The 2015 Protecting Americans from Tax Hikes (PATH) Act enacted by Congress in late 2015 provided a rare amount of certainty for the federal new market tax credit program. This legislation extended the new market tax credit program through 2019, and provided $3.5 billion in allocation issuance per year through 2019. The US Department of Treasury’s Community Development Financial Institutions Fund (CDFI Fund) has indicated that the next round of allocations to community development entities (CDEs) is expected in summer of 2016.
A borrower looking to finance a project using new market tax credits in the second half of 2016 should watch for the awards to be made this summer. The CDFI Fund will post to their website the names and contact information of CDEs who receive awards as well the amount of the expected credits. A link to the CDFI Fund homepage is as follows: https://www.cdfifund.gov/programs-training/Programs/new-markets-tax-credit/Pages/default.aspx.
Once the awards are announced, a developer should waste no time in contacting a CDE to get a commitment of new market tax credit allocations. Unlike other tax credit programs, a borrower cannot utilize new market tax credits until a CDE agrees to commit a portion of its credits to the borrower. A CDE will typically try to make commitments for credits received in an award as soon as possible. Borrowers who wait to secure a commitment of new market tax credits from a CDE until the borrower is ready to break ground may discover the CDE has already committed all credits awarded to it. The borrower may then need to wait until the subsequent round of credits is awarded to CDEs by the feds (typically the following year).
For a borrower seeking to utilize new market tax credit financing prior to this summer, the best opportunity to find credits is to search for CDEs with unused credits from prior award. The CDFI Fund recently posted to their website an updated summary (measured as of March 1, 2016) of credits available from prior allocation rounds. The summary indicates that nationwide, nearly $1.8 billion of credits have yet to be used in financings that have closed. A link to this award is as follows: https://www.cdfifund.gov/Documents/3.1.2016%20QEI%20Issuance%20Report.pdf. The report acknowledges that the “available” credits includes amounts that are internally earmarked by a CDE to a borrower, as well as credits that are the subject of a financing that may have closed after the March 1, 2016 snapshot. Nonetheless, the report is a useful first step for a borrower looking to find CDEs with available credits, as it includes names and phone numbers for contact persons at each such CDE.