss its strategy to: Form at least one for-profit subsidiary. Transfer its entire allocation to for-profit subsidiaries. 13
Review Criteria Four sections: Business Strategy Community Outcomes Management Capacity Capitalization Strategy Applicants may earn an additional 10 priority points 14
Priority Points Priority points given under Business Strategy section to CDEs: With a track record of having successfully provided capital or technical assistance to disadvantaged businesses or communities; or Intending to invest in businesses in which unrelated parties hold the majority equity interest. 15
Selection Process Phase 1: Peer Review External reviewers evaluate and score applications. Phase 2: Panel Review Applications that meet minimum scoring thresholds in each of the four major application sections are sent by ranking score to a CDFI Fund panel for consideration. Selection of Applicants Selecting Official makes final determinations based upon panel recommendations. During Panel the CDFI Fund will review past transactions from Prior Allocatees. Adjustments may be made to the final pool to ensure proportional representation from CDEs serving Non-Metropolitan Counties. 16
Process Overview Step 1: Entities apply to the CDFI Fund for CDE certification. Step 2: Entities apply competitively to the CDFI Fund for a NMTC allocation. Step 3: The CDFI Fund selects CDEs to receive NMTC allocations. Step 4: CDEs enter into an Allocation Agreement with the CDFI Fund. Step 5: CDEs offer NMTCs to QEI investors for cash. Step 6: CDEs use proceeds to make Qualified Low-Income Community Investments (QLICIs). 17
Presentation Roadmap Overview of NMTC Program Applying for NMTC Allocations Sample NMTC Projects 26
Sample Projects Recent site visits have included: Food Processing Facilities Charter Schools/Parochial Schools Food Bank Biomedical Office Park Medical School Campus Mixed-use Housing and Office Space Manufacturing Facilities Lumber Mill & Logging Company 16
Palermo's Pizza Milwaukee, Wisconsin Total NMTC Allocation: $22 million Expansion of pizza manufacturing facility on former brownfield. Uses of financing include land acquisition, facility expansion and purchase of additional equipment. At time of funding, Palermo s had 369 FTEs and 27 PTEs. Expected 92 additional FTEs within 2 years. Employees received a range of benefits. 17
University of Arizona Medical School Phoenix, AZ Total NMTC Allocation: $25 MM Key to city strategy for revitalizing downtown Phoenix. Increased number of physicians in Arizona 141 permanent and 55 construction jobs. Telemedicine program to reach underserved communities. Spurred $150 MM in follow-on investment 18
$ in Billions $ Requested, $ Awarded, Award Rates $30.0 $25.0 $20.0 Total $27.9 $3.9 14% Award Rate Total $21.3 $5.0 23% Award Rate Total $22.5 $5.0 22% Award Rate Total $23.5 $3.5 15% Award Rate Total $26.7 $3.6 14% Award Rate Total $21.9 $3.5 14% Award Rate $15.0 $10.0 $24.0 $16.3 $17.5 $20.0 $23.1 $18.4 $5.0 $0.0 2007 2008 2009 2010 2011 2012 Non-Awarded Awarded 9
NMTC Contact Information CDFI Fund s New Market Tax Credit Website www.cdfifund.gov/nmtc Help Desk Phone (202) 653-0421 *Option 3 Help Desk Email cdfihelp@cdfi.treas.gov 20