National New Markets Fund

New Markets Tax Credit (NMTC) program was established by Congress in 2000 to stimulate investment and economic growth in designated low-income communities. The program is administered by the U.S. Treasury Department under its Community Development Finance Institution Fund (CDFI Fund) division. NMTCs are awarded annually through a highly competitive application process, with only  25% to 50% of the applicants receiving allocations generally ranging from $20 million to $70 million. The NMTC allocations are awarded based on track record of investing in high-distress communities and  proposed investment strategy. The allocatees have discretion in the selection and approval of investments within the parameters of a proposed strategy. Allocatees often invest their allocation into 3-6 different project investments. Once an allocatee selects a project to finance, it seeks out an investor to monetize or ‘buy’ the tax credits. By selling the value of the tax credit, the allocatee generates the proceeds which it can then invest, typically in the form of a below-market loan, in the project. An investor, most often banks, buys the tax credits to reduce their federal income tax. Investors purchase the tax credits at a discount to generate the proceeds needed for the investment. Market pricing for the tax credits fluctuates, but as an example, an investor typically pays about 70 cents to obtain $1 of tax credits. So an allocatee selling $10 million of NMTCs at 70 cents on the dollar will have $7 million of capital to invest in the project, a portion of which the project does not need to repay. This portion of the tax credit subsidies that are retained by the project provides the financial benefit to make the overall project financially viable. Learn more about NMTCs here.