CDFI Fund Sets $600 Million For Katrina NMTC Allocation, Only 4th Round Applicants Eligible
By Caitlin Jones & A. J. Johnson
4 min read
Tax Credit Advisor March, 2006: The Community Development Financial Institutions Fund has added $600 million in New Markets Tax Credits (NMTCs) to its current allocation round, acting quickly after Congress passed legislation at the end of 2005 to authorize $1 billion in new NMTCs to help rebuild communities devastated by Hurricane Katrina.
But in its March 2 announcement, the CDFI Fund said that no new applications will be accepted for the additional NMTCs. Only those Community Development Entities (CDEs) that have already applied under the current 4th Round allocation will be eligible to contend for them, it said. The $600 million of NMTCs will be added to the $3.5 billion that the Fund had already planned to allocate for the current round, for a total allocation of $4.1 billion to be awarded this Spring.
The additional NMTCs combine amounts for 2005 and 2006 authorized under the Gulf Opportunity Zone Act of 2005, which was passed by Congress and signed by President Bush in December. The Act called for new NMTCs in three separate cycles: $300 million each for the 2005 and 2006 calendar years, and $400 million for 2007. The tax credits are in addition to the original $15 billion in NMTC authority that Congress approved in 2000.
The Act requires that the new NMTCs be used to fund investments to low-income businesses located in the Gulf Opportunity Zone, a swath of coastal area in Louisiana, Mississippi, and Alabama declared a federal disaster area after Hurricane Katrina struck in August.
NMTC market participants have been eager to receive direction on the actual allocation of the new credits, (see article in Tax Credit Advisor, December 2005, page 17), and were pleased that the CDFI Fund has acted so quickly in providing guidelines. On the other hand, some were surprised that the Fund did not permit CDEs which had not submitted a 4th Round application a chance to offer GO Zone proposals. Similarly, there was surprise that CDEs which had submitted 4th Round applications – but had not proposed projects in the GO Zone – were not given a subsequent chance to do so.
The original deadline for the 4th Round was September 21, 2005, shortly after Hurricane Katrina struck. Thirteen additional CDEs located in areas affected by the hurricane were permitted to submit applications after that deadline, and those applications were received before the end of 2005.
“It’s too bad new ideas won’t be considered,” said an official at one CDE, who declined to be identified. “I think a chance for creativity has been missed,” he added.
Procedure for Awarding Katrina NMTCs
In an amendment to its 4th Round Notice of Allocation Availability (NOAA), the CDFI Fund outlined how the selection of allocatees for the $600 million in new NMTCs would work.
The Fund said that a candidate for the new allocation must show that the “GO Zone is included within its particular geographic service area,” and that it intends to “target activities to Low-Income Communities” within the GO Zone. When this is verified, the CDFI Fund will then require qualified candidates to submit responses to a supplemental questionnaire designed to evaluate whether they have a “significant mission of recovery and redevelopment in the GO Zone.”
The questionnaire will lay out several criteria for making this evaluation. First, an applicant will be judged on whether it has “sufficient resources in the GO Zone,” including its “current physical presence in the GO Zone.” Secondly, a candidate will be scored in terms of “its track record of providing financing and related services in the GO Zone over the past five years.”
The Fund said it will make final allocations for the $3.5 billion in regular 4th Round NMTCs before determining allocations for the $600 million in GO Zone NMTCs. The new NMTCs, it said, will be awarded “with priority to those applicants that were rated as having the strongest significant mission of recovery and redevelopment of the GO Zone, but were not selected to receive allocation under the initial $3.5 billion allocation authority.”
“If allocation authority is still available,” the NOAA amendment continued, ” the CDFI Fund may provide additional GO Zone allocation authority to eligible applicants that were selected to receive an allocation from the initial $3.5 billion, provided the CDFI Fund determines they have the capacity to administer additional allocation authority in the GO Zone.”
All CDEs awarded GO Zone allocation authority will be required to invest 100 percent of the Qualified Low-Income Community Investments (QLICIs) allocation in the GO Zone. CDEs will also be required to “maintain accountability to the GO Zone through their advisory or governing board representation.”
The remaining $400 million of authorization under the GO Zone Act will be added to 2007 NMTC allocation round. The CDFI Fund has said that a NOAA seeking applications for the 2007 round will be issued this summer.
