CDFI Fund Opens Eleventh: New Markets Tax Credit Round

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On July 14, the Community Development Financial Institutions (CDFI) Fund issued a notice of allocation availability (NOAA) to open federal new markets tax credit program’s eleventh funding round. The CDFI Fund is combining the calendar 2013 and 2014 rounds into a single application cycle, making up to $8.5 billion in allocation authority available.

The NOAA was published on July 29 in the Federal Register. The CDFI Fund also released the application as well as “Q&A” guidance on the application.

Community development entities (CDEs) must submit applications electronically by no later than September 18.

At least $3.5 billion in allocation authority is available for sure; additional amounts will depend on Congress renewing the program beyond 2013 and authorizing more allocation authority. The Obama Administration’s FY 2014 budget proposes making the NMTC program permanent with $5 billion in annual funding.

The CDFI Fund anticipates announcing allocation awards next spring.

Under the NMTC program, CDEs apply for competitive awards of NMTC allocation authority and provide the tax credits to investors in exchange for capital that the CDEs deploy in eligible businesses and projects located in low-income communities.

Differences Highlighted

Terri Preston, a principal at Baker Tilly Virchow Krause, highlighted the significant differences in the new 2013-2014 funding round from to the prior 2012 round, as spelled out in the NOAA, the application, and the Q&A document.

Differences include:

  • A larger anticipated cap on individual allocation awards, of $125 million compared to $100 million in the previous round;
  • Raising the threshold requirement for CDEs regarding the percentage of previous allocation awards that they must issue as qualified equity investments (QEIs) by a certain deadline (December 31, 2013 for the new round) in order to be eligible for a new allocation award.
  • Modifying the housing commitment question in the Community Development Outcomes section of the application. Applicants will only be able to finance housing with a new allocation award if they answer yes to the question asking whether they will use a new NMTC award to finance projects resulting in the development or rehabilitation of rental or for-sale housing. They must also commit that at least 20% of the funded housing units will be affordable to households making 80% or less of the area median income. In prior rounds, this restriction did not apply and CDEs that didn’t say they would fund housing in their application could do so later if they received an allocation and not have to meet the affordability requirement.
  • Liberalizing the definition of a rural CDE. This is now a CDE that has made 50% or more of its direct investments in non-metropolitan counties in three of the past five years, down from five years in prior rounds. In addition, as before, a CDE must commit in its application to make at least 50% of its investments from a new allocation award in non-metro counties.
  • Modifying the list of the target states for applicants proposing to pursue innovative qualified low-income community investments (QLICIs), under the application question on value added and innovative investments. These are states receiving fewer dollars of QLICIs in proportion to their statewide population living in low-income communities. NMTC investments made in target states are considered innovative but don’t garner extra points on applications. Nevada is new to the list of target states in the new round while West Virginia has been dropped. Other target states are Alabama, Arkansas, Florida, Georgia, Idaho, Kansas, Nevada, Tennessee, Texas, American Samoa, Guam, Northern Marianas Islands, and the U.S. Virgin Islands.
  • Incorporating IRS guidelines for defining businesses.

(NOAA, application, other documents: http://tinyurl.com/ybz5ju)