General Government: New Markets Tax Credit
Year Identified: 2011
Area Number: 66
Area Type: Cost Savings & Revenue Enhancement
◐- Partially Addressed
○- Not Addressed
◉- Consolidated or Other
⊘- Closed-Partially Addressed
⊗- Closed-Not Addressed
Last Updated:March 6, 2014
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.
No legislative action identified. In January 2013, Congress extended the NMTC through 2013 but did not direct that certain funds be provided as grants to test whether grants in lieu of credits to Community Development Entities could lower the cost to the government, as GAO suggested in January 2010. The credit expired at the end of 2013. However, if Congress extends the credit retroactively as it has in the past, another opportunity exists to offer grants in lieu of credits. In the President’s 2014 budget request, the Office of Management and Budget reported the expected 5-year revenue cost of the NMTC to be about $3.8 billion. Offering grants in lieu of NMTCs could result in a greater portion of the federal subsidy reaching low-income community businesses.