The Winners: Treasury Announces 2012 New Markets Tax Credit Allocation Awards

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What do Texas and Kansas have in common?

Answer: Both are among the big winners in the latest round of federal new markets tax credit (NMTC) allocation awards announced recently by the U.S. Treasury Department.

The 2012 funding round awards, totaling $3.5 billion, are to 85 community development entities (CDEs) and will help finance a variety of businesses and projects in low-income communities nationwide. Fifteen recipients are CDEs affiliated with firms or organizations that are members of the National Housing & Rehabilitation Association. (See chart showing all allocation recipients.)

The 85 allocatees will provide these new tax credits to investors in exchange for capital that they then invest in qualified active low-income community businesses (QALICBs). Before the CDEs can do so, they must sign and return an allocation agreement to the Community Development Financial Institutions (CDFI) Fund.

Texas at the Top

The new allocatees are based in 28 states and the District of Columbia and expect to make investments in all 50 states, the District of Columbia, and Puerto Rico.

Texas has the potential to attract the most NMTC proceeds for projects of any state. Some 25 CDEs receiving $1.060 billion in aggregate NMTC allocation awards indicated that Texas is one of the states – or the only one – that they plan to serve with their new allocation. In the 2012 round, Texas led all states in the number of allocatees planning to serve the state and in the aggregate dollar amount of allocation awards of such allocatees. In the prior, 2011 round, only 13 allocatees with an aggregate $785 million planned to serve Texas. (See chart at bottom for Top 15 states in allocation awards.)

Kansas also saw its fortunes rise this time. Eight allocatees receiving $365 million plan to serve Kansas, up from only one allocatee with $55 million the previous round. Idaho and Puerto Rico each have allocatees this year after none last time. Alabama, Georgia, Tennessee, and Virginia were among states seeing big increases in the aggregate dollar amount of allocatees’ awards.

California, Louisiana, Illinois, Ohio, and Pennsylvania had significant decreases in the aggregate dollar amount of allocatees’ awards compared to the 2011 round, even though remaining in the Top 10 in allocatees and aggregate award amounts. Michigan was hit especially hard, tumbling from 20 allocatees ($1.150 billion) in the 2011 round to 10 allocatees ($545 million) this time.

Trends in 2012 Awards

Other trends in the 2012 round awards include:

  • More but smaller awards. Eight-five CDEs received $3.5 billion in awards, ranging from $15 million to $80 million and averaging $41.2 million. In the 2011 round, 70 allocatees received $3.623 billion in awards, ranging from $20 million to $100 million and averaging $51.8 million. This year there were just 7 awards of $70 million or larger compared with 18 in the 2011 round, and 18 awards of $25 million or less compared with 11 before. CDEs receiving the largest 2012 round awards, of $80 million each, were Clearinghouse CDFI and CEI Capital Management, LLC.
  • Less competition. 282 CDEs requested $21.9 billion in allocation authority in the 2012 round, compared with 314 CDEs asking for $26.7 million in the 2011 competition. Some 30.1% of applicants received an allocation compared with 22.3% in the 2011 round.
  • More first-timers. Ten CDEs (11.8% of all allocatees) received their first allocation, up from five allocatees (7.1%) in the 2011 round. Still, this was still far below the 26.2% share for first-timers in the 2010 round.
  • A continuing shift to business investment. The 2011 awards marked the first time that allocatees planned to use more in aggregate allocation authority to finance operating businesses than to fund real estate projects. This shift grew even more this year. In the latest round, allocatees expect to use about $2.012 billion in NMTC proceeds (58.7% of the total) to make loans to or equity investments in operating businesses; $1.394 billion (40.7%) to make loans to or equity investments in real estate projects; and $20.202 million (0.6%) to provide capital to other CDEs. In the 2011 round, the breakdown was: operating businesses, $1.987 billion (56.1%); real estate projects, $1.524 billion (43.0%); and capital to other CDEs, $32.7 million (0.9%).
  • Major players get awards. CDEs affiliated with major banks or national nonprofits winning 2012 allocations include those of JPMorgan Chase Bank ($70 million), Goldman Sachs Group ($45 million), PNC Bank ($45 million), SunTrust ($45 million), U.S. Bancorp ($65 million), and Enterprise ($50 million).
  • Smaller share for national service areas. Of the 85 allocatees, 48% will focus on a national service area, down from 53% in the 2011 round. Another 16% have a multi-state service area; 18%, a statewide area; and 18%, a citywide or county area. Roughly $1.859 billion in NMTC proceeds (54.3%) is expected to be invested in major urban areas; $824 million (24.0%) in minor urban areas; and $744 million (21.7%) in rural areas (i.e. non-metropolitan counties).

Traits of Allocatees, Service Areas

The breakdown of 2012 awardees by type of CDE is: nonprofit organizations or subsidiaries of nonprofits, 49 allocatees (57.6%) receiving $1.790 billion; certified community

development financial institutions (CDFIs) or subsidiaries of CDFIs, 26 allocatees (30.6%, $1.955 billion); governmentally controlled entities or subsidiaries of such entities, 13 allocatees (15.3%, $420 million); non-CDFI banks or bank holding companies, publicly traded institutions, or subsidiaries of such entities, 12 allocatees (14.1%, $575 million); minority-owned or -controlled entities, 8 allocatees (9.4%, $285 million); and real estate development companies or subsidiaries of such entities, 8 allocatees (9.4%, $260 million).

Seventy allocatees (82.3%) plan to use part of their new allocation to fund projects and activities supporting the Healthy Food Financing Initiative. This interagency initiative is designed to address “food deserts” by bringing fresh food to underserved low-income urban and rural communities, such as through new grocery stories, farmers markets, etc. In fact, one of the 2012 allocatees is controlled by The Kroger Co., the Cincinnati-based grocery chain. According to CDFI Fund materials, Kroger’s CDE, with a national service area, will use its $20 million allocation “to increase access to fresh and nutritional foods for low-income residents in distressed areas.”

(Details on 2012 NMTC allocatees and awards: http://tinyurl.com/bgxb7yy)

New Markets Tax Credit 2012 Allocation Awards
Top 15 States By Number of Allocatees Serving State
Rank State 2012 Round
No. of Allocatees Serving State		 2012 Round Aggregate Awards of Allocatees Serving State
(in millions)		 2011 Round
No. of Allocatees Serving State		 Aggregate Awards of Allocatees Serving State
(in millions)
1 Texas 25 $1,060 13 $785
2 California 21 $850 21 $1,150
3 New York 20 $955 19 $1,152
4 Florida 18 $850 15 $840
5 Louisiana 15 $675 19 $1,087
-– Georgia 15 $585 5 $210
7 Ohio 13 $555 13 $805
-– Illinois 13 $530 17 $1,000
-– New Jersey 13 $525 14 $707
10 Pennsylvania 12 $420 18 $952
-– Alabama 12 $580 5 $295
-– Tennessee 12 $480 6 $270
13 Virginia 11 $470 7 $255
-– District of Columbia 11 $420 12 $652
15 Michigan 10 $545 20 $1,150
-– Maryland 10              $420 9 $520