Qualification Criteria:

Severely Distressed Census Tracts

Severely Distressed Areas are (1) characterized by at least one of items 1-5 on the list below for each QLICI, or (2) characterized by at least two of items 6-16 on the list below for each QLICI:

1. Census tracts with poverty rates greater than 30 percent
2. Census tracts that (a) if located within a non-Metropolitan Area, have a median family income that does not exceed 60 percent of statewide median family income; or (b) if located within a Metropolitan Area, have a median family income that does not exceed 60 percent of the greater of statewide median family income or the Metropolitan Area median family income
3. Census tracts with unemployment rates at least 1.5 times the national average (8.3% for 2011-2015 ACS Survey, For census tracts located in the Island Areas of the United States (American Samoa, Guam, Northern Mariana Islands and the US Virgin Islands) the national unemployment rate is 9.3. (These two geographies have different bases, because the eligibility data for the Island Areas of the United States comes from a different Census survey).
4. Census tracts that are located in counties not contained within a Metropolitan Statistical Area (MSA) (i.e. non-metropolitan counties), as defined pursuant to 44 U.S.C. 3504(e) and 31 U.S.C. 104(d) and Executive order 10253 (3 C.F.R. Part 1949-1953 Comp., p.758), as amended, with respect to the 2010 Census and as made available by the CDFI Fund;
5. As permitted by IRS and related CDFI Fund guidance materials, projects serving Targeted Populations to the extent that: (a) such projects are 60% owned by low-income persons (LIPs); or (b) at least 60% of the projects’ employees are LIPs; or (c) at least 60% of the projects’ gross income is derived from sales, rentals, services, or other transactions to customers who are LIP;
6. Census tracts with one of the following: (a) poverty rates greater than 25%; or (b) if located within a non-Metropolitan Area, median family income that does not exceed 70% of statewide median family income, or, if located within a Metropolitan Area, median family income that does not exceed 70% of the greater of the statewide median family income or the Metropolitan Area median family income; or (c) unemployment rates at least 1.25 times the national average
7. U.S. Small Business Administration (SBA) designated HUB Zones, to the extent that the QLICIs will support businesses that obtain HUB Zone certification from the SBA
8. Brownfield sites as defined under 42 U.S.C. 9601(39)
9. Areas encompassed by a HOPE VI redevelopment plan
10. Federally designated as Indian Reservations, Off-Reservation Trust Lands or Alaskan Native Village Statistical Areas, or Hawaiian Home Lands
11. Areas designated as distressed by the Appalachian Regional Commission or Delta Regional Authority
12. Colonias areas as designated by the U.S. Department of Housing and Urban Development
13. Federally designated medically underserved areas, to the extent that QLICI activities will support health related services
14. Federally designated Opportunity Zones, Impacted Coal Counties, base realignment and closure areas, State enterprise zone programs, or other similar state/local programs targeted towards particularly economically distressed communities
15. Counties for which the Federal Emergency Management Agency (FEMA) has (a) issued a “major disaster declaration” and (b) made a determination that such County is eligible for both “individual and public assistance;” provided that the initial project investment was made within 36 months of the disaster declaration
16. A Census tract identified as a Food Desert, which must either: 1) be a census tract determined to be a Food Desert by the U.S. Department of Agriculture (USDA), as identified in USDA’s Food Desert Locator Tool; or 2) a census tract that qualifies as a Low-Income Community and has been identified as having low access to a supermarket or grocery store through a methodology that has been adopted for use by another governmental agency, to the extent QLICI activities will increase access to healthy food.

Note: Census data for tracts located in the Island Areas of the United States (American Samoa, Guam, Northern Mariana Islands and the US Virgin Islands) utilize 2006-2010 ACS Survey data and were not updated for the 2011-2015 survey. This eligibility data has been added to the “New Markets Tax Credit Low-Income Community Census Tracts - American Community Survey 2011-2015” file on the CDFI Fund’s website.

Fast Facts – Winter 2022/23

1. The New Markets Tax Credit program (NMTC) is a federal economic development program administered by the Community Development Financial Institution Fund (CDFI Fund), an agency of U.S. Dept. of the Treasury.
2. Since its inception in 2001, NMTC has targeted Qualified, Severely Distressed Census Tracts with federal tax credits to spur capital development, to create jobs, and to answer significant community needs in underserved areas. 
   
3. The total amount of federal tax credits allocated by the program now exceeds over $71 billion. It is estimated that for every $1 in federal funding the program has created $8 in economic impact.  
   
4. The federal government allocates the tax credits on an annual basis to qualifying Community Development Entities (CDEs) who in turn make allocations to individual capital projects. Applicants for these allocations can be for profit or nonprofit entities. 
   
5. CDEs can be nonprofit or for profit entities, with a focus on local, statewide, regional (multi state), or national investment. They can be focused on one sector of the economy, e.g., healthcare, or be more broadly focused.
   
6. Because of the impact of millions of dollars in equity investment to individual projects, the program is highly competitive. Preference is often given to projects in nonmetro (rural) census tracts and/or underserved states. As of the 2021 awards, these underserved states include: AL, FL, GA, IN, KS, NV, TN, TX, WV, WY.
   
7. Allocations can be made by a CDE to projects that are either new construction or facility renovation and/or expansion. Projects must be owned by the applicant or be part of a long-term lease by the applicant (up to 30 years, including renewal options).
   
8. Allocations can be made in any amount, but the typical allocation is in the $8 million to $18 million range. On occasion, allocations might total $20 million or more on an individual project but allocations at these levels are not common.  
   
9. The total NMTC allocation received by an individual project can come from one CDE or, on occasion, multiple CDEs. The larger the ultimate allocation the more common it is to have multiple CDEs involved. 
   
10. Those projects with the best chance of receiving an allocation are the ones which:
11. best meet the objectives of the NMTC program with respect to location in a Qualified, Severely Distressed Census Tract; job creation; and providing needed services to underserved communities.
12. are shovel ready. That is, the project applicant controls the property/physical location, has all the remaining capital stack funds available for use, has engaged a contractor, and has in place the required construction drawings. 
13. are located in a Nonmetro (rural) census tract.
14. are located in an underserved state.
    
15. A typical $10 million tax credit allocation will result in approximately $1.7 million to $2.1 million in net equity investment in the project after the tax credits are sold on the open market and all fees and charges have been paid at closing. Why the difference between a $10.0 million allocation and a $1.7 million to $2.1 million equity investment?
16. First, these tax credits have a cash value of $0.39 / $1.00 as stipulated by federal authorizing legislation. So, a $10.0 million NMTC allocation has a cash face value of $3,900,000.
17. Investors buy the tax credits at a discounted valuation on the open market. Recent transactions have seen a valuation of $0.77 per dollar. This would provide for an equity investment of $3,003,000 on a $10.0 allocation.
18. CDEs charge a percentage of the face value of the allocation as their fee. This can range from 3% to as high as 10%. A good average to use would be 5% for a nonprofit CDE, or $500,000 on a $10,000,000 allocation.
19. Cost of Issuance fees (paid to NMTC consultants, NMTC lawyers, and NMTC accountants at closing) can range from $600,000 to $750,000.
    
20. A typical NMTC transaction can take from 9-12 months from date of engagement of NMTC consultant to transaction closing date.  
    
21. The tax credit period lasts 7 years, during which time the equity investment is treated as a loan for accounting purposes. Annual reports must be filed indicating that the stipulations regarding job creation, program services, etc., are being met.  
    
22. At the end of the 7 years, a put agreement is executed (typically for $1,000), with the loan forgiven by the investors and the equity transferred to the applicant/project sponsor.