Helping Communities Understand and Use New Markets Tax Credits

New Markets Tax Credits often are described as “arcane” and “byzantine,” but they are an important and potentially robust vehicle for financing community development projects.

In April, the Jessie Ball duPont Fund brought together a group of national experts to help community leaders from across Northeast Florida better understand the program so they might take advantage of its benefits.

“The New Markets Tax Credits program has brought millions of dollars to low-income communities across Florida,” said Sherry Magill, president of the Fund. “But people don’t know enough about it and are intimidated by the structure’s complexity. They just need to learn.”

The program, which was created by the U.S. Treasury in 2000, is designed to attract private investment capital into low-income communities.

Investors receive tax credits for investing in qualifying projects. The investments must stay in place for seven years, in the hopes that they will stimulate additional investment. And the investments may only play a supporting role in project financing — usually no more than one-fifth of the total project cost.

The Jessie Ball duPont Fund experienced the benefits of New Markets Tax Credits first-hand in 2014 when it developed the Jessie Ball duPont Center, a gathering place for philanthropy and nonprofits, in Jacksonville, Florida (visit New Markets Tax Credits provided about 20% of the $25 million project cost, Magill said.

Projects are eligible if they are located in a qualifying Census tract — generally areas where incomes are low and poverty and unemployment are high. Only commercial projects are eligible, such as community facilities, grocery stores, industrial facilities, health care facilities or mixed-use developments (housing plus commercial).

Nelson Black, chief lending officer with the Florida Community Loan Fund, which works extensively with New Markets Tax Credits, noted that the program is highly competitive — the Loan Fund has invested in 16 NMTC projects in Florida out of more than 100 it has considered.

In Jacksonville, only two projects have received New Markets investments in recent years — the Jessie Ball duPont Center and the KIPP Academy. But Magill and others argued that the deficit is due as much to lack of awareness and effort as competition.

“Florida is very rich hunting ground for New Markets projects,” said Tony Smith, executive vice president of Chicago-based SB Friedman Development Advisors, which works to match eligible projects with interested investors.

Andra Wallace, head of Jacksonville’s Downtown Investment Authority, agreed. “What I found in Northeast Florida was plenty of opportunity but a lack of resources and a community that was not that open to outside financial resources,” he said. Given the financial challenges facing most U.S. cities today, Wallace noted, New Markets is an important resource that should not be overlooked.

Black concurred. “I think it is incumbent upon local communities to decide what they want and be creative about finding resources to support that.”