Maryland General Assembly Establishes a “Maryland Only” CDE

By N. Gordon Knox, Partner

On April 8th, the Maryland General Assembly enacted The Housing and Community Development Financing Act (the “Act”), creating a state Community Development Entity (“CDE”) to utilize federal New Markets Tax Credits (“NMTCs”).  The Act was part of Governor Wes Moore’s Legislative Housing Package which aims to, among other things, incentivize long-term financial investment in low-income communities in the State.

The Act established a CDE called the Maryland Community Investment Corporation (“MCIC”).  CDEs are domestic corporations which serve as intermediaries for the provision of loans or investments in low-income communities.  MCIC will be able to apply to the federal Community Development Financial Institutions (“CDFI”) Fund to receive an allocation of NMTCs to offer its investors in exchange for equity investments in the CDE.

Historically, low-income communities experience a lack of investment, as evidenced by vacant commercial properties, outdated manufacturing facilities, and inadequate access to education and healthcare service providers. The NMTC Program aims to break this cycle of disinvestment by attracting the private investment necessary to reinvigorate struggling local economies.

The U.S. Congress established the NMTC program at the beginning of this century.  Congress authorizes the amount of credit, which the U.S. Treasury Department then allocates to qualified applicants, such as MCIC.  From 2003 through 2023, the NMTC program has parceled out credits worth $40 billion (in 2023 dollars). The NMTC has supported more than 7,100 projects in all 50 states, the District of Columbia, and Puerto Rico through program year 2020. Some 43% of the U.S.’s roughly 74,000 census tracts qualify for NMTC investments; by 2020, approximately 4,300 had received NMTC projects. In recent years, all applicants have pledged to place at least 75% of their NMTC projects in “severely distressed” census tracts.

NMTC investors provide capital to CDEs, and in exchange are awarded credits against their federal tax obligations. Investors can claim their allotted tax credits in as little as seven years—5 percent of the investment for each of the first three years and 6 percent of the project for the remaining four years—for a total of 39% of the NMTC project. A CDE can be its own investor or find an outside investor. Investors are primarily corporate entities—often large international banks or other regulated financial institutions—but any entity or person is eligible to claim NMTCs.

There are a number of CDEs in Maryland but they are not required to make loans or investments in Maryland.  MCIC is unique in that its statutory purpose is to facilitate qualified equity investments exclusively in Maryland.  Now that MCIC has been established, it can apply for allocations of NMTCs and solicit investors interested in making meaningful investments in low-income communities in The Old Line State.

Gordon Knox is a partner, resident in the Baltimore office, and a member of the firm’s Affordable Housing & Community Development Group.  Admitted to the bars of Maryland, the District of Columbia and Virginia, Mr. Knox’s practice focuses on new markets tax credits, tax-exempt municipal bonds and commercial real estate. 

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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