Impact of New Markets Tax Credit Program Highlighted During Senate Finance Committee Hearing
Washington, DC
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July 30, 2024 04:30 PM Eastern Daylight Time
During a Senate Finance Committee hearing held today on “Tax Tools for Local Economic Development,” Committee Chairman Senator Ron Wyden (D-OR), Ranking Member Senator Mike Crapo (R-ID), Senator Ben Cardin (D-MD) and witness Julia Nelmark, President & CEO of Midwest Minnesota Community Development Corporation, and Vice Chair of the New Markets Tax Credit Coalition highlighted the significant impact of the New Markets Tax Credit (NMTC).
The NMTC program was established in the Community Renewal Tax Relief Act of 2000 (PL 106-554) and has been extended by Congress eight times since its original authorization in 2000. These extensions, along with the original NMTC legislation, have enjoyed bipartisan and bicameral support over the past two decades. The current authorization, enacted in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (PL-116-260), extended NMTC for 2021-2025 at $5 billion in annual allocation authority.
Excerpts from Chairman Wyden:
- “There are a lot of creative ideas out there, and Congress is facing a big tax deadline at the end of next year. Our discussion ought to begin with building on policies that are proven to work. There’s no better example than the New Markets Tax Credit. New Markets was established almost 25 years ago as a flexible way to get private investment dollars into low-income communities -- cities, towns, and rural areas.”
- “All 50 states have benefitted from the New Markets Tax Credit. It has helped get thousands of projects off the ground. Health care and manufacturing facilities. Childcare centers and schools. Retail developments and housing, including lots of affordable units.”
- “But New Markets is not a permanent tax credit. It’s temporary, and it’ll expire at the end of 2025. Congress has extended it on a bipartisan basis several times. We cannot allow it to get lost amid the tax code chaos coming down the pike at the end of next year.”
- “Senator Cardin has been a champion of the New Markets Tax Credit. He’s got a bill that would make it permanent and expand its value to drive even more investment to communities that need the boost. In my view, it’s a no-brainer. I’m proud to support it.”
- “New Markets is an example of an efficient, powerful tool in our tax code that works. This committee also needs to make tough choices about programs that are not working as intended.”
Excerpts from Ranking Member Crapo:
- “Opportunity zones, the new markets tax credit, the historic tax credit, tax-exempt bonds and the low-income housing tax credit all spur local economic development. And we can see tangible results in communities around the country.”
- “In Mountain Home, Idaho, the Desert Sage Health Center recently opened a new 30,000 square foot primary care facility. It will serve a more rural part of my state and was made possible due to a new markets tax credit investment.”
- “Several members of this committee have been working across the aisle to promote these other incentives. For example, Senators Daines and Cardin have introduced legislation to permanently extend the new markets tax credit, and Senators Cassidy, Cardin, Collins and Cantwell have introduced legislation to expand the historic tax credit.”
Senator Cardin, a longtime advocate and supporter of the New Markets Tax Credit, highlighted the importance of modernizing tax credits as the uncertainty of their permanence causes unnecessary obstacles for developers. He asked witnesses to weigh in on the need for a commitment and strategy from Congress to make economic development tools like the NMTC permanent and remove uncertainty.
Ms. Nelmark responded by explaining that permanency would reduce costs for CDE’s and investors, allowing them to better plan and bringing more dollars directly to communities they are attempting to assist.
Senator Cardin’s remarks [begin at 1:11:00].
Additional excerpts of Ms. Nelmark’s testimony include:
- “The New Markets Tax Credit is one of the most effective tools we have for community development. It provides lower cost financing for businesses and community facilities in America’s most distressed urban and rural communities. Congress authorized the New Markets Tax Credit in 2000 to reduce the cost of capital in communities outside the economic mainstream.”
- “New Markets is a simple concept: Taxpayers receive a 39% tax credit (taken over seven years) for qualified investments into Community Development Entities (or “CDEs”), organizations with a track record of loans and investments in underserved areas. CDEs use the proceeds of those investments, leveraged with debt, to finance manufacturing and business expansions, healthcare and daycare facilities, business incubators and other important revitalization projects. Its flexibility makes it particularly useful in supporting the needs of each business and community as determined by those working on the ground. The nonprofit and industry sectors receiving New Markets financing are diverse, reflecting a cross-section of the American economy.”
- “Through the allocation of tax credits to CDEs, including Midwest Minnesota CDC, the New Markets Tax Credit has facilitated the flow of capital into projects that spur economic growth, create jobs, and improve the quality of life for residents in underserved areas. And it does so in a cost-effective manner – New Markets provides a return to the government on its investment through increased tax revenue. For example, in 2015, New Markets generated $15.2 billion in economic activity, resulting in $872 million in federal tax revenue – more than offsetting the $759 million annual cost of New Markets Tax Credits in 2015 and providing a $113 million return (15%). This activity also boosted state and local revenues by $502 million in 2015.”
- “Since its inception, the New Markets Tax Credit has delivered over $135 billion in financing to over 8,500 businesses and community development projects. New Markets projects have created over 1.2 million jobs to date at a cost to the federal government of under $20,000 per job.”
- “The New Markets Tax Credit has helped jump-start the American manufacturing industry by helping nearly 2,000 manufacturing and industrial businesses expand.”
- “New Markets also helps expand access to community facilities and amenities. To date, New Markets has financed over 3,700 federally qualified health centers, schools, nursing homes, daycare centers, apprenticeship programs, treatment facilities, and other service providers. Recently, we helped finance the redevelopment of the historic Coliseum building in Minneapolis. Severely damaged in the civil unrest following the murder of George Floyd, this will be home to several small businesses, which will gain an equity stake over time.”
- “In summary, while the New Markets Tax Credit has proven its effectiveness at incentivizing investment in those areas most in need of affordable financing, it is not yet permanent. Making New Markets permanent along with AMT relief and inflation adjustment, will improve its effectiveness and increase the success of communities and businesses throughout the country.”
About New Markets Tax Credit Program--The New Markets Tax Credit (NMTC) was enacted in 2000 to stimulate private investment and economic growth in low-income urban neighborhoods and rural communities lacking the patient capital to support and grow businesses, create jobs, and sustain healthy local economies. Since its inception, the NMTC has generated more than one million jobs. Today due to NMTC, more than $135 billion is hard at work in underserved communities in all 50 states, the District of Columbia, Guam and Puerto Rico. For examples of how the NMTC impacts each state, see the NMTC Coalition’s project database and state fact sheets. For more information, visit www.NMTCCoalition.org.
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