Legislation Introduced to Update Community Reinvestment Act

Legislation Introduced to Update Community Reinvestment Act

Rep. Maxine Waters, D-California, recently introduced H.R. 8833, the Making Communities Stronger Through the Community Reinvestment Act. The purpose of this legislation is to update the Community Reinvestment Act (CRA). As a result, the legislation may delay pending proposals by federal banking authorities to update current CRA regulations.

One emphasis of the revisions concerns banks’ CRA exams. The legislation would create mandatory advisory committees in each market where the bank is located, thus providing local communities greater input into CRA exams and activities. The number and location of these advisory committees depend on whether the bank has assets of more or less than $2 billion. Bank executives must meet with these committees quarterly and when a bank proposes certain transactions. At these meetings, the bank and the committees must address issues including credit and deposit needs of low and middle-income individuals, underserved communities, persons with disabilities, LBGTQ+ communities, and 27 specified racial and ethnic communities.

The bill also would require CRA exams to evaluate bank lending done in partnerships with nonbanks and fintechs. Banks also would receive credit for community service and charity work. However, banks with assets over $2 billion would not receive credit for these activities unless they comply with specific reporting requirements and the activities meet various criteria.

Another major focus of H.R. 8833 is to address so-called “redlining” by financial institutions to close racial wealth and homeownership gaps. The first section of the bill acknowledges that one reason for these disparities is historically unequal access to credit due to the racial composition of an area, as perpetuated by lenders. To that end, the bill would encourage lenders to offer mortgages of less than $100,000, primarily to low and moderate-income individuals. Banks also would have to better record data to identify existing discrimination or racial disparities. The legislation also creates a pathway to consider data concerning discrimination and racial discrimination on future CRA exams.

H.R. 8833 would expand the legal violations that could affect CRA ratings. For example, under the amended CRA, “any violation” of a federal or state law, no matter whether the violation is related to the extension of credit, would result in a negative mark on the lender’s CRA performance evaluation. In addition, any evidence of “discriminatory or other illegal credit practices” would result in negative consideration.

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We have worked with clients to obtain all types of tax credits and other government programs to finance the revitalization of communities. Savage & Associates has handled over a billion dollars in New Markets Tax Credit financing transactions and more than 300 commercial real estate closings. As a result, we know how to leverage the available tax credit tools to transform your communities.

Contact our offices by calling 215.880.9441 in Philadelphia or 202.817.3941 in Washington, D.C., to discuss your ideas. You also can find out more about our services online. We look forward to working with you to build your communities through traditional and alternative investment mechanisms based on your individual needs.

CDEs and Accountability

CDEs and Accountability

An organization seeking awards under the New Markets Tax Credits (“NMTC”) Program must be certified as a community development entity (“CDE”) by the Community Development Financial Institutions Fund (“CDFI Fund”). One of the requirements for an organization to qualify as a CDE is that the organization must maintain accountability to its targeted low-income communities (“LIC”).

The NMTC Program is jointly administered by the CDFI Fund and the Internal Revenue Service (IRS). Any program investments must comply with regulations contained in § 45D of the Internal Revenue Code. The contents of an Allocation Application are consistent with the Internal Revenue Code § 45D and the NMTC Program Income Tax Regulations. I.R.C. §45D(c)(1)(B) provides guidance on the accountability rules for a qualified CDE. If a CDE serves many geographic areas, the CDE must demonstrate accountability to each of these service areas.

Accountability to residents of LICs is maintained through the CDE’s representation on the governing board of the entity or on any advisory board of the entity. If a CDE uses an advisory board to meet the accountability requirement, the CDE must have the ability to demonstrate that the advisory board’s viewpoints receive sufficient consideration by any governing board. A minimum of 20 percent of the members of an advisory board must be representative of the LIC served by the CDE.

Only if the board member resides in a LIC within the entity’s designated service area or otherwise represents the interest of residents of the LIC will the member be considered representative of the LIC. The CDFI Fund encourages the appointment of low-income persons from the LIC to an advisory board.

CDEs with a national, multi-state, or statewide service area must show that at least 20 percent of the advisory board is representative of a cross-section of the LIC(s) within the area(s) that it serves. The CDFI Fund recommends that CDEs with a large geographic service area appoint at least one person to the advisory board accountable to LICs throughout this extensive service area.

To satisfy the goals and purposes of the NMTC Program and reasonably ensure that it meets all accountability test regulations, an entity should create formal written policies and procedures. It is also recommended that CDEs issue an annual compliance report which certifies accountability and make a statement that the CDE has maintained governing or advisory board status.

Also, at least once annually, a CDE should monitor and maintain the status of each board member by verifying that information submitted with the CDE’s Certification Application remains true and correct. Savage & Associates can help your CDE establish these necessary and crucial protocols to meet the accountability test requirements. Call us today!

Let’s Work Together to Develop our Communities

If you want to learn more about NMTCs, contact Savage & Associates at 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. Dionne Savage can assist you to gain access to the benefits provided by the New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools that benefit local communities throughout the United States. Visit our website at Savage & Associates 24 hours a day, seven days a week for more information.

About The New Markets Tax Credits Extension Act of 2021

About The New Markets Tax Credits Extension Act of 2021

Legislation to make the New Markets Tax Credit (NMTC) Program permanent is on the floor of both houses of Congress as S. 456 and H.R. 1321, better known as the New Markets Tax Credits Extension Act of 2021 (the “Act”). The New Markets Tax Credit program is scheduled to terminate in 2025 but amendments made by the Act, introduced on February 25, 2021, would extend it permanently and apply to all taxable years beginning after December 31, 2020.

Some quick facts about the NMTC program:

  • *Through 2020, NMTC allocations totaling $60 billion have provided almost $110 billion in total project financing to over 7,000 projects.
  • *In 2020, over 80 percent of NMTC projects were in communities experiencing severe economic distress.
  • *In 2020, 24 percent of NMTC investments were in rural areas.
  • *Through 2015, the NMTC created 1 million jobs costing the federal govt. less than $20,000 per job.

The New Markets Tax Credits Extension Act of 2021 expands recent Congressional legislation that extended the NMTC through 2025. In 2019, Congress increased the amount of credits available by 44 percent to $5 billion. The Act increases the efficiency of the NMTC program and delivers more capital to low-income communities (LICs). In sum, the Act:

  • *Provides an indefinite extension of the NMTC;
  • *Indexes future allocation levels to inflation; and
  • *Attracts new investors by exempting the NMTC from the Alternative Minimum Tax (AMY).

The need to provide relief because of the COVID-19 pandemic helped steer congressional efforts to extend the NMTC program. “The COVID-19 pandemic has laid bare the historic disinvestments in our rural and underserved communities. Now more than ever, it is critically important that our communities have permanent access to the New Market Tax Credit as a tool to facilitate investments in local businesses and community development projects as we recover from our economic crisis,” said Rep. Terri Sewell in a press release. “The NMTC remains crucial to the creation of job growth and opportunity in Alabama’s 7th Congressional District, and I’m proud to introduce this bipartisan bill to ensure our most underserved communities are not left behind.”

The annual impact of the New Markets Tax Credits equates to $25 billion and includes an estimated 690 new manufacturing expansions and industrial projects; 275 mixed-use projects combining housing, commercial, and social services; 255 new or improved health clinics, hospitals, and medical offices; and 775 investments in daycare centers, Boys and Girls Clubs, and other community facilities. It is also expected to create an estimated 590,000 jobs.

“Following devastating impacts from COVID-19, the New Markets Tax Credit is absolutely vital for many of America’s urban neighborhoods and rural communities and will provide billions of dollars for high-impact, community revitalization projects,” said Bob Rapoza, spokesperson for the NMTC Coalition. “Over the years, the credit has been instrumental in financing plant and equipment for small manufacturing businesses and patient flexible capital to other small businesses, hospitals, healthcare centers, homeless shelters, and other transformative projects that improve communities, create jobs and economic opportunity. We appreciate the leadership of several members of Congress in championing this effort for communities across the U.S., including Reps. Terri Sewell (D-AL) and Tom Reed (R-NY)and  Sens. Ben Cardin (D-MD) and Roy Blunt (R-MO).”

In an open letter to the Senate Finance and Ways & Means Committees in May, the American Bankers Association (ABA) expressed its support for the legislation. An independent compliance review found that NMTC program participants significantly lower the cost of capital for borrowers in low-income communities and exceed statutory and regulatory requirements for the targeting of economic distress.

Let’s Work Together to Develop our Communities

If you want to learn more about NMTCs, contact Savage & Associates at 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. Dionne Savage can assist you to gain access to the benefits provided by the New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools that benefit local communities throughout the United States. Visit our website at Savage & Associates 24 hours a day, seven days a week for more information.