The NMTCC is a national membership organization representing Community Development Entities (CDEs) and investors working with the NMTC program. The Coalition was formed in 1998 with the principal purpose of advocating for the enactment of a federal tax credit to spur economic development in underserved areas. The Coalition works to ensure that the NMTC program can effectively be used to attract private capital and generate economic development in poor communities.

This is Harvard speak for “hold on to something, we’re going
to turn your brain into carrot soup, but you’ll be able to see things more
clearly.” This was my second exposure to the HBS Executive Education program. The first session I attended about five years ago was in a program that examined Performance Measurement for Effective Management of Nonprofit Organizations. At the end of that intensely focused period of study and learning, my perception of the phrase “you manage what you measure” was changed dramatically, and that change was not salted but poured into Finance Fund.

SPNM (pronounced: “Speenem”) took it up a notch. It included
people from 20 countries in addition to the US representing world class
organizations at the cutting edge of nonprofit management including Greenpeace,
Special Olympics, Big Brothers Big Sisters, YMCA, Boy Scouts of America,
Habitat for Humanity, Goodwill, United Way, and countless others. My living group included
representatives from nonprofits in Singapore, Australia, Canada, California,
Florida and Pennsylvania.

The HBS instruction model is one of discovery
rather than impartation; and boy, did we discover. From 7:30 AM to 10:00 PM we
grappled with finding the lessons and truths by examining case studies of
various nonprofit organizations from around the world. At the end of the week, ideas
were stacked like cordwood in my head and will slowly begin to pour into
Finance Fund. Upon returning, with eyes forward and tail dragging, I have confirmed
the “Harvard speak” declaration of SPNM and my translation

 As Finance Fund moves to yet another level of complexity and engagement, the role played by the board of directors continues to evolve as well. While previous board retreats helped develop framework and focus, the emphasis of this retreat was to instill an attitude of “readiness” for moving the organization forward.

With an overall theme of Yesterday, Today, and Tomorrow, retreat attendees began a historical journey detailing from the very beginning—milestones, challenges and achievements of the organization. That afternoon, attendees then loaded onto a bus to “go and see” many of the projects in central Ohio that were made into reality through Finance Fund.

 As day two conversations evolved to the future of the organization, attendees began to paint a picture filled with opportunity and promise. Armed with knowledge and vision from the past, board and staff attendees turned to Finance Fund’s mission as the beacon to guide future decisions.

At the end of the two days, all were in agreement. We are relevant. We will remain true to our mission. And we are ready.

1. Funding authority to catalyze high levels of private investment in distressed communities. The Administration proposes to authorize NMTC at $5 billion in 2010 and 2011.
2. Improving overall competitiveness, attractiveness and effectiveness of the NMTC.
   1. Allowing Alternative Minimum Tax (AMT) taxpayers to claim NMTC.
   2. Review passive activity rules, which is a rule that limits the use of losses and credits for business in which a taxpayer does not materially participate.
   3. Qualification of certain types of investments for the credit, which seeks to clarify what types of loans constitute a qualified investment.
   4. Improvement of NMTC rules to spur additional investment in small business.
      1. Re-examining “substantially all” requirements, which requires an awardee (CDE) to have a specific portion of their funds invested at all times.
      2. Supporting greater investment in institutions that invest in small businesses by supporting new rules to promote more investment in Community Development Financial Institutions (CDFIs).

In addition to the “formal” proclamation of the press release, on the conference call Treasury officials made concerted effort to point out that NMTC has Secretary Geithner’s support and is a high priority for the Administration. Bob Rapoza, representing the NMTC Coalition, expressed the industries appreciation that Treasury is moving aggressively on these issues that will strengthen the program.

It’s good to hear good news once in a while.

PRESS RELEASE and FACT SHEET:

http://treas.gov/press/releases/reports/nmtc%20fact%20sheet.pdf

Mark Pinsky, President & CEO of Opportunity Finance Network, the nation’s CDFI network, hailed this move as a step in the right direction, but stressed that CDFI loan funds should share in this money, too:
Community development banks and credit unions deliver capital and services where other financial institutions don’t. This program is a capital lever that can lift up thousands of businesses that need credit to thrive. The CDFIs that participate will make capital flow where it’s not flowing today. Last October, the President expressed a desire to support non-depository as well as depository CDFIs. The next step is clear: extend support to CDFI loan funds and venture funds.

At Finance Fund, we echo this position and advocate for a similar program for non-regulated CDFI loan funds. Why? Because Finance Fund is a certified CDFI, which provides us with access to financial and technical award assistance from the federal CDFI Fund. Since its inception in 1994, assistance has totaled more than $500 million for community development. As a CDFI, we’re recognized as a financial organization with a primary mission of promoting community development in under-served communities in the United States, through credit, capital, and financial services.

CDFIs are a vital way that under-served communities achieve economic development and neighborhood revitalization. And considering the recessionary climate we’re in today, now is the time to bolster business and economic development by providing CDFIs (like Finance Fund) with the resources to leverage more capital to resurrect strong businesses and communities. This ruling is positive, but CDFIs need the financial covering of T.A.R.P. funds, too.

This round of New Markets Tax Credit funding enables us to continue to invest in projects that support Ohio’s distressed communities. These projects help stimulate local economies through capital investment, job creation, and community development. You can read more about some of those projects here and here.

Join me in congratulating our team that has spent endless days and nights working on our NMTC application. Kudos to all of them in this successful effort that will benefit all Ohioans.

This is exactly what I thought when I read Mark Ferenchik’s piece in the Columbus Dispatch last Sunday, entitled “Retrofit city’s ‘inner-ring’ areas, planner says.” It points to Columbus’ struggle to redevelop inner ring neighborhoods or newer neighborhoods that are in decline. The article cites June Williamson who is scheduled to speak at the Mid-Ohio Regional Planning Commission’s Summit on Sustainability and the Environment at COSI Columbus. As Ferenchik mentions, “Williamson is co-author of the book Retrofitting Suburbia: Urban Design Solutions for Redesigning Suburbs, which discusses how some communities are redeveloping office parks, malls and housing subdivisions into vital centers for housing, stores, offices and mass transit.” It is an interesting article that provides a glimmer of hope for the renewal of urban communities.

Columbus, along with many other major American cities, has a tremendous opportunity to be a leader moving back to the concepts that made some of our declining neighborhoods vital and vibrant decades ago. The idea of a community made up of villages with access to services, shops, and entertainment is a model that went out of vogue in favor of commercial centers surrounded by high density housing. The idea of moving back to urban design that facilitates real neighborhoods is exciting. Ms. Williamson cites Lakewood, a Denver suburb, which demolished a distressed shopping mall replacing it with a village center, homes, shops and restaurants. In the winter the plaza is turned into a skating rink.

Architects have adapted this design for upscale suburban develops with recreation and community meeting space. The village design is well suited to the renewal of inner city neighborhoods creating opportunity for people to actually meet and know their neighbors. This type of interaction creates social constructs that play on the basic concept that some things are just the way they should be and others need help. Knowing your neighbor is different than just knowing who lives next door. It is my opinion that his is our next great urban challenge. “It is the proper thing to do.”

The efficacy of the NMTC has been documented by numerous public and private sources. For example, a 2007 report from the Government Accounting Office (GAO) suggests that NMTC increases financial involvement by investors in low-income communities. The NMTC Coalition’s 2008 Progress Report indicates investment, deployment, and demand are trending upward. A few examples of the efficacy of NMTC and its proven ability to spur economic growth in distressed communities include:
•    88% of investors say that they would not have made the same investments in low income communities without NMTC
•    At the beginning of 2007 with $12 billion in allocation, it has attracted $4.4 billion in investment with investment growth annually in the first 3 years of the program
•    Every $1 of federal tax revenue forgone as a result of the credit induces $8.90  in investments in low-income communities
•    Financed businesses that created or maintained more than 14,000 full-time equivalent jobs
•    Financed the construction or rehabilitation of nearly 27,000 affordable housing units

In addition, the 2007 GAO report showed that the total dollar amount of investments, number of investors participating, and efficiency of the NMTC program are all increasing at a rapid rate. It placed Ohio as third behind California and New York in dollars deployed and first in number of projects.
Emblematic of Ohio’s demand and capacity, with $75 million received, Finance Fund’s NMTC investments have:
•    Helped create 1,249 full-time equivalent jobs
•    Invested in projects creating 1,467 construction jobs
•    Invested in projects creating 536 child care slots
•    Helped to create 431 units of for-sale housing
•    Invested a total of $44,593,153 leveraging $221,159,679 in other funding.
One example of NMTC investment is in Caldwell, Ohio. Before 2005, if you were a parent in Noble County or one of its surrounding counties and were looking for child care, you would face a continual battle. Availability, cost, safety, quality, and accessibility all added to the frustration of finding the right place, the comforting place to care for your children.

It wasn’t much better for caregivers. Noble Learning Center had been in business for years — always addressing the space issues of high rent, low quality, no availability, poor fit, and no option to renew lease. Driven from location to location, Noble Learning Center operated out of rented apartments on the second floor of a senior center in rural Ohio. Then came the unfortunate news that they would not be able to renew their lease.

Unsure about the future of the Center at all, Center director LaShona
DeVolld made the call to Finance Fund that turned her dreams into reality. Her passion to provide for the community’s children and Finance Fund’s commitment to help them succeed by providing necessary access to capital, allowed the children of this very rural area to have a quality facility to plant the seeds of learning that will help them grow and develop into successful individuals.

LaShona discovered an old abandoned National Guard Armory with an open floor plan and a solid brick structure. She thought she had found her new home. After much patience and perseverance, LaShona purchased the former armory building and began major renovations. Funds received from multiple investors, including Finance Fund’s New Market Tax Credit Program, were used for these renovations, as well as furniture, equipment and supplies. Thanks to this program the center can continue its legacy of being the only licensed child care center in a four-county region and providing opportunity not only for children to learn and grow but for parents to gain peace of mind and economic flexibility.

The resulting child care center not only provides service for 135 children, it supported 20 construction jobs, 15 full time jobs, the productive reuse of an abandoned 14,880 square foot building and has become an economic engine in the local economy.

It is proposed that the State of Ohio create an Ohio NMTC program modeled after the federal program. Ohio has felt the backlash of a faltering economy perhaps even more so than the majority of other states in the nation. According to the Bureau of Labor Statistics, in February 2009, the Ohio unemployment rate was up to 9.4% compared to the national average of 8.1%. According to ODJFS, Ohio’s nonfarm wage and salary employment dropped 7,600 over the month, from 5,208,000 in January to 5,200,400 in February, with manufacturing and construction industries seeing a significant effect. Finally, Ohio’s 29 Appalachian Counties have been hit particularly hard, with a poverty rate of approximately 20% as compared to the rest of the state’s rate of 13%. This program would add targeted value to the Ohio economy by stimulating investments in Ohio’s low-income communities. The demand for the federal NMTC is extremely strong and has been since its inception in 2000; i.e. $11 in request for each $1 in allocation authority. A state NMTC program will supplement the federal program by incenting investment, attracting additional investors, and provide more opportunities for Ohioans. The economic impact of an Ohio NMTC program would assume an annual tax credit allocation of $25.6 million for a seven-year program. It would include the following:
•    Annual costs $10 million  in public funding or $70 million over 7 years
•    Leverages $25.6 million in direct investment annually or $179 million over 7 years
•    Leverages an additional $164 million annually ($6.40/credit financing $1)  or $1.1 billion over 7 years
•    $190 million  in projects annually or $1.3 billion over 7 years
•    Increases tax revenue through business, property, income, and other tax structures
•    In times of economic stress investors tend to be more conservative creating gaps in traditional financing as well as NMTC projects. If a state program mirrors the federal model it would easily fill that gap by adding additional  incentive to invest or invest more
•    Create jobs for Ohioans

The Ohio NMTC would be one of just a handful of its kind in the nation—placing Ohio on the map as a leader in this cutting edge initiative. Other successful programs include:
•    In 2007 Louisiana enacted a 35%, 3-year tax credit that supplements the federal program
•    Also in 2007 Missouri approved a $15 million tax credit program for investments in projects in distressed municipalities
•    In 2007 Mississippi enacted the Credit for Equity investments in Community Development entities
•    Texas enacted a state insurance premium tax credit for investment of certified capital in a certified capital company (also based off of the NMTC model) that began in the 2008 tax year
•    Connecticut created a $500 million tax credit program for investments in projects in distressed communities
•    The Michigan legislature is currently considering a state NMTC as well

In conclusion, the Federal NMTC program is proven to be one of the most effective tools in improving low-income communities. An Ohio NMTC program mirroring federal credits would effectively raise private capital, offer flexible financing products not otherwise available, increase Ohio’s competitiveness for investment dollars, invest in businesses and development projects in Ohio’s distressed communities creating jobs and building wealth for low income people, and enhance tax revenue. This program could be a life line for Ohio’s poorest communities. I want to thank you for the opportunity to address the Committee and for your time and attention on this matter. At this time I will be happy to answer any questions you might have.

Sources:
1.    Miara, Jim, The New Markets Tax Credit Program, A CDOs for Cities Briefing Paper: How This New Incentive Can Strengthen America’s Cities, CEOs for Cities, Boston MA, 2004
2.    The New Markets Tax Credit, Progress Report 2008, A Report by the New Markets Tax Credit Coalition, May 2008
3.    United States Government Accounting Office, Report to Congressional Committees, Tax Policy, January 2007
4.    National and State Corporate Income Tax Rates, U.S. States and OECD Countries, 2008, Tax Foundation, 2009, http://www.taxfoundation.org/taxdata/show/23034.html
5.    State Individual Income Tax Rates, 2000-2009, Tax Foundation, 2009, http://www.taxfoundation.org/taxdata/show/228.html
6.    Community Development Finance Institution Fund, New Markets Tax Credit, Compliance and Monitoring Frequently Asked Question, November 2006
7.    Promoting Investment in Distressed Communities: The New Markets Tax Credit Program, Community Development Finance Institution Fund, U.S. Department of the Treasury, October 2008
8.    Ohio Department of Job and Family Services News Release, March 2009
9.    Economy at a Glance, US Bureau of Labor, http://stats.bls.gov/eag/eag.OH.htm

Jim was recently selected to sit on the Board of Directors for the CDFI Coalition, a national organization representing community development institutions across the country. These institutions are certified CDFIs by the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund.

The CDFI Coalition is the unified national voice of community development financial institutions (CDFIs). Their mission is to encourage fair access to financial resources for America’s underserved people and communities. Nationwide, over 1000 CDFIs serve economically distressed communities by providing credit, capital and financial services that are often unavailable from mainstream financial institutions. CDFIs have loaned and invested billions in our nation’s most distressed communities and leveraged billions more from the private sector. The CDFI Coalition advocates on behalf of the CDFI industry and educates the public about community development finance. The CDFI Coalition is a primary source of information and knowledge about the CDFI field for the general public, the media, public officials, and private sector lenders.

“I am honored to join this growing Board of Directors as a representative of Finance Fund.’ he said.  “This collaboration of like-minded organizations from across the nation is poised to handle some of the toughest issues facing our communities today. The government is continuing to show its support of CDFIs by funneling stimulus dollars our way and looking to us for help with the economic challenges hitting our urban and rural neighborhoods.”

Well said, and congrats, Jim.

Also, CDFIs, a key player in local credit availability, have not yet been factored in to the equation. It is my opinion that the solution to our economic malstrom will come from the bottom up not the top down. Small business & small banks

There does seem to be a silver lining as Chairman Frank (Financial Institution Committee) starts hearings this week on stimulous funding for small business and consumers. Watch this one.