Important Steps to Prepare For New Markets Tax Credit Allocations

As we anxiously await the Community Development Financial Institutions (CDFI) Fund’s announcement of the next round of New Markets Tax Credit Allocations later this summer, preparation is key. With the disproportionate impact of the COVID-19 pandemic affecting low-income communities a strong strategic NMTC plan and the ability to quickly deploy allocation has never been more urgent.

The more you understand about the NMTC program the better prepared you will be to successfully deploy new NMTC Allocation and close your deals. At Savage & Associates, we have all the answers to your NMTC questions.  We can also help you better understand the economics of NMTC deals and help you move forward confidently with your development plans.

Following these simple and prudent tips will allow you to immediately reap the benefits of the NMTC program when you receive an NMTC Allocation.

Important Steps to Prepare for a NMTC Allocation

  1. Analyze your pipeline of projects. Start your due diligence by reviewing your NMTC application and determining the status of the proposed projects to determine if the projects are “really shovel ready.” Research new high community impact projects. Contact proposed qualified active low-income businesses (QALICBs) to see if they have received:
  • commitment letters from leverage lenders, equity investors, and other debt sources;
    • necessary permits;
      • construction contracts;
      • zoning approvals; and
      • environmental reports.

Many NMTC deals can include other funding sources from state and city programs  or grants. Your proposed transaction must meet the criteria outlined in your NMTC application.

  • Hold a conference call with your advisory board. Build the community revitalization spirit with your board by hosting a call to confirm your members are still affiliated with the same organizations listed in your CDE application, update members about NMTC’s reauthorization, and explain your strategy for deploying NMTC allocation. This is a good time to discuss further relationships with investors, banks, and government agencies that can help your organization deploy NMTC Allocation.
  • Pick a point person. Once the NMTC allocations are announced, your organization will need to absorb a lot of information in a short amount of time and, when you receive an NMTC allocation, your phone will ring off the hook. Choose someone knowledgeable about the program who can provide potential investors and QALICBs with your organization’s strategy and the types of projects that will comply with your NMTC application. This person should be able to manage the organizational details of your NMTC program and develop a regulatory compliance plan as well.
  • Identify and deploy any remaining NMTC allocations. If your organization previously received NMTC allocations, be sure to review your prior awards and agreements to confirm all of your prior allocations have been deployed. Create a spreadsheet to track each allocation date, total amount received from the CDFI Fund, the projects your organization supported with the allocation, how much was used, and when. Be sure to review all reports previously submitted to the CDFI Fund and all Form 8874-As.
  • Consider forming new CDEs. If you decide to create new CDEs, be sure to promptly add them to your Allocation Agreement before you sign the final version with the CDFI Fund. For corporate liability, tax, and other important reasons you should only use one CDE for each transaction. Before finalizing your Allocation Agreement, the CDFI Fund requires a legal opinion from an attorney. Although you can amend the Allocation Agreement to add new CDEs later, you’ll need another legal opinion and you’ll incur additional legal expenses.
  • Engage an attorney and accountant. Working with knowledgeable professionals is critical. Choose an attorney and accountant who are familiar with the NMTC program and the opinions required for your Allocation Agreement and transaction closings. (Savage & Associates has extensive tax credit experience and are available to assist you with your next closing).
  • Determine your organization’s fees and expenses. CDEs are committing to invest at least 95 percent of qualified equity investment dollars in QALICBs. Therefore, clearly establishing your fees are critical. You must have a basis for your fees, whether you charge a sub-allocation fee, a back-end fee, or a structuring fee. Your fees must be reasonable and based on an objective standard.
  • Work with great partners. Find partners such as banks, municipalities, government agencies, investors, and other entities that have previously received NMTC allocations to combine your efforts.

The team at Savage & Associates recognizes the value the NMTC program offers for our clients and our communities. We are devoted to providing timely advice and assistance through the NMTC Allocation closing process along with other related legal issues. Our founder, Dionne Savage is a frequent presenter at NMTC seminars and is available to speak at events on this topic as well as other related topics.

If you have any questions about the New Markets Tax Credit program, the NMTC Allocation closing process, or other development matters, give us a call at 215.880.9441 in Philadelphia, or 202.817.3941 for our Washington DC office. Or visit us at Savage & Associates anytime for more information or to set up a consultation.

Together, we can improve our communities!

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