New Markets Tax Credit
Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities Gao ID: GAO-09-795T June 18, 2009The Community Development Financial Institutions (CDFI) Fund in the Department of the Treasury has awarded $21 billion of the $26 billion in New Markets Tax Credits (NMTC) authorized to be awarded to Community Development Entities (CDE) between 2001 and 2009. CDEs use the NMTC to make qualified investments in low-income communities. Recent congressional interest has focused on participation by minority CDEs. This testimony is based on a recent GAO report (GAO-09-536). As requested, the report (1) identified the number of minority and non-minority CDEs that applied to the CDFI Fund and received NMTC awards, (2) explained the process by which the CDFI Fund makes awards and summarized application scores, (3) described challenges minority and non-minority CDEs face in applying for and receiving awards and, (4) identified efforts the CDFI Fund and others have taken to assist minority CDEs in applying for awards. GAO analyzed CDFI Fund application data and interviewed officials from minority and non-minority CDEs, the CDFI Fund, and industry groups.
From 2005 through 2008, minority-owned CDEs were successful with about 9 percent of the NMTC applications that they submitted to the CDFI Fund and received about $354 million of the $8.7 billion for which they applied, or about 4 percent. Non-minority CDEs were successful with about 27 percent of their applications and received $13.2 billion of the $89.7 billion for which they applied, or about 15 percent. Since GAO issued the report on which this statement is based, the CDFI Fund made 32 NMTC awards totaling $1.5 billion under authority provided in the American Recovery and Reinvestment Act. Minority CDEs received 3 of those awards, totaling $135 million. The CDFI Fund relies primarily on its scoring of applications to determine which CDEs receive awards. As the figure shows, minority CDEs received lower scores than non-minority CDEs in each of the four application sections. Although a CDE's resources and experience in applying are important factors in a CDE's success rate with the NMTC program, when controlling for factors that GAO could measure, minority status is associated with a lower probability of receiving an allocation. It is not clear from GAO's analysis why this relationship exists or whether any actions taken or not taken by the Department of the Treasury contributed to minority CDEs' lower probability of success. Characteristics associated with minority status of some CDEs for which data are unavailable may affect this relationship. If Congress views increased participation by minority CDEs as a goal for the NMTC program, options, such as providing certain preferences in the application process that may benefit minority CDEs, could be considered. The CDFI Fund provides assistance that is available to all CDEs applying for awards, including a written debriefing to CDEs that do not receive awards detailing some of the weaknesses in the applications. Other stakeholders, including industry associations and consultants, hold conferences and offer services to help CDEs submit competitive applications. Should Congress view additional assistance to minority CDEs as important to increasing minority CDEs' participation in the NMTC program, it could consider requiring the CDFI Fund to provide assistance to minority CDEs.
GAO-09-795T, New Markets Tax Credit: Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities
This is the accessible text file for GAO report number GAO-09-795T
entitled 'New Markets Tax Credit: Minority Entities Are Less Successful
in Obtaining Awards Than Non-Minority Entities' which was released on
June 18, 2009.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony:
Before Subcommittees of Ways and Means and Financial Services, House of
Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Thursday, June 18, 2009:
New Markets Tax Credit:
Minority Entities Are Less Successful in Obtaining Awards Than Non-
Minority Entities:
Statement of Michael Brostek:
Director, Strategic Issues:
GAO-09-795T:
GAO Highlights:
Highlights of GAO-09-795T, a testimony before Subcommittees of Ways and
Means and Financial Services, House of Representatives.
Why GAO Did This Study:
The Community Development Financial Institutions (CDFI) Fund in the
Department of the Treasury has awarded $21 billion of the $26 billion
in New Markets Tax Credits (NMTC) authorized to be awarded to Community
Development Entities (CDE) between 2001 and 2009. CDEs use the NMTC to
make qualified investments in low-income communities. Recent
congressional interest has focused on participation by minority CDEs.
This testimony is based on a recent GAO report (GAO-09-536).
As requested, the report (1) identified the number of minority and non-
minority CDEs that applied to the CDFI Fund and received NMTC awards,
(2) explained the process by which the CDFI Fund makes awards and
summarized application scores, (3) described challenges minority and
non-minority CDEs face in applying for and receiving awards and, (4)
identified efforts the CDFI Fund and others have taken to assist
minority CDEs in applying for awards. GAO analyzed CDFI Fund
application data and interviewed officials from minority and non-
minority CDEs, the CDFI Fund, and industry groups.
What GAO Found:
From 2005 through 2008, minority-owned CDEs were successful with about
9 percent of the NMTC applications that they submitted to the CDFI Fund
and received about $354 million of the $8.7 billion for which they
applied, or about 4 percent. Non-minority CDEs were successful with
about 27 percent of their applications and received $13.2 billion of
the $89.7 billion for which they applied, or about 15 percent. Since
GAO issued the report on which this statement is based, the CDFI Fund
made 32 NMTC awards totaling $1.5 billion under authority provided in
the American Recovery and Reinvestment Act. Minority CDEs received 3 of
those awards, totaling $135 million.
The CDFI Fund relies primarily on its scoring of applications to
determine which CDEs receive awards. As the figure shows, minority CDEs
received lower scores than non-minority CDEs in each of the four
application sections.
Figure: Minority and Non-Minority CDE Application Scores, 2005 through
2008:
[Refer to PDF for image: horizontal bar graph]
Application section: Business strategy;
Average score, Minority CDEs: 15.6;
Average score, Non-minority CDEs: 18.3.
Application section: Community impact;
Average score, Minority CDEs: 15.4;
Average score, Non-minority CDEs: 17.7.
Application section: Management capacity;
Average score, Minority CDEs: 16.1;
Average score, Non-minority CDEs: 18.6.
Application section: Capitalization strategy;
Average score, Minority CDEs: 14.7;
Average score, Non-minority CDEs: 18.5.
Source: GAO analysis of CDFI Fund data.
[End of figure]
Although a CDE‘s resources and experience in applying are important
factors in a CDE‘s success rate with the NMTC program, when controlling
for factors that GAO could measure, minority status is associated with
a lower probability of receiving an allocation. It is not clear from
GAO‘s analysis why this relationship exists or whether any actions
taken or not taken by the Department of the Treasury contributed to
minority CDEs‘ lower probability of success. Characteristics associated
with minority status of some CDEs for which data are unavailable may
affect this relationship. If Congress views increased participation by
minority CDEs as a goal for the NMTC program, options, such as
providing certain preferences in the application process that may
benefit minority CDEs, could be considered.
The CDFI Fund provides assistance that is available to all CDEs
applying for awards, including a written debriefing to CDEs that do not
receive awards detailing some of the weaknesses in the applications.
Other stakeholders, including industry associations and consultants,
hold conferences and offer services to help CDEs submit competitive
applications. Should Congress view additional assistance to minority
CDEs as important to increasing minority CDEs‘ participation in the
NMTC program, it could consider requiring the CDFI Fund to provide
assistance to minority CDEs.
What GAO Recommends:
GAO makes no recommendations, but summarizes options Congress could
consider, such as providing certain preferences or technical assistance
to minority CDEs. The CDFI Fund did not comment on GAO‘s options, but
agreed with GAO‘s key conclusion.
View [hyperlink, http://www.gao.gov/products/GAO-09-795T] or key
components. For more information, contact Michael Brostek at (202) 512-
9110 or brostekm@gao.gov.
[End of section]
Mister Chairmen, Ranking Members, and Other Subcommittee Members:
I am pleased to be here today to discuss minority Community Development
Entities' (CDE) participation in the New Markets Tax Credit (NMTC)
program. Congress created the NMTC through the Community Renewal Tax
Relief Act of 2000[Footnote 1] to encourage investors to make
investments in low-income communities that traditionally lack access to
capital. Conventional access to credit and investment capital for
developing small businesses, retaining jobs, and revitalizing
neighborhoods is often limited in economically distressed communities
or in communities with large low-income populations. The Community
Development Financial Institutions (CDFI) Fund in the Department of the
Treasury administers the NMTC program and allocates tax credit
authority--the amount of investment for which investors can claim a tax
credit--to CDEs that apply for and obtain allocations. CDEs are
domestic partnerships or corporations with a primary purpose of serving
or providing investment capital to low-income communities or low-income
persons.[Footnote 2]
Our prior mandated work on the NMTC has focused on the implementation
of the program, the effect of the credit on the behavior of individual
and corporate investors, and efforts by the CDFI Fund and Internal
Revenue Service (IRS) to ensure that CDEs and investors are in
compliance with NMTC program requirements.[Footnote 3] Recent
congressional interest has focused on minority CDEs' participation in
the program. My statement is based on our recently released report that
you requested, titled New Markets Tax Credit: Minority Entities Are
Less Successful in Obtaining Awards than Non-Minority Entities.
[Footnote 4] As agreed, the report (1) identified how many minority-
owned or controlled and non-minority-owned or controlled CDEs have
applied for and received allocations and how much they have applied for
and received from 2005 through 2008; (2) explained the NMTC application
process and summarized NMTC application scores for minority and non-
minority-owned or controlled CDEs by CDE type from 2005 through 2008;
(3) described the challenges minority-owned or controlled and non-
minority-owned or controlled CDEs have faced in applying for and
receiving NMTC allocations; and (4) identified efforts the CDFI Fund
and others are taking to assist minority-owned or controlled CDEs in
applying for NMTC allocations. As requested, we identified potential
policy options that Congress may wish to consider based on its
interpretation of our results.
To prepare the report, we analyzed CDFI Fund NMTC application data from
2005 through 2008. The CDFI Fund did not collect data on program
participation by minority CDEs before the 2005 allocation round. We
also interviewed officials from a variety of similarly sized minority
and non-minority CDEs that received NMTC awards and applied for but did
not receive NMTC awards from 2005 through 2008, and we interviewed
industry experts with knowledge of the NMTC program. The report
includes a detailed description of our scope and methodology. We
conducted our work in accordance with generally accepted government
auditing standards.
Background:
As of the time of this hearing, the CDFI Fund in the Department of the
Treasury has authorized $21 billion of the $26 billion[Footnote 5] in
tax credit authority to be awarded between 2001 and 2009 to CDEs that
manage NMTC investments in low-income community development projects.
[Footnote 6] Eligible organizations may apply for and receive NMTC
allocations once they have been certified as a CDE by the CDFI Fund (a
CDE that receives an allocation is often referred to as an allocatee).
[Footnote 7] After the CDFI Fund makes allocations to CDEs, investors
make equity investments by acquiring stock or a capital interest in the
CDEs, called qualified equity investments (QEI), in exchange for the
right to claim tax credits that total 39 percent of their original
investment over 7 years.[Footnote 8] The CDEs, in turn, are required to
invest "substantially all" of the proceeds they receive into qualified
low-income community investments (QLICI).[Footnote 9] Qualified low-
income community investments include (but are not limited to)
investments in businesses, referred to as qualified active low-income
community businesses (QALICB), to be used for residential, commercial
and industrial projects, and other types of investments, such as
purchasing loans from other CDEs.
The CDFI Fund directs CDEs to classify themselves as minority if more
than 50 percent of the CDE is owned or controlled by members of a
minority ethnic group. In the case of a for-profit CDE, more than 50
percent of the CDE's owners must be minorities; if the entity applying
is a nonprofit organization, more than 50 percent of its board of
directors must be minorities (or its Chief Executive Officer, Executive
Director, General Partner, or Managing Member must be a minority).
[Footnote 10] Representatives from several minority-owned entities and
industry associations that we interviewed indicated that minority CDEs
and other locally-based community lending organizations may have a
better understanding of the economic conditions and availability of
capital in the communities they serve than other investment
organizations serving those same communities. However, in addition to
minority CDEs obtaining NMTC authority and making investments in low-
income communities, minority populations may benefit from the NMTC in
other ways. For example, non-minority CDEs have also made investments
in minority businesses that serve residents in low-income communities.
Minority-owned businesses located in eligible NMTC census tracts may
hire or provide services to minority residents in low-income
communities. According to CDFI Fund officials, it is frequently the
case that non-minority-owned businesses located in NMTC-eligible census
tracts with highly concentrated minority populations could provide
economic benefits to minority residents.
Since we issued the report on which this statement is based, the CDFI
Fund announced on May 27, 2009 an additional 32 NMTC awards to 2008
applicants totaling $1.5 billion under authority granted by the
American Recovery and Reinvestment Act of 2009 (ARRA).[Footnote 11]
According to our analysis, minority CDEs received three of these awards
totaling $135 million. Non-minority CDEs received the other 29 of these
awards totaling about $1.4 billion. The analysis presented in our
report was limited to NMTC awards made from 2005 through the original
2008 awards; our analysis did not include the NMTC awards made in
accordance with ARRA.
Minority Entities Have Received Proportionately Fewer Awards Than Non-
Minority Entities:
From 2005 through 2008, minority-owned CDEs were successful with about
9 percent of the NMTC applications that they submitted to the CDFI Fund
and received about $354 million of the $8.7 billion for which they
applied, or about 4 percent. By comparison, non-minority CDEs were
successful with about 27 percent of their applications and received
$13.2 billion of the $89.7 billion for which they applied, or about 15
percent. Since 2005, the first year in which the CDFI Fund collected
data on minority CDEs, CDFI Fund application data indicate that 68
minority CDEs have applied for NMTC allocations from the CDFI Fund for
a total of 88 applications. Fifteen minority CDEs applied for NMTC
allocations in multiple years. From 2005 through 2008, the CDFI Fund
received 934 NMTC applications from 566 different CDEs. Of the 68
minority CDEs that applied, 6 CDEs received a total of eight NMTC
allocations (2 minority CDEs each received two separate allocations).
[Footnote 12] Minority applicants received about 2.6 percent of the
$13.5 billion in total NMTC allocation authority that the CDFI Fund
awarded from 2005 through 2008.
The CDFI Fund's process for making NMTC awards takes place in two
phases. NMTC applications are first reviewed and scored by a group of
external reviewers selected by the CDFI Fund who have demonstrated
experience in business, real estate, or community development finance.
[Footnote 13] CDEs that meet or exceed minimum thresholds in each of
the four main application sections (business strategy, community
impact, management capacity, and capitalization strategy) and an
overall scoring threshold (out of a total of 25 points in each
application section) advance to the second phase where they are re-
ranked based on their scores in the business strategy and community
impact sections of the application and half of the priority points
awarded to CDEs that demonstrate a track record of investing in low-
income communities and investing in unrelated entities. CDFI Fund staff
review the amount of allocation authority that the CDE requested and,
based on the information in the application materials, award allocation
amounts in the descending order of CDEs' final ranking based on their
re-ranked scores.
According to our analysis of NMTC application data, of the 88
applications submitted by minority CDEs, 31 applications met the
minimum threshold scores to advance to the second phase of the NTMC
review process from 2005 to 2008. By comparison, during this same time
period 518 of the 846 applications submitted by non-minority CDEs met
the minimum thresholds to advance to the second phase of the review
process. Overall, non-minority CDEs scored about 11 points higher than
minority CDEs on NMTC applications from 2005 through 2008. As figure 1
shows, minority CDEs' scores differed the most from non-minority CDEs'
scores in the capitalization strategy section of the application, where
non-minority CDEs scored 25 percent higher than minority CDEs. Non-
minority CDEs scored between 15 percent and 17 percent higher than
minority CDEs in the business strategy, community impact, and
management capacity sections of the application.
Figure 1: Minority and Non-Minority CDE Application Scores, 2005
through 2008:
[Refer to PDF for image: horizontal bar graph]
Application section: Business strategy;
Average score, Minority CDEs: 15.6;
Average score, Non-minority CDEs: 18.3.
Application section: Community impact;
Average score, Minority CDEs: 15.4;
Average score, Non-minority CDEs: 17.7.
Application section: Management capacity;
Average score, Minority CDEs: 16.1;
Average score, Non-minority CDEs: 18.6.
Application section: Capitalization strategy;
Average score, Minority CDEs: 14.7;
Average score, Non-minority CDEs: 18.5.
Source: GAO analysis of CDFI Fund data.
Note: The average scores presented above reflect the average aggregate
application scores for each section divided by three--the number of
reviewers scoring the applications.
[End of figure]
To identify challenges minority and non-minority CDEs face in obtaining
NMTC allocations, we interviewed representatives from minority and non-
minority CDEs, and we analyzed CDFI Fund application data. While both
our testimonial evidence and statistical analysis have limitations,
they generally show that a CDE's capacity, measured by asset size in
this case, is associated with an increased probability of obtaining an
award. CDEs we interviewed generally said it can be difficult on the
NMTC application to demonstrate the capacity to effectively use the
NMTC and the experience in investing in low-income communities
necessary to obtain allocations. According to officials from several
CDEs we interviewed, demonstrating the relative impact of NMTC projects
through the NMTC application may be particularly difficult when
smaller, community-based CDEs compete for allocations against large
banks and financial institutions that may have the capacity to
undertake larger projects with more easily identifiable economic
impacts.
Our statistical analysis of all CDEs that applied from 2005 through
2008 demonstrates that the probability that a NMTC applicant will
receive an award is associated with certain factors. For example, after
controlling for other characteristics, larger CDEs, as measured by
asset size, appear to be more likely to receive NMTC awards, while
smaller CDEs are less likely to receive awards. When controlling for
factors we could, our analysis also shows that minority status is
associated with a lower probability of receiving an
allocation.[Footnote 14] It is not clear from our analysis why minority
status is associated with a lower probability of obtaining an
allocation or whether any actions taken or not taken by the Department
of the Treasury or the CDFI Fund contributed to this statistical
relationship. Other factors for which our statistical analysis is
unable to account, such as experience with the application process, may
also be reasons why minority CDEs have not been as successful in
obtaining NMTC allocations as non-minority CDEs.
For example, according to our 2006 report, certain minority-owned banks
have higher loan loss reserves and operating costs than non-minority
owned peers.[Footnote 15] These types of characteristics could
potentially affect the competitiveness of minority CDE NMTC
applications, particularly in the business strategy and management
capacity sections of the applications. Also, according to industry
association representatives, minority-owned banks have traditionally
had a more difficult time accessing capital markets than their non-
minority peers, and our analysis of the CDFI Fund application data show
that minority CDEs score lowest in the capitalization strategy section
of the application. Our analysis indicates that these differences are
not explained by the size of the CDE--that is, they are not problems
shared, on average, by other small, non-minority CDEs that applied for
NMTC allocations. However, these differences could be associated with
some other feature that minority CDEs share with non-minority CDEs for
which we do not have data to include in our analysis.
According to CDFI Fund officials, the CDFI Fund has conducted outreach
intended to reach all CDEs that may have an interest in applying for
NMTCs and CDFI Fund staff have given presentations to industry
associations, such as the New Markets Tax Credit Coalition; the
National Bankers Association (NBA), an industry organization that
represents minority-owned banks; and at FDIC conferences targeted to
minority-owned institutions. According to CDFI Fund officials, they
have more recently developed a relationship with the Department of
Commerce's Minority Business Development Agency that they hope will
lead to additional applications by minority CDEs. The CDFI Fund also
provides a written debriefing to each CDE that does not receive an
allocation to assist the CDE in future application rounds. This
debriefing provides the unsuccessful CDE with information about its
scores in each of the application sections and written comments on
areas of weakness within each of the four main application sections.
Officials from some CDEs we interviewed noted that the debriefing
document helped them submit more competitive application materials in
future rounds. Officials from a few CDEs noted that the debriefing
comments were not consistent from one year to another.
External stakeholders, including representatives from industry
associations we identified, hold conferences and offer varying degrees
of assistance to CDEs submitting competitive NMTC applications. In
addition, CDEs often hire consultants to assist them with completing
their NMTC applications. Consultants offer a range of services to CDEs,
including reviewing NMTC applications for completeness and depth of
responses to completing the entire NMTC application for an applicant.
According to CDEs we interviewed, fees charged by consultants cover a
broad range based on the services that the consultant provides. For
example, officials from several CDEs indicated that they paid
consultants less than $5,000 to review their NMTC applications while
others paid consultants as much as $50,000 for a more complete set of
services.
Potential Options:
The legislative history for the NMTC does not address whether Congress
intended for minority CDEs to benefit directly from the NMTC program.
However, if Congress intends for minority CDEs' participation in the
NMTC program to exceed the current levels and Congress believes that
minority CDEs have unique characteristics that position them to target
the NMTC to its most effective use, Congress may want to consider
legislative changes to the program should the New Markets Tax Credit be
extended beyond 2009. Potential changes that could be considered
include, but would not be limited to the following: (1) similar to
provisions for certain federal grant programs, requiring that a certain
portion of the overall amount of allocation authority be designated for
minority CDEs; (2) in accordance with information we obtained in
discussions with several experts in economic development, exploring the
potential for creating a pool of NMTC allocation authority to be
dedicated specifically for community banks (minority banks that are
certified CDEs, in most cases, would likely compete with non-minority
community banks with similar characteristics for NMTC allocations); or
(3) similar to other federal programs where preferences are given to
targeted populations, offering priority points to minority CDEs that
apply for NMTC allocations. In addition, a fourth option would be for
Congress to direct the Department of the Treasury and the CDFI Fund to
explore options for providing technical assistance in applying for and
using NMTC allocations to minority CDEs.
Although these options could increase the amount of NMTC authority
awarded to minority CDEs, in part because we could not definitively
identify the reasons why minority CDEs have scored lower on the NMTC
application than non-minority CDEs, the options may not address the
underlying reasons for lower minority CDE success. In addition,
implementing these changes would require addressing a number of issues,
including legal and administrative concerns, associated with such
changes in the NMTC application process.
The CDFI Fund reviewed a draft of our report and agreed with our key
conclusion that minority CDEs have not received awards in proportion to
their representation in the application pool, but did not comment on
our options. The CDFI Fund's response letter is reprinted in appendix
VII of our report. The CDFI Fund also provided several technical
comments on our report, which we incorporated as appropriate.
Chairmen, this concludes my remarks. As I noted earlier, the more
detailed findings and conclusions of our review of minority CDEs'
participation in the New Markets Tax Credit program can be found in our
recently issued report (GAO-09-536). I would be happy to answer any
questions you or other members of the subcommittees may have.
Contacts and Acknowledgments:
For further information on this testimony, please contact Michael
Brostek at (202) 512-9110 or brostkem@gao.gov. In addition, contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this statement. In addition to the
individual named above, Kevin Daly, Assistant Director; LaKeshia Allen;
Don Brown; Thomas Gilbert; Cristian Ion; Jean McSween; Ed Nannenhorn;
and Cheryl Peterson made key contributions to this testimony.
[End of section]
Footnotes:
[1] Pub. L. No. 106-554 (2000).
[2] CDEs are required to maintain accountability to residents of low-
income communities by filling at least 20 percent of the organization's
governing or advisory board positions with low-income community
residents.
[3] GAO, New Markets Tax Credit Program: Progress Made in
Implementation, but Further Actions Needed to Monitor Compliance,
[hyperlink, http://www.gao.gov/products/GAO-04-326] (Washington, D.C.:
Jan. 30, 2004) and Tax Policy: New Markets Tax Credit Appears to
Increase Investment by Investors in Low-Income Communities, but
Opportunities Exist to Better Monitor Compliance, [hyperlink,
http://www.gao.gov/products/GAO-07-296] (Washington, D.C.: Jan. 31,
2007).
[4] GAO, New Markets Tax Credit: Minority Entities Are Less Successful
in Obtaining Awards than Non-Minority Entities, [hyperlink,
http://www.gao.gov/products/GAO-09-536] (Washington, D.C.: April 30,
2009).
[5] The original legislation that authorized the program allowed for
$15 billion in tax credit authority for the NMTC program through 2007.
However, the Gulf Opportunity Zone Act of 2005, Pub. L. No. 109-135
(Dec. 21, 2005), authorized an additional $1 billion of NMTC equity for
qualified areas affected by Hurricane Katrina over a period of 3 years:
$300 million in 2005, $300 million in 2006, and $400 million in 2007.
Pub. L. No. 109-432 (Dec. 20, 2006) and Pub. L. No. 110-343 (Oct. 3,
2008) extended the amount of NMTC authority available by $3.5 billion
for 2008 and 2009, respectively. The American Recovery and Reinvestment
Act (ARRA) of 2009, Pub. L. No. 111-5 (Feb. 17, 2009), added an
additional $3 billion of NMTC allocation authority to be split equally
between the 2008 (retroactively) and 2009 allocation rounds. Since we
issued our report on minority CDEs' participation in the NMTC program
in April 2009, the CDFI Fund has awarded $1.5 billion of the $3 billion
authorized under ARRA.
[6] A low-income community is defined as a census tract (1) in which
the poverty rate is at least 20 percent or (2) outside a metropolitan
area in which the median family income does not exceed 80 percent of
median statewide family income or within a metropolitan area in which
the median family income does not exceed 80 percent of the greater
statewide or metropolitan area median family income. After October 22,
2004, the Secretary of the Treasury was authorized to issue regulations
designating targeted populations that may be treated as low-income
communities and procedures for determining which entities are qualified
active low-income community businesses with respect to such
populations. In addition, the definition of a low-income community
included certain areas not within census tracts, tracts with low
population, and census tracts with high migration rural counties.
[7] Community Development Financial Institutions and Specialized Small
Business Investment Companies automatically qualify as CDEs and only
need to register as CDEs rather than apply for certification.
[8] Beginning in the year in which the investment is made, investors
are entitled to claim the credit for a 7-year period with 5 percent of
the investment claimed in each of the first 3 years and 6 percent in
each of the last 4 years. Investors are allowed to carry the credit
back 1 year and carry the credits forward for a 20-year period.
[9] "Substantially all" means that CDEs must use (within 12 months) at
least 85 percent of investor proceeds in years 1 through 6 and 75
percent in year 7 of the investment. CDEs can satisfy this requirement
by two methods: (1) direct tracing of investments to specific qualified
low-income community investments or (2) showing that at least 85
percent of their aggregate gross assets (75 percent in year 7) are
invested in qualified low-income community investments.
[10] For the purposes of the remainder of this statement, we generally
refer to minority-owned or controlled CDEs as "minority CDEs" and non-
minority owned or controlled CDEs as "non-minority CDEs."
[11] Pub. L. No. 111-5 (2009). The CDFI Fund revisited the 2008 NMTC
applications and made awards to the CDEs that would have been the next
CDEs to receive awards had more allocation authority originally been
available. After accounting for the additional awards, minority CDEs
maintained lower success rates than non-minority CDEs in obtaining NMTC
awards for the 2008 allocation round.
[12] Analysis of minority CDE participation in the NMTC program is
limited to reviewing information about CDEs that applied for NMTC
allocations and identified themselves as minority-owned or controlled
CDEs. Other investment organizations would potentially be able to
obtain certified CDE status and apply for NMTC allocations. This could
include minority-owned banks and other minority organizations with the
primary mission of serving low-income communities.
[13] The CDFI Fund requires reviewers to disclose any conflicts of
interest related to applicants with whom they have or had a
relationship.
[14] CDE characteristics for which we could control included the CDE's
asset size and whether the CDE was minority-owned or controlled, a
certified Community Development Financial Institution, a nonprofit
organization, a bank, or a publicly traded corporation. We also
controlled for certain proposed project characteristics, including
whether projects were to be non-real estate property investments or
investments in severely distressed areas or urban areas.
[15] GAO, Minority Banks: Regulators Need to Better Assess
Effectiveness of Support Efforts. [hyperlink,
http://www.gao.gov/products/GAO-07-6] (Washington, D.C.: Oct. 4, 2006).
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
