New Market Tax Credit Allocations Announced for PA

Drexel University’s 11th Street Health Center, financed in part by New Market Tax Credits

The latest round of New Market Tax Credit allocations were announced earlier this month. Over 80 community development organizations across the country will receive a total of $3.5 billion in credits towards projects in low-income communities.

Two Philadelphia-based organizations, The Reinvestment Fund and the Philadelphia Industrial Development Corporation, together received over $80 million in credits.

“At a time when we must be doing everything we can to spur economic development and job creation around the country, I am thrilled to see more than $80 million in new market tax credits allocated to support Philadelphia,” said U.S. Congressman Chaka Fattah, D-Pa., who represents large section of Philadelphia, in a press release.

The New Market Tax Credit was established in 2000 and has become a popular tool for drawing private investment to low-income communities. What it does is provide a 39 percent Federal income tax credit, spread over seven years, to private investors that make equity investments in organizations like TRF and PIDC — officially known as Community Development Entities (CDE).

These organizations, which bid for the credits in a competitive process, use the credits to attract capital to investments in small businesses, affordable housing projects and other community assets, including supermarkets and health clinics.

One of the qualifications that helps organizations win the credits is business and management experience, as well as the ability to draw investors to projects. Both of the Philadelphia-based recipients have many years of experience in finance and community development.

PIDC was established in 1958 as a nonprofit economic development organization and has helped finance big and small projects across the city. It received an allocation of New Market Tax Credits in 2009 and 2012, totaling $110 million. Some of its recent projects include Oxford Mills, a shared living space and office for teachers and education professionals, and the historic rehabilitation of the Dornsife Center for Neighborhood Partnerships in West Philadelphia.

TRF is a Community Development Financial Institution (CDFI) based in Philadelphia and active around the country. It began in 1985 and has received seven allocations of the credits totaling $408.4 million. Though TRF has projects across the country, and in the mid-Atlantic especially, there are a number of projects underway in Philadelphia, including a Drexel University-sponsored health services center on 11th street in North Philadelphia and  a day-care center in West Philadelphia.

Making it permanent 

But even as these organizations plan out how they will use the credits, there is a chance that the 2013 allocation could be the last if Congress doesn’t pass a bill either extending the program or making it permanent.

There are currently two nearly identical bills in the Senate and the House that would make the credit permanent and index the allocation to increase with inflation. The bills are sponsored by Democrats and Republicans, showing bipartisan support.

This is good news for the community development sector, which views the tax credit as key to moving projects in low-income communities forward.

“A lot of projects these days are pretty complicated and have a lot of financing,” said Nancy Wagner-Hislip, vice president of capital structures and lending operations at TRF.  “To be able to bring a 25 or 30 percent subsidy to a project through the value of the credit is often the last piece in the financing structure that allows it to go forward.”

The Paseo Verde housing development, for example, depended a complicated mix of financing, from large banks to community development organizations like TRF and LISC Philadelphia.

“I think if the program was permanent more projects would get done because more people would be able to undertake the couple-of-year development cycle,” she added.

For more information on New Market Tax Credits and the bills to extend them, see the links below.

Further Information

New Market Tax Credit Progress Report 2014, by the New Market Tax Credit Coalition

One-pager on House extension bill

One-pager on Senate extension bill 

Photo via DrexelNow