Talking Heads, Robert Davenport, National Development Council
By Darryl Hicks
10 min read
The Case for NMTC
Inspired by the assassinations of Dr. Martin Luther King and Senator Robert Kennedy in 1968, Robert Davenport has spent most of his life examining the root causes of racism and poverty in America and advocating for policies that encourage positive change in America’s most distressed cities and neighborhoods.
Fifty years later, Davenport is still at it. “We have come a long way,” he said, “but we still have a lot of mountains to climb.”
In 1976, Davenport joined the National Development Council, a nonprofit based in New York City, whose mission is to increase the flow of capital for investment in low-income communities. Acting as a partner, teacher, advisor, investor, developer and lender, NDC works with local and state governments and community-based organizations to help them create and implement their own unique economic and community development strategies.
Davenport served as president of NDC from 1986 until January 2017. He’s still a senior advisor to NDC but spends the bulk of his time on the executive committee of the New Markets Tax Credit Coalition, which is battling to keep the New Markets Tax Credit intact while Congress debates tax reform.
TCA sat down with Davenport to discuss the future of the NMTC and NDC’s programs that are helping revitalize America’s urban core.
Tax Credit Advisor: Let’s focus first on your work with the New Markets Tax Credit Coalition. Who are you lobbying to preserve the NMTC? What is the messaging? How is the coalition delivering the message?
Robert Davenport: Technically, we’re not lobbying. We’re educating and advocating. Truth is, we’re educating and advocating to anyone who will listen. We’ve met with Treasury Secretary Mnuchin, House Ways and Means Committee Chairman Rep. Kevin Brady (R-TX) and Senate Finance Committee Chairman Senator Orin Hatch (R-UT), and other members of those committees. The message is very simple: the program is fulfilling the goals Congress set forth. There has occurred $80 billion of investment, every penny of it invested in a low-income or severely distressed community. The program has created economic opportunities in areas where it is most lacking. We’ve created 750,000 jobs at a very cost-effective rate. Federal studies have demonstrated that for only $20,000 of federal expenditure, we are creating one job in a low-income community. We also stress in our messaging that these projects are underwritten by the private sector, not by some federal bureaucrat. This is a partnership between communities and investment banking firms, which are predominantly commercial banks. The last point we emphasize is that the NMTC pays for itself. In 20 to 24 months, that $20,000 of federal expenditure for each job created has paid back, to the federal government, in tax revenues the same amount it was set up for. It has become a permanent, dividend-paying program that, if eliminated, would be catastrophic.
TCA: Based on the conversations you’ve had thus far, can the NMTC be saved? What steps can our readers take to defend the program?
RD: I think it can be. The program has two disadvantages: it’s small and it’s inexpensive. It could be a crumb that gets swept off the table very quickly and nobody notices. While I am hopeful we can save the credit, we have to keep at it every day of the week. TCA readers should contact their elected representatives, passionately describe projects they’ve worked on that have benefitted their communities, and invite members to ribbon-cuttings, even second ribbon-cuttings one year after a project has gone online, just to recognize its success. Do whatever is necessary to create the knowledge that the credit is at work in the representative’s or senator’s district and that it’s creating benefits. We need to preach from the pulpit.
TCA: Worst case scenario, if the credit is eliminated, how will that impact communities where investments have been made?
RD: You can’t do one deal in a community and leave thinking all its problems are solved. We must generate a self-sustaining flow of capital into these low-income communities. That often doesn’t happen after just one project, or three projects. It is a continuum that must be maintained over a period of time before investments become self-sustaining and attract private capital without tax credit benefits attached to them. If we can’t preserve the credit, there will be a tremendous negative impact on communities that have received NMTCs. While we may have developed one successful project, if we don’t do another, all we have is a little island of prosperity that may lose its ability to generate future investment.
TCA: Last December, I interviewed Annie Donovan, director of the Community Development Financial Institutions Fund at the U.S. Treasury. Has the CDFI Fund’s support for the NMTC or policy priorities changed under the new administration? Are there any programmatic changes that the NMTC Coalition would like to see implemented?
RD: No, the CDFI Fund’s priorities have not changed. Donovan has been a long-time fighter in the industry, a former president of the New Markets Tax Credit Coalition, who speaks highly of the credit. But even the people who she reports to at the U.S. Treasury are fully in favor of keeping the NMTC. So, the CDFI Fund’s support is unwavering. The programmatic changes that we’d like to see implemented are simple: make it permanent and index the program for inflation. The $3.5 billion that is appropriated annually for the NMTC program hasn’t changed since 2000. It should be closer to $5 billion to $6 billion.
TCA: NDC has invested more than $700 million in NMTC equity to help revitalize America’s urban core. In what regions of the country do you invest? What types of projects interest you the most?
RD: We invest capital in all regions of the country but especially underserved states. Each project that we do must be approved by the stakeholders and it must focus on three things; 1) creating high-quality, living-wage jobs; 2) building community centers that deliver critical services, such as child care, education, healthcare and culture. In the process of creating these community facilities, we decrease the need for federal government expenditures. And 3) we focus on projects that line up with state and local economic development priorities, meet the needs of community stakeholders and have community support and lead to follow-up investment opportunities that attract private capital.
TCA: NDC created the first training programs four decades ago that teach the art and science of economic and housing development finance to young professionals. Why were these programs created and what impact have they had on the affordable housing business? What should the next generation of community development professionals be focused on?
RD: This question is near and dear to me because when I joined NDC in 1976, then-president Sam Beard turned to me and said, “Congratulations Davenport, you get to create our training programs.” The goal was very simple. We needed to create a level playing field. While developers, investors and lenders knew what was going on in the finance arena, the people working in local governments and nonprofits did not understand the financing realm and all of its nuances. They needed to sit at the same table and know how to negotiate good deals for their communities. Over time, this evolved into creating professional standards so that the affordable housing industry could attract better talent. The people coming into our business are young and idealistic and not solely concerned with making a buck for their employer. They want to do something in the world that is beneficial. But they still need skills. They need to be able to figure out what the developer and lender want and then negotiate a workable, fair solution.
TCA: Beyond the NMTC, NDC has been a long-time equity syndicator in LIHTC and Historic Tax Credit transactions. How much equity have you raised across the two programs and what do you see as NDC’s niche or specialty?
RD: On the LIHTC side, NDC has raised well over $700 million, and over the past 20 years another $200 million in Historic Rehabilitation Tax Credits. We were created in 1968 with the mission of revitalizing low-income and distressed communities. Our focus is smaller deals under $5 million—and the occasional large project—and 72 percent of them are with nonprofit developers. We also work with small, first-time developers, who may be for-profit, but have limited resources.
TCA: NDC has distinguished itself as a leader in financing affordable assisted living projects. Can you highlight some of the issues developers should consider when underwriting these projects?
RD: Affordable assisted living is vital, but it can be tricky and difficult. The investor community is not particularly sold on it. It’s tough to underwrite a piece of real estate that has an operating business and the real estate can fail if the operating business doesn’t work. But we’ve bucked that trend, because the need is real and its importance is growing. If done correctly, it can be very rewarding to the community. There are three essential ingredients that we focus on when considering a new project; 1) the operator of the assisted living facility must be experienced and be able to deliver services in a cost-effective way; 2) the state Medicaid waiver program is generally the revenue stream that goes to the property and enables the project to receive adequate revenue. States that have good Medicaid waiver programs, such as Illinois, New York and Indiana, are where you’re likely to succeed; and 3) have a good mix of incomes. Medicaid creates a level playing field. The market-rate residents provide a ready market for the subsidized units as they spend down their income/assets. I don’t believe there is an ideal mix; that depends on a lot of input variables, such as number of units, demographics, amenities, state/local support services, etc.
TCA: This past October, NDC held its biennial NDC Academy. This year’s Academy focused on how economic development and community development finance professionals can work with the new administration to further their community’s goals. What were the key takeaways from the meeting?
RD: It was eye-opening for me. Nobody knew where this administration was going. What we found is that new program administrators are committed to making things work. It was a pleasant surprise. That doesn’t mean it was uniformly excellent. But when they sat and talked with us, they discussed achieving the same goals that we had, rather than shutting down the government. There’s a lot of marvelous work that’s being done by the administration already, it just doesn’t get any notoriety. This was also our largest Academy ever. We had 400 professionals attend. What was obvious, and what we’ve always known, is that our communities are alive and well and working very hard to achieve their goals. It was also evident from the visits we had to Capitol Hill that there is strong bipartisan support for LIHTC and NMTC. Is it strong enough? Probably not. We could make it stronger. And, I think, the last takeaway is that the administration believes that small businesses are vital to every community’s economy. That feeling hasn’t always been there, even from our friends in government.
Story Contact:
Robert Davenport
[email protected]
