The New Markets Tax Credit program has been extended for two years, at $3.5 billion a year, under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which President Barack Obama signed into law on Friday. An award announcement is expected next month, said Donna Gambrell, Director of the Community Development Financial Institutions Fund, which administers the program.

NMTCs are an innovative and effective tool in financing projects in low-income communities through specially formed Community Development Entities (CDEs). Their impact is wide ranging. Since the first awards were made in 2002, real estate projects have dominated the program. However, the use of NMTCs has been steadily diversifying, with more awards going toward operating businesses and real estate-related projects such as food banks, charter schools, and health care centers.

Leveraged loans have been integral to the funding packages for most NMTC transactions. But with conventional leverage loan debt in short supply, program participants are frequently employing non-traditional funding sources to close the gap, with a heavy reliance on federal, state, and local government funds.

Ballard Spahr, for example, is working on a transaction for a public housing authority (PHA) that plans to the use the New Markets Tax Credit, alongside multiple sources of public funds, to help finance a mixed-use development. The project will be developed, owned, and managed by a nonprofit affiliate of the PHA as the Qualified Active Low-Income Community Business (QALICB), and a second, nonprofit affiliate will operate as the leveraged lender. The PHA will lend public housing development and capital assistance dollars to the leveraged lender, which will then make the leveraged loan. The public housing funds are expected to account for around half of the estimated $18 million in total development costs. Additional funding resources are equity and anticipated local tax-increment financing, among others.

Our NMTC team believes that this transaction, the first of its kind, can serve as a model for other housing authorities. In addition to offering new ways to develop housing, it holds the potential for financing community-related programs and services for public housing residents in conjunction with such development.

Please contact Stephanie L. Franklin-Suber, partner-in-charge of Ballard Spahr’s NMTC practice, at 215.864.8203 or, if you have any questions about how you might use NMTCs. Ms. Franklin-Suber and her team are experienced in combining NMTCs with other tax credits and financing sources, such as historic rehabilitation tax credits, energy tax credits and incentives, state and local tax credits, grants and subsidized loans, tax-exempt bond financing, American Recovery and Reinvestment Act funds, Tax Increment Financing, Community Development Block Grant funds, federal government agency loan guarantees, and conventional financing.  

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