CDFI Fund Awards $5.0 Billion in New Markets Allocations

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Tax Credit Advisor, December 2009: The Community Development Financial Institutions (CDFI) Fund recently announced the award of $5.0 billion in federal new markets tax credit (NMTC) allocations to 99 Community Development Entities in the program’s seventh funding round.

Each allocatee must sign an agreement with the CDFI Fund before it can receive and start using its funds.

The NMTC is a tax incentive that helps finance real estate projects, businesses, and other qualified activities in low-income communities. Organizations certified as Community Development Entities (CDEs) compete for allocations of NMTC authority in annual funding rounds held by the CDFI Fund. CDEs that receive allocations awards issue the tax credits to investors in exchange for cash investments (Qualified Equity Investments, or QEIs) that are deployed in eligible projects and businesses. Investors claim the tax credits over seven years.

Competition Level

With the latest awards, the CDFI Fund has made 495 allocation awards since 2002 totaling $26 billion in NMTC authority in seven funding rounds.

Competition for the seventh-round allocations was intense. The 99 allocatees accounted for about 40% of 249 total applicants, and received $5.0 billion in allocations – 22% of the total requested by all applicants.

The average size of the 2009 allocation awards was about $50 million, the same as in the 2008 competition. This year’s largest award, $125 million, went to Coastal Enterprises, Inc., of Wiscasset, Me., which proposes to make investments in businesses in five New England states plus New York and West Virginia. The smallest, $4 million, went to Northside Community Development Fund, which proposes to invest in real estate projects in the Pittsburgh area. Only five awards this year were $100 million or larger.

Allocatee Characteristics

Of the 99 allocatees this year:

  • 53 (52.5%) are nonprofits or their subsidiaries, awarded a total $2.655 billion (53.1% of the total dollar amount for all allocations).
  • 25 (25.3%) are certified community development financial institutions (CDFIs) or their subsidiaries, awarded $1.247 billion (24.9%).
  • 14 (14.1%) are banks, bank holding companies, publicly traded institutions, or their subsidiaries, awarded $835 million (16.7%).
  • 16 (16.2%) are government-controlled entities or their subsidiaries, awarded $790 million (15.8%).
  • 18 (18.2%) are real estate development companies or their subsidiaries, awarded $598 million (12%).
  • 10 (10.1%) are minority-owned or -controlled entities, awarded $500 million (10%). This dollar amount was a 55% increase over the allocations to minority entities in 2008.

In 2009, CDFIs had the highest success rate of any of the classes in winning an allocation (50% of CDFI applicants won an award), followed by nonprofits (49%), government-controlled entities (46%), real estate development companies (43%), banks and publicly traded companies (36%), and minority-owned/controlled entities (33%).

Service Areas

The 99 organizations awarded NMTC allocations are headquartered in 30 different states, the District of Columbia, and Puerto Rico, but expect to make investments in 49 different states, the District of Columbia, and Puerto Rico. The remaining state, Wyoming, and other U.S. territories, may be served by allocatees with a national service footprint.