Overview
The New Markets Tax Credits (NMTC) program began in 2001 as a federal initiative to generate employment and other benefits for residents of low-income communities. The program provides income tax credits to financial institutions in exchange for investment in a Community Development Entity (CDE). The CDE uses these funds to provide low interest rate loans (2-2.5 percentage points below market), high loan-to-value ratios (as high as 95% of development costs), and the potential for partial debt forgiveness to businesses or real estate projects in qualifying areas.
To date, CDEs serving Illinois have been granted a total of 58 NMTC allocations totaling $3.6 billion, or an average allocation of $62 million per CDE. From 2004-2007, more than 80% of projects using New Markets Tax Credits financing in Illinois were located in Chicago.
How it works:
The NMTC program involves a series of credits and investment flows:
- Banks, nonprofits, private equity firms, state finance agencies, etc. apply for Community Development Entity (CDE) qualification and tax credit allocation.
- CDEs are awarded tax credits through a competitive application process.
- Investors provide equity to a CDE in return for a 39% income tax credit spanning 7 years.
- CDEs use the investor equity to provide financing (low-interest or forgivable loans and/or equity) to projects in low income communities.
NMTC Allocations and Project Highlights
In 2009, 13 allocations were made to CDEs serving the Illinois market, including the Chicago Development Fund (CDF), a CDE established by the City of Chicago in 2005. This fall Tim Geithner announced an additional $55 million allocation for the CDF. World Business Chicago works closely with the CDF to provide businesses with New Market Tax Credit assistance to expand or locate operations in Chicago. The CDF targets industrial projects, grocery-anchored developments in “food desert” areas, and community or cultural facilities.
Chicago Development Fund Project Highlights
- Imperial Zinc – after a fire destroyed Imperial Zinc’s main production facility in the historic Pullman neighborhood, the CDF provided $6 million in NMTC financing to help build a new 80,000 square foot plant.
- Gary Comer College Prep – through $21.5 million in New Markets Tax Credits, the CDF is assisting Gary Comer College Prep to expand into a new 45,000 square foot school facility adjacent to the Gary Comer Youth Center with 25 classrooms, four science labs, and a computer lab. Construction on the new facility is anticipated to finish in August 2010.
- Community Career Training & Economic Development Center – the CDF provided $9.3 million in NMTC financing for The Greater West Town Community Career Training & Economic Development Center, a job training and placement center for unemployed and underemployed individuals. Construction on the facility began in September 2009 and is projected to be completed by July 2010.
Several aspects of NMTC allocations to CDE’s serving Illinois are summarized in the following chart: NMTC-financed activities in Chicago ($10k, 2004-2007), allocation to CDEs serving IL ($ millions), and % of total US allocations.
How to Explore NMTC Further
Businesses interested in pursuing NMTC financing should contact World Business Chicago. In addition, an application including eligibility requirements can be found on the City of Chicago’s website.
