Lawmakers reintroduce bill to make New Markets Tax Credit permanent
Reps. Terri Sewell, D-Ala., and Tom Reed, R-N.Y., and Senators Ben Cardin, D-Md., and Roy Blunt, R-Mo., have introduced bipartisan legislation to make the New Markets Tax Credit permanent, in an effort to encourage private investment in low-income rural communities and urban neighborhoods.
The New Markets Tax Credit Extension Act of 2019, introduced Tuesday, would give private investors a 39 percent credit against their federal income taxes for investments made in distressed communities. To be eligible, the businesses, at a minimum, have to be located in designated low-income communities, as defined by U.S. Census data as census tracts with a poverty rate of at least 20 percent, or with median family incomes that do not exceed 80 percent of area median income. The tax credit is currently set to expire on Dec. 31, 2019. The bill would reauthorize the NMTC and make it permanent.
“The New Markets Tax Credit is an essential tool for revitalizing rural and urban communities across the country, and is a proven, cost-effective incentive that spurs investment in areas by providing businesses with flexible, affordable access to financing,” Sewell said in a statement. “I am confident that extending the tax credit will continue to help attract new investment in Alabama’s 7th District. New Markets Tax Credits have helped spur a number of important projects in the 7th District, including financing the Entrepreneurial Center in Birmingham and transforming the Huyck Felt brick plant into a new wood pellet manufacturing facility in Aliceville, creating 275 jobs.”
The NMTC has been controversial, though, as it has sometimes been used to finance projects such as luxury hotels, an antique car museum and theaters in upscale neighborhoods (see Gaming the New Markets Tax Credit). There are fears that similar abuses could happen with the opportunity zone tax break included in the Tax Cuts and Jobs Act of 2017, which has quickly attracted the attention of real estate investors. This isn’t the first time legislation has been introduced to make the NMTC permanent. In 2013, Blunt and former Senator Jay Rockefeller, D-W.Va., introduced similar bipartisan legislation (see Senators introduce bill to make New Markets Tax Credit permanent). Cardin was one of the co-sponsors at the time.
While NMTC investments are supposed to benefit businesses in low-income communities, the NMTC doesn’t focus on a specific type of business or sector. The NMTC places responsibility for underwriting the project with community development organizations tied to the communities in which they work.
Across the country, the tax credit has delivered $90 billion total project financing to over 5,000 projects, creating 1,000,000 jobs, according to its proponents. According to the CDFI Fund, every dollar invested by the U.S. government in the tax credit results in $8 of private investment in economically distressed communities.
“We care about boosting jobs here in New York and across the country, but unfortunately some small businesses — the backbone of our economy — still struggle to secure a fair amount of capital to spur revitalization,” Reed said in a statement. “By creating a better environment for businesses we will see transformative projects to thrive — boosting wages, services and economic development where it’s needed most.”
“The New Markets Tax Credit is a critical tool for encouraging new investment in areas that need it most,” Blunt said in a statement. “This program has a successful record of expanding economic opportunities and improving quality of life in areas across our state, whether it’s financing a training center for sheet metal workers in St. Louis or the first new grocery store in more than a generation in Pagedale. This program benefits families and local economies and urban and rural areas alike, and I urge all of our colleagues to support it.”
“In Maryland, the New Markets Tax Credit has been deployed across our state on a diverse range of infrastructure and community development efforts, from an affordable housing project to provide apartments for educators and teachers in my home city of Baltimore, to a multicultural center for low-income minority families in Langley Park,” Cardin stated. “I am pleased once again to be a supporter of this bipartisan legislation, which will create jobs and stimulate our economy in communities across Maryland and across America.”
While all NMTC investments are supposed to benefit businesses in low-income communities, the NMTC does not target a specific type of business or sector. The NMTC places the project underwriting responsibility with community development organizations with ties to the communities in which they work. Treasury Department data indicates that more than 72 percent of NMTC activity is in severely distressed communities with unemployment rates at least 1.5 times the national average or with poverty rates of at least 30 percent.
Nationwide, the tax credit has provided $90 billion in total project financing to over 5,000 projects, creating 1,000,000 jobs, according to its proponents. According to the CDFI Fund, every dollar invested by the federal government in NMTC results in $8 of private investment in economically-distressed communities. In FY 2018 alone, the CDFI Fund, which operates the program at the Treasury Department, reported that the NMTC delivered nearly $4 billion in financing to 680 businesses, community facilities and economic revitalization projects. Communities created nearly 9,500 permanent jobs and almost 30,000 construction jobs in areas with high unemployment and poverty rates.
The tax credit was established in 2000 by the Community Renewal Tax Relief Act in an effort to drive economic growth in low-income urban neighborhoods and rural communities. Congress extended the NMTC for five years as part of the PATH Act at the end of 2015.
“Last Congress, over 125 members of Congress from both parties cosponsored NMTC extension legislation,” stated NMTC Coalition spokesperson Bob Rapoza. “The strong support of the New Markets Tax Credit was a direct result of the tangible impact it makes in distressed rural and urban communities that have been left outside the economic mainstream.”
A majority of the members of the House Ways and Means Committee cosponsored legislation to extend the tax credit in the previous congressional session, and the new bill starts off with support from 17 members of the tax-writing committee. The text of the New Markets Tax Credit Extension Act of 2019 is available here.