In its 2011 allocation agreement the CDFI Fund added the “Food Desert” as one of the two secondary criteria which a community development entity may use to qualify a site as “highly distressed” under the Federal New Markets Tax Credit Program. This change in the allocation agreement is significant in light of the President’s proposal to extend the Program for two additional years and designate that at least $500 million ($250 million per year) will support financing healthy food options in distressed communities as part of the Healthy Food Financing Initiative. The 2011 allocation agreement defines a Food Desert, as either: 1) a census tract determined to be a Food Desert by the U.S. Department of Agriculture (USDA), as identified in USDA’s Food Desert Locator Tool; or 2) a census tract that qualifies as a Low-Income Community and has been identified as having low access to a supermarket or grocery store through a methodology that has been adopted for use by another governmental or philanthropic healthy food initiative. In addition, the 2011 allocation requires that QLICI activities increase access to healthy food. As a result, with the extension of the Federal New Markets Tax Credit program there will be an increased focus by community development entities on the development of affordable food centers in food deserts.
New Markets Tax Credit Demand and Pricing on the Rise
The reduction of the annual allocation of New Markets Tax Credit authority by the CDFI Fund from 5 billion dollars to 3.5 billion dollars after the expiration of Stimulus legislation and the increased awareness of the benefits of the Program have created a tremendous demand on community development entities who receive an allocation. of New Markets Tax Credit authority. Sponsors seeking to identify New Market Tax Credit allocation for projects should be aware that community development entities are focused on transactions which result in substantial job creation and supermarkets in designated food deserts. The good news for sponsors is that investors are paying higher prices for New Markets Tax Credits. Accordingly, while it has become more challenging to identify allocation, the equity generated for a project through an allocation of New Markets Tax Credits should be greater than in prior years.
CDFI Fund Implements Transition to 2010 Census Data
The Community Development Financial Institutions Fund (“CDFI Fund”) has completed the first stage of its transition to the new census data for eligibility under the Federal New Markets Tax Credit Program. The CDFI Fund has adopted a transition process which recognizes that community development entities may have already begun to structure potential “qualified low-income community investments” based on the 2000 census data. The CDFI Fund has announced that it will allow New Markets Tax Credit community development entities to use either the 2000 census data or the 2006-2010 ACS data applied for the 2010 census tracts to qualify for “qualified low-income community investments” closed between May 1, 2012 and June 30, 2012.
Using New Markets Tax Credits with 4% Housing Tax Credits
With New Markets Tax Credit allocation from community development entities the most competitive it has ever been, consideration should be given to alternative and complimentary federal tax credit and subsidy programs. As example, mixed use projects with a residential rental component which may be financed through the New Markets Tax Credit program provided that the property is non-residential rental property should consider bifurcating the project into commercial and residential components. The New Markets Tax Credit program may then be used for the commercial component and the Federal low-income housing tax credit program for the residential rental component. 4% low income housing tax credits will provide approximately the same amount of equity as the New Markets Tax Credit Program and 9% low income housing tax credits will provide significantly more tax credit equity. The tradeoff is the restriction of the rental units with respect to both the income of the tenants and the rents paid for 30 years.