NMTC credits lowincome communities show gains

March 5, 2011
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What do a former orphanage, an abandoned bicycle factory and a defunct water treatment plant have in common?

They have all been given new, useful second lives — thanks to the New Market Tax Credits obtained by the entities that owned them. Designed to encourage investment in low-income communities, the NMTC program has transformed key portions of Grand Rapids, creating:

  • Sophisticated new headquarters for the Inner City Christian Federation from the former D.A. Blodgett orphanage.

  • Attractive, new student housing for Grand Valley State University from an abandoned bicycle factory.

  • Cool, new office space near downtown from the city’s former water treatment plant.

And more are likely on the way. At the close of 2010, Congress renewed the program, designating $3.5 billion New Markets Tax Credits that will translate into approximately $1.365 billion of incentives to future projects. Since the program’s inception, Congress has given the Department of Treasury the authority to grant NMTC allocations that will result in more than $10 billion in tax credits to businesses or organizations that make investments in a community development entity, or CDE. These conduit organizations either make loans or invest in qualified businesses or organizations located in low-income communities.

As traditional funding sources remain tight, an increasing number of nonprofits in West Michigan are turning to NMTCs to raise the funds needed to meet the development needs of their programs. Additionally, for-profit developers have been able to leverage the capital provided by NMTC to provide development in low-income communities that otherwise would not be feasible.

To qualify for NMTC credits, entities must meet two eligibility requirements. They must:

  • Be located in a census tract with either a poverty rate of at least 20 percent or a median income less than 80 percent of the median income for the area.

  • Have a substantial connection to the location, as measured by the source of its revenue, the location of its property and/or the geographic area where its employees provide their services.

Investors of NMTCs will claim their credits over a seven-year period, beginning with the date of the initial investment. Substantially all of the qualified equity investment must, in turn, be used by the CDE to provide investments in low-income communities. Examples of projects include theaters, community centers, health care facilities, business incubators, human service agency facilities, charter schools, day care facilities and local YMCAs.

Low-income communities stand to benefit tremendously from the NMTC program to fill fundraising gaps — improving both the organizations and the communities where the investment takes place. These benefits include:

  • Creation of new jobs.

  • Revitalization of urban and under-utilized areas.

  • Improved property values.

  • Lower cost of capital for building projects.

  • Reduced debt interest.

West Michigan could see additional projects funded by NMTC credits being developed in the coming years — in fact, several are already in the planning phases. As a community, we all stand to benefit when low-income areas receive much-needed injections of capital.

Jim Manning is a partner in the Grand Rapids office of Plante & Moran PLLC. He leads the firm’s renewable energy practice and has extensive experience in public-private partnerships and federal and state tax credits. He can be reached at jim.manning@plantemoran.com

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