Rosa Martinez

COMMUNITY DEVELOPMENT
FINANCIAL INSTITUTIONS FUND
www.cdfifund.gov
New Markets Tax Credits
Energy-related Investments
NGA Policy Academy: Targeting Clean Energy for Economic Development
Targeting Federal Funds to Support State-Led Clean Energy Initiatives
Scottsdale, AZ
May 15, 2014
New Markets Tax Credit (NMTC)
Presentation Roadmap
• NMTC Program History and Overview
• NMTC Program Key Terms
• NMTC Investments in Energy-related businesses
• How can NMTCs work for your organization?
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND //
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NMTC Program History
The NMTC Program was authorized under the
Community Renewal and Tax Relief Act of 2000, and has
been subject to reauthorization since 2006. Most
recently, the American Taxpayer Relief Act of 2012
extended the program through 2013.
• In April 2014, the House Ways & Means Committee
Members reintroduced bipartisan legislation that would
make permanent the NMTC.
• In the 10 application rounds to date, the CDFI Fund has
made 749 allocation awards totaling $36.5 billion in tax
credit authority.
•
–
Includes $3 billion in Recovery Act awards and $1 billion for recovery and redevelopment
from Hurricane Katrina.
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NMTC Program Overview
• The NMTC Program is jointly administered by the
CDFI Fund and the Internal Revenue Service (IRS).
• Investments made through the NMTC Program must
comply with regulations outlined in Section 45D of the
Internal Revenue Code.
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NMTC Program Overview
• NMTCs provide a credit against Federal income
taxes for investors that make Qualified Equity
Investments (QEIs) in certified financial
intermediaries called “Community Development
Entities (CDEs).”
– NMTCs are awarded to CDEs, not to individuals or
businesses.
• CDEs, in turn, use the proceeds of these QEIs to
make Qualified Low-Income Community Investments
(QLICIs), such as business loans, in Low-Income
Communities.
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Tax Credit Amount
• The New Markets Tax Credit is taken over a 7-year
period.
• The credit rate is:
– 5% of the original investment amount in each of the first
three years; and
– 6% of the original investment amount in each of the final four
years.
• Total credit equals 39% of the original amount
invested in the CDE.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
TOTAL
5%
5%
5%
6%
6%
6%
6%
39%
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Tax Credit Amount - Example
• The CDFI Fund awards a tax credit allocation of $1
million to a CDE.
• The CDE offers the tax credit to a single investor in
exchange for a $1 million equity investment.
– Generates a $50,000 credit annually for the first three years;
– Generates a $60,000 credit annually for the final four years.
• Total credit value over 7 years is $390,000.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
TOTAL
$50,000
$50,000
$50,000
$60,000
$60,000
$60,000
$60,000
$390,000
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND //
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Tax Credit Recapture
• NMTCs may be recaptured from investors during the
7-year credit period under certain conditions.
• Events triggering recapture include:
– The QEI fails the “substantially-all” requirement.
• Failure to invest 85% of original QEI; or
• Failure to meet “Qualified Active Low-Income Business”
(QALICB) requirements; or
• Failure to meet one-year investment/ reinvestment requirement
– The CDE redeems the investment.
– The CDE ceases to qualify as a CDE.
*It is not an event of recapture if a CDE files for bankruptcy. An investor
may continue to claim NMTCs.
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NMTC Program Key Terms
• Community Development Entity (CDE)
• Qualified Equity Investment (QEI)
• Qualified Low-Income Community Investment (QLICI)
• Qualified Active Low-Income Community Business
(QALICB)
• Low-Income Community (LIC)
• Financial Counseling and Other Services (FCOS)
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What is a CDE?
• A Community Development Entity (CDE) is a
domestic corporation or partnership that is an
intermediary vehicle for the provision of loans,
investments, or financial counseling in Low-Income
Communities.
• To qualify as a CDE, a domestic corporation or
partnership must apply for and receive certification
from the CDFI Fund.
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND //
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Qualified Low-Income Community
Investments (QLCIs)
QLICIs include:
• Any capital or equity investment in, or loan to, a
“Qualified Active Low-Income Community Business”
(QALICB).
• Purchase of a loan from another CDE if the loan is a
QLICI.
• Any equity investment in, or loan to, a CDE.
• “Financial Counseling and Other Services” (FCOS) to
businesses located in, or residents of, Low-Income
Communities (LICs).
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Examples of QALICBs
• An operating business located in a Low-Income
Community (LIC).
• A business that develops or rehabilitates commercial
industrial, retail, and mixed-use real estate projects in
an LIC.
• A business that develops or rehabilitates community
facilities, such as charter schools or health care
centers, in an LIC.
• A business that develops or rehabilitates for-sale
housing units located in LICs.
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What is a Low-Income Community?
• “Low-Income Communities” (LICs) are census tracts:
– Where the poverty rate is at least 20%; or
– Where the median family income does not exceed 80% of
the area median family income; or
– Where the median family income does not exceed 85% of
the area median family income provided the census tract is
located in a high migration rural county, or
– Where the census tract has a population of less than 2,000
and is contained within a Federally designated
Empowerment Zone and is contiguous to at least one other
LIC.
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Low-Income Communities –
Targeted Populations
• Businesses not located in LICs but that otherwise
serve Targeted Populations may also qualify as
QALICBs.
• Targeted Populations include:
– Low-Income Persons (e.g. family income no greater than
80% of the applicable area median family income), to the
extent the project is located in a census tract with a median
family income at or below 120% of the median family
income.
• Refer to IRS and CDFI Fund guidance for additional
details.
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND //
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Finding a Low-Income Community
• The CDFI Fund offers tools and guidance on
determining whether a business is located in an LIC.
• For more information, visit our website –
www.cdfifund.gov/nmtc and look in the section titled
“Census Low-Income Community Eligibility Data.”
• Use the CDFI Information Mapping System (CIMS3)
to geocode addresses and map census tracts that
qualify as Low-Income Communities:
https://www.cdfifund.gov/what_we_do/mapping.asp#
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Activities Ineligible for NMTC
Investment
• Residential rental property
– Buildings or structures that derive 80% or more of their gross
rental income from renting dwelling units.
• Certain types of businesses:
- Golf courses
- Massage Parlors
- Race tracks
- Hot tub facilities
- Gambling facilities
- Suntan facilities
- Certain farming
businesses
- Stores where the principal
business is the sale of alcoholic
beverages for consumption off
premises
- Country clubs
• Refer to IRS regulations for additional details.
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Summary Graphic
CDEs must make QLICIs
within 12 months of receipt of
Investor QEIs
Investing in or
Lending to
QALICBs
CDE must offer
credits to investors
within 5 years
Community
Development
Entity
Purchasing
Loans from
CDEs
(For-profit only)
Financial
Counseling
Private
Investors
QEI must
stay invested in CDE
for 7 years
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Investing in or
Lending to
CDEs
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NMTC Investments in Energy Businesses
• To date, CDEs have invested more than $729 million
supporting project costs of $8 billion for
– Clean energy generation (e.g. biomass, wind, solar, waste)
– Manufacturing (e.g. solar cells)
– Energy efficiency of new or rehabbed facilities (e.g. LEED,
installation of solar panels on affordable housing or
commercial buildings,
– Energy research
• These investments are spread across 26 states.
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NMTC Investment in Energy Businesses
DV Community Investments, LLC
Mt. Poso Green Energy Power Plant
Total Project Cost: $43.5MM
QLICI: $8.73MM
•
NMTC financed the conversion of a coal-fired power plant to biomass fuel derived
from waste wood, such as yard, green waste and other biomass fuel to provide power
to the local utility company.
•
Retaining 40 permanent jobs
•
Located in Bakersfield, CA with an unemployment rate for the County at 15.9%
•
Mt. Poso also provides job training and career advancement to employees enabling
them to handle and operate specialized equipment and seek career advancement
both at the existing facility or other facilities that the sponsor owns and operates.
•
90 construction jobs and 100 indirect jobs in the local community
•
Operations have produced an average 35-40 MW since opening, currently operating
above 40 MW
•
Reuse of water from plant to supply water to local ranches with cattle herds
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NMTC Investment in Energy Businesses
AMCREF Community Capital
BTH: renewable energy generation
Total Project Cost: $56MM
QLICI: $15.7MM
•
BTH is a producer of torrefied wood pellets, a green alternative to coal. Torrefaction is a
process of treating wood to create a product that can supplement or replace coal used in
existing power plants on a 1:1 basis, without the need for costly power plant modifications..
•
Located in a Non-metro, severely distressed LIC in Clarke County, MS with unemployment
of 12.5%.
•
Jobs: 171 FTEs created, including 90 new FTEs and 81 FTEs in the lumber and trucking
industries.
•
BTH pays wages 101% above the region’s living wage in addition to benefits and job
training. They also actively recruit from within the local, highly distressed community.
•
Forestry Impacts: BTH will source 360,000 tons of wood waste from within 80 miles. This
product currently has little value, and sales to BTH will provide a new revenue stream to the
struggling local forestry industry reeling from paper mill closures and the housing slowdown.
•
Environmental Benefits: By reducing coal use in existing power plants, torrefaction converts
a portion of the power produced to renewable energy, greatly reducing net carbon, sulfur
dioxide and fly ash emissions.
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How can NMTCs work for your
organization?
• If you are a financing entity (e.g. loan fund, bank),
you may want to consider applying for CDE
certification.
– For more information, visit www.cdfifund.gov/cde.
• If you are a certified CDE, you can:
– Apply for an allocation of NMTCs;
– Receive a loan or investment from another CDE with NMTC
allocation authority;
– Sell loan(s) to another CDE with NMTC allocation authority if
those loan(s) are QLICI(s).
– For more information, visit www.cdfifund.gov/nmtc
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND //
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How can NMTCs work for your
organization?
• If you are a business looking for financing, you can
contact a CDE directly to inquire about NMTC
enhanced financing.
–
For more information, see the “Find CDEs with an NMTC
Allocation” section on www.cdfifund.gov/nmtc.
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Government-Controlled CDE
•
•
•
In the 2012 Allocation Round, 13 of the allocatees (15.3%) are
CDEs controlled state or local government bodies.
In the 2012 Round, government-controlled CDEs received
allocations totaling $420 million.
Examples of State-controlled CDEs that have obtained tax credit
allocations in past Rounds:
–
–
–
–
–
•
California
Massachusetts
Mississippi
Pennsylvania
Wisconsin
Govt-controlled CDEs are often affiliates or subsidiaries of State
finance agencies or housing finance agencies
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Contact Information
If you have additional questions on the New Markets
Tax Credit Program, you can reach the CDFI Fund via
one of the following methods:
CDFI Fund’s New Market Tax Credit
Website
www.cdfifund.gov/nmtc
NMTC Program Help Desk Phone
(202) 653-0421
*Option 3
CDE Certification Help Desk Phone
(202) 653-0423
CDFI Fund’s Help Desk Email
cdfihelp@cdfi.treas.gov
IRS Help Desk Email
new.markets.tax.credit@irs.gov
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND //
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5/7/2013
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