CDFI Fund Awards $3.5 Billion in New Markets Credit Allocations
By A. J. Johnson & Caitlin Jones
5 min read
The Community Development Financial Institutions (CDFI) Fund on 10/20/08 announced the award of $3.5 billion in federal new markets tax credit (NMTC) allocations to 70 community development entities (CDEs) in the program’s sixth funding round.
For the first time, the awards reflect mandatory proportional allocations to rural-oriented CDEs and to assure that at least 20% of the invested proceeds will be in rural areas.
Each 2008 allocatee must sign an allocation agreement with the CDFI Fund before it can formally receive its allocation and start using it. The CDFI Fund will be sending out 2008 allocation agreements to CDEs for them to complete and return.
Under the NMTC program, CDEs compete in annual funding rounds for NMTC allocations. CDEs that win allocations raise capital from investors and deploy it in eligible investments in qualified businesses and projects in low-income communities, to stimulate economic growth and create jobs.
Competition Level
With the latest awards, the CDFI Fund since 2002 has made 364 allocation awards totaling $19.5 billion in NMTC authority in six funding rounds.
Competition by CDEs for the sixth-round NMTC allocations was intense. The 70 allocatees receiving awards accounted for about 29% of 239 total applicants, and received $3.5 billion in allocations à about 16% of the total $21.3 billion requested. In the 2007 funding round, nearly 24% of 258 applicants won allocations totaling $3.909 billion, which was 14% of the total $27.9 billion requested. The 2008 awards don’t include allocations of special NMTC authority for the Gulf Opportunity (GO) Zone, as there have been the past few years.
The average allocation award amount this year was $50 million, down sharply from the average $64 million last year. This year’s largest award was $112 million, to Coastal Enterprises, Inc., of Wiscasset, ME, which proposes to make investments in businesses nationally but predominantly in six New England states plus New York. The smallest award, $6.25 million, went to Chicago-based Community Reinvestment Fund New Markets I LP, which proposes to invest in for-sale housing in the Chicago area. Only five awards this year, or 7% of the total, were $100 million or larger, compared to nearly 25% in 2007.
Allocatee Characteristics
Of the 70 allocatees this year:
- 40 (57%) are nonprofits or their subsidiaries, awarded a total $1.92 billion (55% of the total dollar amount of all allocations).
- 23 (33%) are certified commu- nity development financial institutions (CDFIs) or their subsidiaries, awarded $1.17 billion (33%).
- 15 (21%) are banks, bank holding companies, or publicly traded institutions or their subsidiaries, awarded $828 million (24%).
- 13 (17%) are governmentally controlled entities or their subsidiaries, awarded $535 million (15%).
- 6 (9%) are real estate develop- ment companies or their subsidiaries, awarded $297 million (8%).
The above figures don’t total exactly, because some allocatees were classified in more than one category.
In the 2007 awards, nonprofits represented 28% of allocatees receiving 29% of the total awards; banks, banking holding companies, and publicly traded institutions, 23% (28%); CDFIs, 11% (13%); and governmentally controlled entities, 15% (13%).
In 2008, CDFIs had the highest success rate among the applicant categories in winning an allocation (51% of CDFI applicants won an award), followed by nonprofits (40%), government-controlled entities (33%), banks and publicly traded companies (30%), and real estate development companies (19%).
Service Areas, Rural Targeting
The 70 organizations awarded NMTC allocations are headquartered in 29 different states and the District of Columbia, and have principal service areas they will target for NMTC investments in 46 states and the District.
Forty percent of the allocatees will focus their investment activities nationally; 16%, a multi-state service area; 24%, a statewide service area; and 20%, a local market (e.g., a city- or county-wide area).
Based on information from the allocatees, about $1.772 billion (51%) of the newly allocated NMTC authority is expected to be invested in major urban areas, about $833 million (24%) in minor urban areas, and about $895 million (26%) in rural areas.
The sixth funding round, for the first time, incorporated mechanisms to meet a statutory mandate that NMTC funding round allocations be made in a way to assure proportional investment in rural areas. To achieve this, the CDFI sought to make sure that the percentage of total allocatees in the sixth round that are rural CDEs was at least equal to the percentage of all applicants making it to the second stage of the two-stage review process, and that at least 20% by dollar amount of the qualified low-income community investments (QLICIs) resulting from the sixth-round allocations be made in rural areas. According to the Fund, nine of the 2008 allocatees (13%) are rural CDEs that received allocations totaling $532 million. Thirty-eight allocatees (54%) indicated willingness to deploy some or all of their investments in non-metropolitan counties (i.e. rural areas). These allocatees received more than $2.27 billion in total allocations, and will be required, based on their stated commitments, to invest at least $722.1 million in non-metropolitan counties, or 20.6% of the total $3.5 billion awarded in the round.
Other Details
Other details of the 2008 funding awards are that:
- All 70 allocatees indicated at least 85% of their activities will be provided in areas of higher economic distress than the program’s required minimum level.
- About 52% of NMTC proceeds generated from the 2008 allocations will likely be used to finance and support real estate projects, down from 63% in 2007; 47% to fund and support loans to, or equity investments in, businesses, up from 31%; and 1% to capitalize other CDEs, down from 6%.
- All 70 allocatees have committed to offering preferential rates and terms. Sixty-three of the allocatees indicated that all of their investment dollars will be made as equity, equity equivalent financing, or debt that is at least 50% below market and/or characterized by five or more concessionary features.
The CDFI Fund has posted on its Web site (http://www.cdfifund. gov) a number of documents providing details about the 2008 allocations and the allocatees.