New Market Tax Credits and Healthy Food Finance: A Brief Analysis

by Nessa on March 7, 2012

What is the New Markets Tax Credit Program?

The program is run by the U.S. Treasury Department’s CDFI Fund, and aims to spur investments in operating businesses and real estate projects located in low-income communities. The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their Federal income tax in exchange for making equity investments in qualifying projects. These investments are facilitated by Community Development Entities (CDEs), essentially middleman organizations that are awarded allocations of NMTCs and then match investors to qualifying projects. Many nonprofits and cities form CDEs to bring funds into their projects, and many financial institutions invest in the program to fulfill Community Reinvestment Act objectives and diversify their investment portfolios. Many CDEs set aside a certain amount of their NMTC allocation to go to healthy food related projects.

What Are Some Cool NMTC-Funded Projects?

Working forest management companies, food cooperatives, community health centers, fishing industry education/research centers, domestic violence shelters, job corps centers, food processing facilities, community centers, elementary schools, rehabilitated mixed use retail centers.

Many CDEs’ NMTC programs also provide financing to cover up-front costs associated with installing energy-efficient, water-saving and other sustainable green-building features.

What Types of Healthy Food Systems Projects Are Appropriate for NMTC?

  • Larger scale — $6 million in total project costs is generally the minimum amount.
  • Located in low-income areas, as defined by census tract.
  • New construction and rehab of existing real estate both qualify.
  • Long-term — more than 7 years in duration.
  • In short: food retail, food processing, and food aggregation/distribution are all potential matches for NMTC. Food production (farms and/or community gardens) is a challenge, but could also be a part of aNMTC project that included mixed use residential development.

Who has NMTC and How Do I Get Some for My Project?

Each year, the CDFI Fund awards between $3.5M and $5M in NMTCs to Community Development Entities (CDEs) that have completed a complicated application process. These CDEs then allocate their NMTCs to projects. In order to access NMTCs for your project, you need to know who has them (look here: http://www.cdfifund.gov/awardees/db/index.asp). Then you need to reach out to appropriate CDE staff to introduce yourself and your project concept. You don’t need to have a full prospectus developed before you do this, but it would be helpful if you had some basic materials developed. Typically, you will need to be able to tell the CDE generally:

  • What exactly is the project?
  • What is the total project cost?
  • What are the other sources of funds for the project?
  • What is the expected timeline?
  • What are the “community benefits” – ie. job creation or retention, increased access to healthy foods for low-income people, improved environmental conditions in the area, etc.

Tell Me More about Rehab vs. New Construction

Adaptive reuse of old buildings, such as abandoned mill buildings, has become more attractive in the past few years as interest in revitalizing urban cores has grown. Moreover, rehab projects can access tax credits and other preferred financing that can be critical as the recession has made traditional real estate financing less available..  You can read more about this trend here: http://www.sacommercialpropnews.co.za/south-africa-provincial-news/international-commercial-property/4388-developers-are-increasingly-pursuing-adaptive-reuse-opportunities.html.

This entry was developed in partnership with tax credit finance consultant and healthy food finance enthusiast Jeffrey Oakman.

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