CDFI Fund Adds 4th Round Applicants, Indicates It May Consider NMTC Changes To Meet Post-Katrina Needs
By Caitlin Jones & A. J. Johnson
4 min read
Tax Credit Advisor January, 2006: The CDFI Fund recently announced that it has accepted 13 additional applications for its 4th round allocation of New Markets Tax Credits (NMTCs). The applicants, located in areas affected by Hurricanes Katrina and Rita, asked for $2.38 billion in NMTCs, raising the number of applications to 254, and the amount of requested tax credits to $28.37 billion, according to the Fund’s December 2005 e-newsletter.
The e-newsletter also provided details of a meeting in October between CDFI Fund Director Art Garcia and Community Development Entities (CDEs) affected by the hurricanes. During the meeting the CDEs urged changes in regulations governing the deployment of NMTCs. The Fund said it was considering a response to these suggestions, providing the first indication that it may seek program modifications in light of the damage caused by the storms.
New 4th Round Applications
Acceptance of the new 4th Round applications follows the Fund’s decision to extend the application deadline, on a case-by-case basis, to accommodate CDEs in counties that had been declared federal disaster areas. Thirteen CDEs were granted extensions to file applications beyond the regular deadline of September 21.
“The CDFI Fund has received applications from all 13 of these organizations by the agreed upon deadline,” the Fund’s newsletter reported. The now-final pool of applicants is vying for a total of $3.5 billion in NMTCs that the CDFI Fund plans to award in the Spring of 2006. The 241 applications received by the regular deadline had requested a total of $25.99 billion in allocation.
By one measure, the ratio of dollars applied for to dollars allocated, the Fund’s latest round is less competitive than its previous one. The third round, which awarded $2 billion of NMTCs to 41 allocatees in May 2005, winnowed down a field of 208 CDEs that had applied for $22.9 billion in tax credits, allocating $1 in NMTCs for every $11.45 requested. With the 4th round applicant pool now final, there are $8.11 of NMTCs requested per dollar of tax credits to be allocated.
The average amount requested by each applicant competing in 4th round, $111.7 million, is slightly higher than the $110.1 million average for the 3rd round.
CDFI Fund Meets with Katrina-Affected CDEs
The CDFI Fund’s meeting in New Orleans with local CDEs gave it the opportunity to assess the damage first-hand, and to hear suggestions on program modifications that might help it better respond to post-hurricane needs.
During the meeting, the CDEs said that their immediate priorities were repairing damaged offices, and replacing lost computers, furniture and equipment. In addition, they noted the need to restaff after many workers decided to permanently relocate.
But the CDEs also urged the CDFI Fund to revise its guidelines in light of circumstances following the Katrina. In particular, they asked the Fund to consider broadening the eligible target market for NMTCs to include all the counties designated by the Federal Emergency Management Agency as disaster areas. In addition, the CDEs recommended that the CDFI Fund permit NMTC investments in businesses that were qualified before the hurricanes, but then relocated and lost their eligibility under current rules.
Under the original legislation establishing the program in 2000, CDEs must make investments in “Low-Income Communities,” defined as census tracts where the poverty rate is at least 20 percent, or the area median income is below 80 percent.
The CDEs also discussed their need to reconsider business plans, “either to provide a greater focus on disaster recovery activities or because their planned investments could not take place due to hurricane damage.” An official at one NMTC allocatee noted it had planned to invest in the rehabilitation of the Charity Hospital in New Orleans, but must now revise its plans because the hospital was so damaged by Hurricane Katrina that it is being demolished.
“The CDFI fund is considering all the comments received during its visit to New Orleans, as well as suggestions other CDFIs, CDEs and industry representative have made to the Fund Director and staff regarding the effects of the hurricanes and what the fund might do in response,” the newsletter reported. “The Fund will provide updates through its website and its electronic newsletter.”
Agreement Changes
In the aftermath of Hurricanes Katrina and Rita, the CDFI also recently announced that it will permit NMTC program allocatees to amend their executed allocation agreements under certain circumstances.
In general, to be eligible for an amendment or extension, an allocatee must demonstrate that its principal place of business is located in or provides significant services or financing to residents or businesses located in a county declared a disaster area since July 15, 2005, or that its ability to fulfill its allocation agreement has been impacted by disaster-related factors. The Fund will review requests on a case-by-case basis to determine whether an amendment or extension will be allowed.
