CDFI Fund Director Pursues Possible Changes to New Markets Program, Seeks to Broaden Investor Base
By Caitlin Jones
4 min read
Tax Credit Advisor, November 2009: Donna Gambrell and the Community Development Financial Institutions (CDFI) Fund that she heads are busy on several fronts today in the federal new markets tax credit (NMTC) program.
These include efforts to get the nine-year-old program extended beyond 2009, the pursuit of various enhancements to the NMTC, and addressing market changes that are challenging the program while also underscoring its importance as a lifeline for low-income communities.
“Clearly we’re going through some economic turmoil,” says Gambrell, Director of the CDFI Fund since November 2007. Today’s challenges, she noted in a recent interview, include a “slim” investor pool, greater difficulty finding leveraged loan funds for transactions, and lower credit pricing.
At the same time, the program is set to expire on 12/31/09 unless Congress enacts an extension before then. The Obama Administration has proposed a one-year extension with $3.5 billion for a 2010 funding round. Pending bills in Congress (H.R. 2628, S. 1583) would extend the program through 2013 or 2014, increase annual funding, and exempt the NMTC from the federal alternative minimum tax (AMT).
Possible Changes
Gambrell said the CDFI Fund has been having discussions with the U.S. Treasury and White House about possible support by the Obama Administration for a multi-year extension of the new markets credit. While there’s “interest,” she said no final decision has been made. Similarly, she said no final decisions have been made, regarding discussions the CDFI Fund has been having with Treasury and the IRS, about whether the Administration will support legislation to exempt the new markets credit from the AMT, and about other proposed changes to the program recommended by the CDFI Fund’s Advisory Board. The recommended changes, developed by an Advisory Board subcommittee, include to enable NMTC investments to be used for home mortgages, increase investments in small businesses, or make the new markets credit deeper. Gambrell said the Fund believes it might be possible to implement some of the recommended changes through IRS regulations rather than legislation.
Gambrell described exemption of the NMTC from federal AMT as key to putting the new markets credit on parity with other federal tax credits that already enjoy this treatment, and to attract new investors to the program.
She said the Fund is trying to broaden the investor base for NMTCs through various actions. One is partnering with the Federal Home Loan Bank of Atlanta on a series of forums to educate financial institutions about the new markets and low-income housing tax credits and about how they can benefit from investing in them. “We’re also exploring ways to reach out to a broader cross-section of investors,” she adds, “to ensure that there continues to be a healthy appetite for new markets tax credit investments.”
Even though the NMTC sunset date is looming, Gambrell notes, “We continue to plan as though the program is going to be there.” The Fund expects to announce $5 billion in 2009 NMTC allocation awards by the end of October 2009, and has been making initial preparations for a 2010 funding round. The Fund recently solicited public comments on the new markets allocation application and on other program matters.
Separately, the IRS at some point will be publishing a final rule on targeted populations transactions for the new markets program.
Other Trends
Gambrell indicated that other evolving trends in the NMTC program include a nod in projects to environmental friendliness, and the use of the new markets credit to address current pressing issues. A review of all NMTC transactions during 2004-2007 revealed that 14 transactions – with aggregate project costs of $760 million – had green, energy, or sustainable in the project description, she noted.
Gambrell also said some Community Development Entities are utilizing their NMTC allocations to address the home foreclosure crisis. Enterprise Community Investment, Inc. in conjunction with the Columbus (Ohio) Housing Partnership has been using the NMTC in a two-year-old effort to acquire and renovate vacant and foreclosed homes and re-sell them to lower-income households. More recently, Clearinghouse CDFI is trying to use its allocation to help struggling homeowners avoid foreclosure and stay in their home.
Gambrell says the NMTC continues to be used for a wide variety of projects. Yet in today’s tough economy, she suggests the program is more valuable than ever. “We’ve seen [the NMTC] used in a variety of ways to assist low-income communities. In this time especially, when you see low-income communities that have been hardest hit by this [economic] crisis, a program like this is not only beneficial but in many ways life-saving for these communities.” Gambrell, in fact, said several organizations have told her recently, “Were it not for this program, we would have no recovery in our community.”
