The United States Department of the Treasury’s Community Development Financial Institutions Fund (CDFI) has last week announced $7 billion in New Markets Tax Credit (NMTC) awards with the goal of economically revitalizing low-income communities across the country.  Particular outcomes that the CDFI hopes to achieve with this round of awards include investment in nonmetropolitan areas, job creation, expansion of minority-owned businesses, provision of healthcare to underserved communities, and extension of access to healthy foods within current food deserts.  A total of 120 organizations nationwide received tax credit allocation authority under this round of the NMTC Program, the largest amount in its history.

The NMTC can serve as a valuable means of reducing the debt or equity necessary to undertake a project.  In a typical NMTC transaction, a project sponsor can expect to receive a net benefit of 20 to 25 percent of project costs.  For example, a project with eligible costs of $10,000,000 can generate up to $2,500,000 of capital for the project thereby reducing the need for capital from traditional debt and equity sources to only $7,500,000.  This substantial benefit created by the NMTC Program allows it to function as a powerful mechanism for economic development.

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