New Markets Tax Credit is a valuable tool for directing investment into distressed communities. Ohio has taken home $647 million through round four of this federal program (2007). Demand for the program is strong. In the 2008 round there were $21 billion in requests for $3.5 billion in available credits, six times greater. Ohio’s demand is a microcosm of the nation. Finance Fund 2008 request was $75 million based on an identified demand over $100 million. The award to us was just $20 million.
The majority of NMTC projects solicit two types of investment; i.e. equity and debt. NMTC investments are directed to economically distressed communities where deal structuring is always difficult. In a normal economy it is common to have multiple sources in a project and still end up with a gap. The current economic climate has precipitated some distinctive stress on the NMTC model. In this market credit is tight and what we are seeing is that debt investment is becoming more difficult to obtain. The knee jerk response is, “get more equity.” The issue with increasing equity is that it also decreases return/yield and by doing so diminishes the attractiveness of equity investment. The issue in both environments is how to fill the gap.
What is needed in is a model that will specifically address the gap in good and bad economies. A state base NMTC program could do that. It would have to be structured to mirror the federal NMTC program while providing state tax credit. If it were similar to the federal program a state NMTC program would be ideal for addressing the gaps. State credits are substantially more valuable if they can be applied to state taxes that aren’t deductable from federal taxes. because of its, use of state resources to entice additional investment, potential for getting new investors, and its congruence with NMTC and other tax credits and not tax credit sources to move capital into distress urban and rural markets.
Tags: Congress, Governor Strickland, New Markets Tax Credit, Ohio General Assembly, US GAO
