Extra credit

Northwestern Financial Review, Sep 1-Sep 14, 2003 by Bengtson, Tom

The Federal government is in the midst of a six-year project to allocate $15 billion in New Markets Tax Credits. The money is going to go somewhere and I encourage bankers to organize to make sure that their own states get their fair share. In the first round of allocations, which were awarded in March, 40 states got $2.5 billion dollars. Many of the 10 states that didn't get anything are located in the Upper Midwest: Iowa, Kansas, Michigan, North and South Dakota, Nebraska, Wyoming and Montana. The Community Development Financial Institutions Fund, which is the arm of the U.S. Treasury Department administering the tax credits, is in the process of collecting applications for the second round of awards. Applications for $3.5 billion in tax credits are due Sept. 30. Groups that are not already well on their way to completing those applications will miss the current round, but I encourage bankers to consider organizing efforts to get in on future rounds of funding. Nine billion dollars in tax credits will be allocated between 2005 and 2007.

Created by Congress in 2000, the program permits taxpayers to receive a credit against Federal income taxes for making "qualified equity investments" in Community Development Entities. The CDEs use the capital to invest in things like mixed-use housing, small business assistance and real estate development in low-income areas. The taxpayer credit totals 39 percent of the cost of the investment and is claimed over a seven-year period.

This is a government program, so getting the money is a somewhat complicated process. Only CDEs can actually get the credits, but they can team up with organizations in good position to sell them. That could be a bank or a group of banks. The Community Bankers of Wisconsin have looked into this; bank trade groups in Indiana and Iowa are giving the program serious consideration. Tony Brown, the director of the program, came to Iowa last April and told the Iowa Bankers Association 16 of the 66 entities that won awards in the first round were banks, or affiliated with banks; all but three of these were specifically community bank organizations.

A thorough overview of the program is available at http://www.cdfifund.gov/programs/nmtc/. The government has created this pool of money that is going to be allocated to those who are industrious enough to work the system and propose sound economic development ideas. Particularly in light of the budget crunch that so many states are facing, bankers could really be heroes by organizing and leveraging their experience to bring as much of this federal money home as possible for important local projects that pay dividends for decades to come.

Tom Bengtson, Publisher