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General Government: New Markets Tax Credit

Converting the New Markets Tax Credit to a grant program may increase program efficiency and significantly reduce the $4 billion, 5-year revenue cost of the program.

Action:

Congress should consider offering grants in lieu of credits to Community Development Entities (CDE) if it extends the program again. If it does so, Congress should require the Department of the Treasury to gather appropriate data to assess whether and to what extent the grant program increases the amount of federal subsidy provided to low-income community businesses compared to the New Markets Tax Credit (NMTC); how costs for administering the program incurred by the Community Development Financial Institutions Fund, CDEs, and investors would change; and whether the grant program otherwise affects the success of efforts to assist low-income communities. One option would be for Congress to set aside a portion of funds to be used as grants and a portion to be used as tax credit allocation authority under the current structure of the program to facilitate comparison of the two program structures.

Progress:

No legislative action identified. The Tax Increase Prevention Act of 2014 extended the NMTC through December 31, 2014 (section 115 of division A of Public Law 113-295). If Congress extends the credit retroactively as it has in the past, another opportunity exists to offer grants in lieu of credits, as GAO suggested in January 2010. In the President’s 2016 budget request, the Office of Management and Budget reported the expected 5-year revenue cost to be about $4 billion. Offering grants in lieu of NMTCs could result in a greater portion of the federal subsidy reaching low-income community businesses.

Action:

The Secretary of the Treasury should issue guidance on how funding or assistance from other government programs can be combined with the New Markets Tax Credit (NMTC), including the extent to which other government funds can be used to leverage the NMTC by being included in the qualified equity investment.

This action was identified in GAO’s July 2014 report, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness (GAO-14-500) and was added to the Action Tracker in April 2015.

Progress:

Pending

Action:

The Secretary of the Treasury should ensure that controls are in place to limit the risk of unnecessary duplication at the project level in funding or assistance from government programs and to limit above market rates of return, i.e., returns that are not commensurate with the NMTC investor’s risk.

This action was identified in GAO’s July 2014 report, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness (GAO-14-500) and was added to the Action Tracker in April 2015.

Progress:

Pending

Action:

The Secretary of the Treasury should ensure that the Community Development Financial Institutions (CDFI) Fund reviews the disclosure sheet that Community Development Entities (CDE) are required to provide to low-income community businesses to determine whether it contains data that could be useful for the Fund to retain.

This action was identified in GAO’s July 2014 report, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness (GAO-14-500) and was added to the Action Tracker in April 2015.

Progress:

Pending

Action:

The Secretary of the Treasury should ensure that the Community Development Financial Institutions   (CDFI) Fund clarifies the instructions for reporting the amount of any equity which may be acquired by the low-income community business at the end of the 7-year New Markets Tax Credit (NMTC) compliance period.

This action was identified in GAO’s July 2014 report, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness (GAO-14-500) and was added to the Action Tracker in April 2015.

Progress:

Pending

Action:

The Secretary of the Treasury should also ensure that the Community Development Financial Institutions (CDFI) Fund clarifies the instructions it provides to Community Development Entities (CDE) about reporting loan performance and make the reporting of that data mandatory.

This action was identified in GAO’s July 2014 report, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness (GAO-14-500) and was added to the Action Tracker in April 2015.

Progress:

Pending

  • portrait of
    • James R. McTigue, Jr.
    • Director, Strategic Issues
    • mctiguej@gao.gov
    • (202) 512-9110