Thank you, Ron, for that kind introduction. I am very happy to be here today for the New Markets Tax Credit Coalition's 2010 Annual Conference.
I would also like to thank all of you for everything you are doing to make the New Markets Tax Credit Program such a valuable tool for creating economic opportunity in low-income communities throughout the nation.
It is always an honor for me to join you at this event to speak about the progress of the New Markets Tax Credit Program, but this year it is a special pleasure, because, as you well know, 2010 marks the 10th anniversary of the establishment of the program.
From the very beginning, the New Markets Tax Credit Program has been highly successful. It has served - and continues to serve - as a wonderful example of the power of collaboration, demonstrating for all to see what individuals and organizations from the government, the nonprofit sector, and the private sector can achieve when they work together toward a common goal.
So, before I bring you up to date on what has been happening at the CDFI Fund in the past year, I would like to take a look back at the past decade and to acknowledge just how far the New Markets Tax Credit Program has come - because we have come a very long way.
Growth of the NMTC Program
The New Markets Tax Credit Program was authorized under the Community Renewal Tax Relief Act of 2000, and calendar year 2002 was the first year in which the CDFI Fund accepted applications for NMTC authority.
Since then, the program has established a very impressive record. The CDFI Fund has just compiled some new data on the New Markets Tax Credit Program to offer a clear picture of the program's growth and impact. For example:
- In 2002, there were 558 organizations certified as a Community Development Entity (CDE) by the CDFI Fund. As of September 30, 2010, there were 4,558 CDEs.
- Through the first seven allocation rounds, the CDFI Fund has made 495 awards, providing $26 billion in tax credit allocation authority.
- From FY 2003 through FY 2010, the organizations receiving these awards have made 2,175 loans and investments, totaling $9.9 billion, to support real estate development and rehabilitation in low income communities; 2,079 loans investments totaling $5.5 billion to support businesses in low-income communities; and 182 loans and investments totaling $351.4 million to support other CDEs.
Clearly, the New Markets Tax Credit Program has been a powerful program. Through good times and the hard times, it has attracted billions of dollars in investment capital and put it to work quickly in communities where capital is needed most.
The program's success is a testament to your hard work and your tremendous commitment to the low-income communities you serve. Thank you to you and your organizations - the CDEs - for being such great partners and for helping to make the New Markets Tax Credit Program's first 10 years so successful. May our next 10 years be even more productive.
CDFI Fund Update
In the past year, the recession has continued to present many challenges for the community development finance industry. However, in 2010, the New Markets Tax Credit Program has continued to build upon its strong record.
Now, I know that the first topic you are wondering about is the status of the 2010 allocation round.
As you well know, Congress has not yet re-authorized the New Markets Tax Credit for calendar years 2010 or 2011. However, we at the CDFI Fund are optimistic that the tax credit will be extended, and following Congressional action we are prepared to make an award announcement in January 2011.
In the meantime, though, I do have some other very positive updates about 2010.
First of all, the demand for tax credits remains strong. The CDFI Fund received 250 applications for the 2010 allocation round. That is the same number we received in 2009. However, the amount of allocation authority requested in 2010 increased by $1 billion - to $23.5 billion - over last year.
Second, the market for Qualified Equity Investments (QEIs) is robust. We were very pleasantly surprised to learn that, through the first three quarters of calendar year 2010, more than $3.1 billion in QEIs had been raised. That surpasses the total raised for all of 2009--$2.8 billion - and is approaching the $3.73 billion raised in 2008. We are still concerned that the number of NMTC investors has fallen in recent years, and that pricing for the credits has dropped. That's why the Administration requested that Congress, when it reauthorizes the NMTC Program, allow NMTC investments to be used to offset liabilities for taxpayers subject to the Alternative Minimum Tax (AMT). We believe that this is the best way to ensure a larger base of NMTC investors.
Those are all very encouraging signs.
The CDFI Fund is also taking a number of important steps to enhance the New Markets Tax Credit Program.
In 2007, we engaged the Urban Institute to conduct a comprehensive, multi-year evaluation of the New Markets Tax Credit Program. The Institute completed the first part of its evaluation in 2010, producing a report for the CDFI Fund detailing their methodology in preparation for the primary survey in 2011. Their report, entitled "Evaluating Community and Economic Development Programs: A Literature Review to Inform Evaluation of the New Markets Tax Credit Program," is available on the CDFI Fund's website. The new data collection phase has been approved by OMB and will begin in February 2011 to gather NMTC project data that supplements existing CDFI Fund administration data. Paperwork Reduction Act clearance has been granted for the following new information collection efforts:
- Case-style data collection related to 80 sampled NMTC projects that will consist of semi-structured telephone interviews with 80 CDEs, 80 QALICBs, 80 investors, and 80 other key project stakeholders;
- An online, predominantly closed-ended survey of representatives of 380 QALICBs; and
- An online, predominantly closed-ended survey of 380 local community/economic development officials.
We urge CDEs if they are contacted by the Urban Institute to participate in this data collection since this effort will provide essential information necessary to conduct an impartial external third party evaluation of the merits of the program. We expect the report to be competed by the Fall of 2011.
In addition, the CDFI Fund has been working with the Treasury Department and the Internal Revenue Service to propose several new measures to expand support for the New Markets Tax Credit Program. With our support, the IRS recently published two documents providing clarity to NMTC investors and to CDEs, which will hopefully expand participation in the NMTC Program:
- Guidance on Passive Activity rules, which clarified circumstances under which taxpayers could acquire QEIs and not be subject to passive activity rules.
- Guidance on the Leverage Model, which clarified that recourse debt can be used to Fund leveraged debt made to the investor fund making the QEI.
Most recently, the CDFI Fund has been working with the IRS to try and determine whether the IRS regulations can be modified to encourage more investments in operating businesses. In crafting these proposals, we drew upon the comments of CDFIs and CDEs all around the country that offered their ideas about ways to enhance the program. So I just want to say to all of you who participated, thank you for your suggestions. We appreciate your feedback, and we heard you.
As you can imagine, the process for reviewing and approving these measures is quite lengthy. At this time, all I can say is that the process is under way and we are working very closely with the Internal Revenue Service and Treasury's Office of Tax Policy. We will continue to let you know of the developments.
There is one more matter that I need to clarify. Many of you have wondered about how the CDFI Fund will handle the transition from 2000 census data to 2010 census data. What I can tell you is that we plan to handle the transition in the same way we handled the transition to the 2000 census data. We did not receive that data until 2002, so we are anticipating that the 2010 data may not be available until 2012. We also expect that there will be a period for grandfathering projects that began using 2000 data.
In any event, please continue using the current census data until the new data are available. We understand your concern about this matter, and we will release information on new procedures when we have a better idea of when the new data will be available.
The Impact of the NMTC
As I said earlier, I welcome the opportunity to talk to you about the latest developments in the New Markets Tax Credit Program. At the same time, I recognize that the more we talk about the details of the program, the easier it can become for us to lose sight of the real impact of the work we do.
One of the things I enjoy most about my position is that it gives me the chance to travel around the country and see the places where our programs are making a difference. And, believe me, seeing those places and meeting the people who live and work there has made a real difference to me.
Among the many places I have visited in the past couple of years are two that continue to find their way into the headlines: Detroit and New Orleans. Both cities have become symbols of a kind of devastation rarely seen in the United States.
But I see them differently. I see them as symbols of hope, because I have seen the spirit of their people in action, and I have seen that that spirit will not be broken.
In New Orleans, I was honored to participate in the dedication ceremony of the new Holy Cross School, a college preparatory institution that was established in 1849 and destroyed by Hurricane Katrina in 2005. Six CDEs provided $70 million of NMTC financing to enable Holy Cross to build a new 20-acre campus that serves 520 students in grades 5 through 12.
The people of Holy Cross could have given up and moved on after Katrina took their school, but they didn't. Their spirit would not be broken.
In Detroit, I visited three projects supported by NMTC investments: the transformation of an abandoned General Motors building into a charter school and center for design education, the construction of the fourth campus for the University Preparatory Academy, Detroit's leading K-12 college prep schools, and the creation of Tech Town, a 300,000-square-foot business incubator that houses more than 70 new companies.
Those people in Detroit could have given up and moved on, too, when their city was ravaged by a failing economy, but they didn't. Their spirit would not be broken.
I hope that when you return to work next week, you will remember that there are countless stories like these being written every day, all around the country - and that you are helping to write them.
You are creating new hope and new opportunity in communities where hope and opportunity are in short supply.
You are showing that, in places where the signs of life may be fading, life still endures - and can take root and flourish if only it is given a chance.
Indeed, you are helping all of America to see that, in places where many see only devastation and darkness, there is a spirit that will not be broken.
Thank you for your good work. Thank you for your support for the New Markets Tax Credit Program.
I look forward to working with you in 2011 and in the decade ahead.