New Markets Tax Credit Program
The New Markets Tax Credit (NMTC) program, established by Congress in December 2000, gives individual and corporate taxpayers the opportunity to receive a credit against income taxes by investing in qualified investment entities. This program also allows CEI to participate in large-scale projects that meet our 3E criteria, through its for-profit subsidiary CEI Capital Management LLC (CCML).
Investors can earn attractive rates of return while meeting a community need, qualified businesses gain access to development funds at reasonable rates, and community development entities fulfill their mission by helping stimulate economic growth and job creation in specifically targeted lower-income communities. While CCML focuses principally in the Maine, New Hampshire, Vermont, western Massachusetts and western New York markets, it also now has the ability to do NMTC transactions anywhere in the U.S. Projects must be in designated low-income areas (pre-qualified census tracts or specially-approved target areas). (CCML can help you determine whether your project is geographically eligible or you can visit the CDFI Fund website.)
The NMTC initiative is designed to mobilize up to $29.5 billion in development capital based on a direct federal income tax credit of 39 percent spread over seven years. The program is already proving to be a powerful tool that is helping underserved communities attract smart capital to good projects on favorable terms and is allowing investors to book new business with enhanced returns, while helping create greater opportunities for low-income communities.
The program is very flexible and allows the tax credits to be structured into a deal in a variety of ways to best meet the needs of the investors (banks and private equity), borrowers (project), and the sponsor (CCML). The tax credits, for instance, can be used to enhance an investor's Internal Rate of Return, provide a borrower with access to debt at a reduced interest rate (typically 1.00-3.00% below market), and/or repay equity investors with tax credits as opposed to actual cash. The financial success of a project depends on balancing all of the interests so that all needs are met. The types of business investments eligible under the NMTC program are very broad, allowing virtually any real estate project or operating business. (Please note that there are some exceptions to this eligibility, such as insurance companies and others.) Projects can be undertaken by either for-profit or nonprofit entities.
As of January 2013, CCML had closed 76 high-impact NMTC projects across the U.S. using $694.6 million of NMTC investment capacity, triggering total private capital investment in low-income communities of over $1.98 billion. With its latest Round IX allocation of $95 million, CEI and CCML have now been awarded a total of $778 million in New Markets Tax Credits. A steady demand will consume this allocation quickly.
For more information, contact 207.772.2886 or Inquiries@ceicapitalmgmt.com