New Markets Tax Credit Program
The federal New Markets Tax Credit (NMTC) program serves as a resource to help fuel job creation and economic development efforts by promoting equity investment in low-income urban and rural communities. WHEDA awards NMTCs to enhance financing for projects in highly distressed areas throughout Wisconsin that have demonstrable community impact.
Since 2004, WHEDA has leveraged over $400 million in NMTCs to finance projects with over $500 million of total development costs.
Impact on Employment
WHEDA’s tax credit investments have created and/or retained thousands of jobs for the state of Wisconsin in categories such as:
- Direct Jobs - Full-time employment (FTE) or FTE-equivalents
- Indirect Jobs - Jobs businesses create as a result of direct hiring
- Induced Jobs - Jobs area businesses create as a result of increased economic activity
- Temporary Construction Jobs
Benefits to Businesses
Businesses involved in NMTC deals can obtain benefits including lower interest rates on loans, interest-only payments for seven years, non-traditional financing not available in the marketplace, access to a reduced cost of capital, and more. NMTC recipients include manufacturers, small technology firms, inner-city shopping centers, commercial real estate developments, retail stores, hotels, and health care facilities.
Projects must be located in highly distressed census tracts – which are determined by factors such as poverty rates and percentage of median family income. The NMTC is a competitive program administered by the U.S. Department of the Treasury’s Community Development Financial Institutions Fund.
The New Markets Tax Credit program was originated by Congress in 2000 as a way to promote economic development in low-income communities. The program provides tax incentives to investors who make equity investments in rural and urban low-income communities. Since 2004, the Wisconsin Community Development Legacy Fund has received four allocations of New Markets Tax Credits totaling $405 million.
The Wisconsin Community Development Legacy Fund (WCDLF), a nonprofit organization made up of WHEDA®, Legacy Bancorp and Impact 7, is a Community Development Entity (CDE) responsible for allocating New Markets in Wisconsin. CDEs use local knowledge and expertise to decide what businesses to invest in or lend to with the New Markets funds.
How can a business benefit from using them?
- By raising capital that can be used to grow a business before a return on the funds is due to the investor. Strong equity capital relieves some short-term cash flow pressures, allowing the business to expand.
- About 10% or more of the project cost can be covered with tax credit equity gained from selling the tax credits. In most cases, the equity does not need to be paid back. If a project requires $10 million in financing, and it receives a $10 million allocation of New Markets, the deal receives a net equity infusion of $1 million. The project will now require only $9 million in traditional. financing.
- Participation loans can be done with banks at interest rates 1.5 to 2% below prevailing market rates.
- Equity capital can make a business more creditworthy, which can lower costs of financing and better enable the leveraging of additional financing sources. Equity capital also helps a firm absorb unforeseen setbacks and temporary economic downturns.