[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
 JOINT HEARING ON CERTAIN ASPECTS OF THE NEW MARKETS TAX CREDIT (NMTC) 
                                PROGRAM 

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 18, 2009

                               __________

                       Serial Nos. 111-25, 111-47

                               __________

         Printed for the use of the Committee on Ways and Means

                               ----------
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56-743 PDF                       WASHINGTON : 2010 

For sale by the Superintendent of Documents, U.S. Government Printing 
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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            SAM JOHNSON, Texas
JOHN LEWIS, Georgia                  KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts       PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee            ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
LLOYD DOGGETT, Texas                 DEVIN NUNES, California
EARL POMEROY, North Dakota           PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California            GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut          GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon              DAVID G. REICHERT, Washington
RON KIND, Wisconsin                  CHARLES W. BOUSTANY, JR., 
BILL PASCRELL, JR., New Jersey       Louisiana
SHELLEY BERKLEY, Nevada              DEAN HELLER, Nevada
JOSEPH CROWLEY, New York             PETER J. ROSKAM, Illinois
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director

                      COMMITTEE ON WAYS AND MEANS

                     SUBCOMMITTEE ON SELECT REVENUE

                RICHARD E. NEAL, Massachusetts, Chairman

MIKE THOMPSON, California            PATRICK J. TIBERI, Ohio, Ranking 
JOHN B. LARSON, Connecticut          Member
ALLYSON Y. SCHWARTZ, Pennsylvania    JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEAN HELLER, Nevada
JOSEPH CROWLEY, New York             PETER J. ROSKAM, Illinois
KENDRICK B. MEEK, Florida            GEOFF DAVIS, Kentucky
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky
                    COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, JR., North 
GREGORY W. MEEKS, New York           Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri              Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTMAN, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Chief Counsel and Staff Director

                Larry Lavender, Minority Staff Director

                    COMMITTEE ON FINANCIAL SERVICES

                   SUBCOMMITTEE ON DOMESTIC MONETARY

                         POLICY AND TECHNOLOGY

                MELVIN L. WATT, North Carolina, Chairman

CAROLYN B. MALONEY, New York         RON PAUL, Texas, Ranking Member
GREGORY W. MEEKS, New York           MICHAEL N. CASTLE, Delaware
WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California             JIM GERLACH, Pennsylvania
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            BILL POSEY, Florida
KEITH ELLISON, Minnesota             LEONARD LANCE, New Jersey
JOHN ADLER, New Jersey
SUZANNE KOSMAS, Florida











                            C O N T E N T S

                               __________

                                                                   Page

Advisory of June 11, 2009 announcing the hearing.................     2

                               WITNESSES

Donna J. Gambrell, Director, Community Development Financial 
  Institutions Fund, United States Department of the Treasury....     6
Michael Brostek Director, Tax Issues, Strategic Issues Team, 
  United States Government Accountability Office.................    15

                                 ______

Ron Phillips, President, Coastal Enterprises, Inc., President, 
  New Markets Tax Credits Coalition, Wiscasset, Maine............    33
Blondel A. Pinnock, President, Carver Community Development 
  Corporation, Senior Vice President, Carver Federal Savings 
  Bank, New York, New York.......................................    45
Joseph Haskins, Jr., Chairman, President and Chief Executive 
  Office, Harbor Bank of Maryland, Baltimore, Maryland...........    50
William Michael Cunningham, Social Investing Advisor, Creative 
  Investment Research, Inc.......................................    57
James R. Klein, Chief Executive Officer, Ohio Community 
  Development Finance Fund, Columbus, Ohio.......................    72


                  JOINT HEARING ON CERTAIN ASPECTS OF
               THE NEW MARKETS TAX CREDITS (NMTC) PROGRAM

                              ----------                              


                        Thursday, June 18, 2009

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                   Subcommittee On Select Revenue Measures,
                                             Joint with the
   Subcommittee On Domestic Monetary Policy And Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittees met, pursuant to notice, at 10:00 a.m. in 
Room 1100, Longworth House Office Building; Hon. Richard E. 
Neal, [chairman of the subcommittee on Select Revenue Measures] 
presiding.
    [The Advisory of the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                  Neal Announces Joint Hearing on the

                     New Markets Tax Credit Program

June 11, 2009

By (202) 225-5522

    House Ways and Means Select Revenue Measures Subcommittee Chairman 
Richard E. Neal (D-MA) announced today that the Subcommittee on Select 
Revenue Measures will hold a joint hearing with the Subcommittee on 
Domestic Monetary Policy and Technology of the Financial Services 
Committee on issues involving the New Markets Tax Credit program. The 
hearing will take place on Thursday, June 18, 2009, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.m.
      
    Oral testimony at this hearing will be limited to invited 
witnesses. However, any individual or organization not scheduled for an 
oral appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

FOCUS OF THE HEARING:

      
    The hearing will focus on issues relating to the New Markets Tax 
Credit (NMTC) program and a recent GAO report showing that minority-
owned or controlled entities are less successful than non-minority 
owned or controlled entities in the NMTC application process.
      

BACKGROUND:

      
    The NMTC program was enacted as part of the Community Renewal Tax 
Relief Act of 2000 (Pub. L. 106-554) to encourage investment in low-
income communities that traditionally lacked access to capital. The 
program awards tax credits to organizations, named Community 
Development Entities (CDEs), that provide capital to low-income 
communities, including loans and investments. Investors who make an 
equity investment in a CDE may claim a tax credit equal to a percentage 
of their investment. CDEs must invest substantially all of that equity 
investment into qualifying low-income communities. Through 2009, the 
program has awarded $21 billion of the $26 billion authorized in 
credits.
      
    The Community Development Financial Institutions (CDFI) Fund, which 
administers the NMTC program within the Treasury Department, relies on 
application scores to determine which CDEs should receive an award and 
how much to award each allocatee. This application process focuses on 
four major categories: business strategy, community impact, management 
capacity, and capitalization strategy. The GAO found that multiple 
factors, including the CDEs' asset size, can influence the success rate 
for NMTC applicants. However, the GAO found that when controlling for 
CDEs' asset size, minority status was still associated with a lower 
probability of receiving an allocation.
      
    In announcing the hearing, Chairman Neal stated, ``As we continue 
to move this economy forward, the New Markets Tax Credit program is an 
invaluable tool to help encourage investments in the communities that 
need them most. Fairness in the application process is vital to its 
success. I look forward to hearing the recommendations from the CDFI 
Director and experienced applicants as to how we might implement any 
changes to improve the process.''
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Committee Hearings.'' Select the hearing for which you would like to 
submit, and click on the link entitled, ``Click here to provide a 
submission for the record.'' Once you have followed the online 
instructions, complete all informational forms and click ``submit'' on 
the final page. ATTACH your submission as a Word or WordPerfect 
document, in compliance with the formatting requirements listed below, 
by close of business Thursday, July 2, 2009. Finally, please note that 
due to the change in House mail policy, the U.S. Capitol Police will 
refuse sealed-package deliveries to all House Office Buildings. For 
questions, or if you encounter technical problems, please call (202) 
225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.

                                 

    Chairman NEAL. Let me call this hearing of the Select 
Revenue Measures Committee to order, and I hope everybody will 
quickly take their seats. I want to inform our witnesses as 
well as the interested attendees today that it looks as though 
we're going to be called to the floor in short order for what 
will be a very long day, as currently suggested up to 26 votes. 
So, if we can, with the cooperation of the witnesses and the 
members that are here try within the confines of that statement 
to move things along.
    Let me welcome to the committee our colleagues who are 
joining us for this joint hearing today between the Select 
Revenue Measures Subcommittee and the Domestic Policy 
Subcommittee of the Financial Services Committee, especially my 
friends Mr. Watt and Mr. Paul. Our hearing today is an 
examination of the New Markets Tax Credit program of which both 
Mr. Tiberi and I are supporters. We have seen first-hand the 
differences that this program can make in our districts and 
home states; and, as we will hear today, 88 percent of the 
investors in this program say they would not have invested in a 
low income community without the credit.
    The risk of investing in a distressed community is often 
too high for many investors. As a former mayor I know how 
difficult it can be to pull together financing from every 
corner imaginable in order to get new investment in a 
neighborhood that perhaps some had given up on. And sometimes 
that new investment is simply to get a new grocery store, a 
restaurant or a retailer to locate in the heart of a blighted 
neighborhood. Pope John Paul said, ``The community needs a soul 
if it is to become a true home for human beings.''
    I have seen many of these neighborhoods missing their 
souls. Investments in jobs, businesses and people can really 
turn these communities around and I have witnessed that as 
well. I believe the New Markets Tax Credit is an efficient way 
to target investment into the neediest communities around the 
country. Of course, we also need to ensure that community 
organizations, many which are smaller or minority owned have a 
fair shot at competing for these tax credits. And today we will 
hear from a number of experts on the subject who will share 
their experiences and recommendations for improvement.
    Let me at this time recognize Mr. Tiberi for his opening 
statement.
    Mr. TIBERI. Mr. Chairman, I know we are under some severe 
time shortages, so I would just ask that my opening statement 
be submitted for the record. And, thank you for this hearing 
and your leadership, and yield back.
    [The information follows:]
    Chairman NEAL. Thank you. I'd like to call on Mr. Watt for 
an opening statement.
    Mr. WATT. Thank you, Mr. Chairman, and I would be tempted 
to do the same thing, but I am kind of the culprit here who 
started this process. So I wanted to kind of frame what we're 
here about. Let me first thank Chairman Neal and Chairman 
Rangel and the Ranking Member, both Ranking Members, for being 
a part of this hearing today.
    The purpose of today's hearing is to examine a recent GAO 
report entitled, ``New Markets Tax Credit: Minority Entities 
Are Less Successful On Obtaining Awards Than Non-minority 
Entities.'' The request for the GAO report originated, 
actually, in a hearing in the Financial Services Oversight and 
Investigation Subcommittee that I chaired in the last term of 
Congress on preserving and expanding minority banks.
    During that hearing we learned that minority-owned banks 
were having difficulty obtaining New Markets Tax Credits and as 
a result Chairman Rangel, Chairman Neal, Chairman Barney Frank 
of the Financial Services Committee and I requested the GAO to 
investigate which firms have been receiving New Markets Tax 
Credits and whether any barriers exist to minority-owned firms 
competing fairly to obtain such allocations.
    What we suspected back in the last term of Congress has now 
been confirmed by the GAO report. The title of the report says 
it all: ``Minority Firms Are Less Successful In Obtaining 
Awards Under the New Markets Tax Credit Program.'' This has 
major significance, because the CDFI Fund award roughly $5 
billion in New Markets Tax Credits annually, but only a handful 
of minority owned firms have received allocations in the eight-
year history of the program. And so we're trying to get to an 
assessment of why that is the case.
    I am certainly not here as a critic of the New Markets Tax 
Credit program. To the contrary I recognize the important 
contributions these credits have had on fostering economic 
develop in traditionally underserved areas throughout the 
nation. There are several of them which I won't describe in my 
own congressional district, in fact, so I know firsthand the 
importance of them. But our theoretical assumption, I think, 
when this program was undertaken was that minority banking 
institutions being based in minority communities' underserved 
communities would be the logical recipients of at least part of 
these tax credits and the GAO has gone into describing some of 
the reasons why problems are encountered.
    I won't go into those either in the interest of time, but I 
do want to emphasize the third finding that the GAO made and 
that that was that even after controlling for the factors that 
could be influencing this asset size, proposed project 
characteristics, minority status was still associated with a 
lower probability of receiving an allocation and is the only 
factor that rated a ``significant negative,'' and this simply 
shouldn't be the case.
    So we are here today to try to get to the bottom of what's 
happening with this and I appreciate again the Chairman 
convening the hearing. And I hope we get a chance to pursue it 
without 26 votes on the floor.
    [The prepared statement of Mr. Watt follows:]
    [The prepared statement not available]
    Chairman NEAL. Thank you, Mr. Watt.
    Mr. Paul?
    Mr. PAUL. Thank you, Mr. Chairman.
    I thank you for calling this hearing on the topic of the 
New Markets Tax Credit program. I have been a consistent 
proponent of tax credits in a wide variety of areas. Tax 
credits have a successful track record as with the New Markets 
Tax Credit, which helps to revitalize low income areas in both 
rural and urban communities.
    Allegations that minority entities are discriminated 
against are disturbing, but the solution is not to establish 
quotas that favor some community development entities over 
others. Instead, given the popularity of this program, perhaps 
the size and/or scope of the program should be expanded. For 
me, there is no such thing as too many tax credits.
    Thank you, Mr. Chairman.
    Chairman NEAL. Thank you very much, Mr. Paul.
    Let me now introduce our witnesses. First, I want to 
welcome Donna Gambrell, the Director of the Community 
Development Financial Institutions Fund, the agency that 
operates the New Markets Tax Credit Program for the Treasury 
Department. I also want to welcome back to the committee, 
Michael Brostek, the director of tax issues on the strategic 
issues team at GAO who was always here to offer constructive 
comments as well. And, our second panel, we will hear from Ron 
Phillips, the president of Coastal Enterprises from Wiscasset, 
Maine.
    Let me also welcome Blondel Pinnock, the President of 
Carver Community Development, and the Senior Vice President of 
Carver Federal Savings Bank in New York City. We also want to 
welcome from Baltimore, Maryland, Mr. Joseph Haskins, who 
serves as Chairman, President and CEO of Harbor Bank; and, we 
welcome William Michael Cunningham, a social investing advisor 
at Creative Investment Research here in Washington.
    And, finally, we welcome before the committee today, James 
Klein, the CEO of the Ohio Community Development Finance Fund 
in Columbus Ohio. We are very fortunate to have a panel of 
experts from around the country to share their experiences with 
the New Markets program. We look forward to their testimony 
today.
    I want to thank you for participation. And, without 
objection, any other members wishing to insert statements as 
part of the record may do so. All written statements written by 
the witnesses will be inserted into the record as well. Let me 
recognize director Gambrell for her opening statement.
    Chairman WATT. Mr. Chairman, before you do that could I 
make what I hope will be a constructive suggestion that maybe 
one possibility, since we did just get handed this notice that 
we're going to have 26 recorded votes on the floor, that we 
might just take all of the witnesses' testimony, try to get 
those in, and then do the questioning all as one group as 
opposed to, you know, at least we could try to get the 
testimony in; and, if necessary, then may be we could submit 
our questions to them in writing subsequent to the hearing.
    Chairman NEAL. I think that's a very good idea. Are there 
any objections?
    [No response.]
    Chairman NEAL. Hearing none, I think that we'll accept a 
suggestion that's been offered by Mr. Watt.

STATEMENT OF DONNA J. GAMBRELL, DIRECTOR, COMMUNITY DEVELOPMENT 
 FINANCIAL INSTITUTIONS FUND, UNITED STATES DEPARTMENT OF THE 
                            TREASURY

    Ms. GAMBRELL. Thank you. Good morning Chairman Watt, 
Chairman Neal, Ranking Member Paul and distinguished members of 
the committee on Financial Services and the Committee on Ways 
and Means.
    I am delighted to be here today to testify at this hearing 
on the U.S. Government Accountabilities Office's recent report 
that addresses the success rates of minority entities in the 
New Markets Tax Credit Program. As Director of the U.S. 
Department of the Treasury's Community Development and 
Financial Institutions Fund or CDFI Fund, I want to assure 
Congress that since I became director almost two years ago, I 
have been committed to expanding participation in all of our 
programs.
    First, I'd like to thank Chairman Neal and Ranking Member 
Tiberi for recently introducing H.R. 2628, the New Markets Tax 
Credit Extension Act of 2009 that would extend the New Markets 
Tax Credit Program through 2003 and allow New Markets Tax 
Credit Investments to be used as an offset against alternative 
minimum tax liabilities for awards made in 2009.
    Last month, and just 100 days after the President signed 
into law the recovery act I had the privilege of joining 
Treasury Secretary Tim Geithner, Chairman Frank, Congressman 
Capuano and Governor Deval Patrick in Roxbury, Massachusetts, 
to announce that 32 organizations had been selected to receive 
$1.5 billion in New Markets Tax Credit Allocation Authority 
that was made available under the Recovery Act.
    The event was held at the new headquarters of Project Hope, 
a multi-service agency that provides low-income women with 
children, access to education, jobs, housing and emergency 
services. The building is located in a predominantly African-
American community and was financed with a $4.8 million 
investment made possible through the New Markets Tax Credit 
program. The new community center will significantly increase 
the number of local residents that Project Hope can serve. This 
is a great example of the type of story and community impact 
that is often undetected among the statistics and data program 
evaluations, but are the most important aspect of what we are 
trying to accomplish with programs like the New Markets Tax 
Credit Program.
    Since 2002, the year of our first New Markets Tax Credit 
Program round, the CDFI Fund has allocated $21 billion in tax 
credit authority to community development entities or CDEs. 
Since September of 2008, investors have invested close to $2 
billion into CDEs, demonstrating the resiliency of the program 
and even the most difficult of economic times. These 
investments have financed a variety of products including 
charter schools, healthcare facilities, performing arts 
centers, manufacturing companies, alternative energy companies, 
business incubators, grocery anchored shopping centers, 
substance abuse treatment facilities and facilities for the 
homeless.
    The New Markets Tax Credit Program is highly competitive, 
and any given application ran, only about one in four 
applicants is selected to receive an award; and requests for 
tax credit authority have been between six and nine times 
greater than what's available to award. The CDFI Fund agrees 
with the GAO's conclusion that within this highly competitive 
application environment organizations that have identified 
themselves as minority-owned CDEs have not received allocation 
awards in proportion to their representation in the application 
pool.
    The CDFI Fund does not believe that this lower rate of 
success for minority CDEs, or for that matter, the success rate 
of any category of CDE is attributable to biases in the 
application review or selection process. Despite the challenges 
that are faced by minority CDEs in the application process, the 
CDFI Fund believes that the New Markets Tax Credit Program has 
been extremely successful at bringing benefits to communities 
with large minority populations. Since the tracks for New 
Markets Tax Credit Investments have been made minority 
populations totaling 47 percent almost doubled the overall 
national average of 26 percent.
    Furthermore, over 45 percent of the dollars invested under 
the New Markets Tax Credit Program have been invested in 
communities where the majority of the population is comprised 
of minorities. New Markets Tax Credit Projects are benefiting 
minority communities all over the country, even in our own back 
yard. Here in Washington, D.C., New Markets Tax Credit 
Investments have been used to finance charter schools with 
populations that are 100 percent minority. Minority-owned 
businesses, a community and cultural center in a neighborhood 
where 93 percent of the residents are African-American; and, in 
that same neighborhood, a shopping center anchored by a Giant 
Super Markets, the first grocery store located in that 
community in over a decade.
    Notwithstanding the great successes we've seen benefiting 
minority communities, we do need to work together to increase 
participation by minority-owned CDEs in the New Markets Tax 
Credit Program. To this end the CDFI fund will focus on the 
following initiatives: one, continued outreach to minority-
owned CDEs. The CDFI Fund will continue to vigorously pursue 
outreach and training opportunities that will ensure minority-
owned institutions are aware of the benefits of the New Markets 
Tax Credit Program; and, are given every opportunity to apply 
for allocation rounds.
    Two, solicitation of public comments: next month the CDFI 
Fund will be soliciting comments pertaining to the New Markets 
Tax Credit Application Procedures and will request comments on 
how it can expand the participation of minority-owned and 
controlled CDEs. And, three, continued dialogue with Congress: 
the CDFI Fund has always been responsive to instructions from 
Congress regarding the New Markets Tax Credit Program 
priorities. The CDFI Fund very much looks forward to a 
continued dialogue with Congress on these matters.
    In closing, I hope that through these initiatives, 
specifically, the new outreach efforts, the CDFI Fund will be 
better able to reach a greater audience of potential awardees 
and also encourage greater collaboration with organizations and 
federal agencies that serve minority populations, the New 
Markets Tax Credit Program has been a tremendous success and 
low income and minority communities throughout the country. And 
I am confident that it will continue to be so in the future.
    Thank you for inviting me here today and I look forward to 
answering your questions.
    [The prepared statement of Ms. Gambrell follows:]
    Chairman NEAL. Thank you.
    Testimony By Donna J. Gambrell Director, Community Development 
 Financial Institutions Fund, United States Department of the Treasury
    Good morning, Chairman Watt, Chairman Neal, and distinguished 
Members of the Committee on Financial Services, and the Committee on 
Ways and Means. I am delighted to be here today to testify at this 
hearing on the U.S. Government Accountability Office's (GAO) recent 
report that addresses the success rates of minority entities in the New 
Markets Tax Credit (NMTC) Program.
    My name is Donna J. Gambrell and I am the Director of the U.S. 
Department of the Treasury's Community Development Financial 
Institutions (CDFI) Fund. I want to assure Congress that since I became 
Director of the CDFI Fund almost two years ago, I have been committed 
to expanding participation in all of our programs.
    First, I would like to thank Chairman Neal and Ranking Member 
Tiberi for recently introducing H.R. 2628, ``The New Markets Tax Credit 
Extension Act of 2009'' that would extend the NMTC Program through 
2013, and allow NMTC investments to be used as an offset against 
Alternative Minimum Tax liabilities for awards made in 2009.
    Last month, and just 100 days after the President signed into law 
the American Recovery and Reinvestment Act (Recovery Act), I had the 
privilege of joining Treasury Secretary Tim Geithner, Chairman Frank, 
Congressman Capuano, and Governor Deval Patrick in Roxbury, 
Massachusetts to announce that 32 organizations had been selected to 
receive $1.5 billion in NMTC allocation authority that was made 
available under the Recovery Act. Three of these 32 awardees are 
minority-owned or controlled entities, bringing to seven the total 
number of minority-owned or controlled entities that received awards 
under the 2008 allocation round. These seven awardees received NMTC 
awards totaling $489 million.
    The event was held at the headquarters of Project Hope, a multi-
service agency that provides low-income women with children access to 
education, jobs, housing, and emergency services. This new building was 
financed with a $4.8 million investment made possible through the NMTC 
Program.
    Joining the Secretary for this announcement event allowed me to 
witness firsthand how the NMTC Program has enabled Project Hope to 
enrich its community and improve the lives of the local residents. 
Their new Community Building is a ``green'' building, the first one in 
Roxbury, and will enable Project Hope to provide services to a number 
of additional women and families.
    At the announcement event, I also had the opportunity to visit with 
Shaniqua Choice, a young woman who will soon graduate from the Match 
School, a public charter school that prepares inner-city Boston 
students for higher education, including many who have no family 
history of college attendance. Ninety-six percent of the students at 
the Match Charter School are minorities. The Match School received a 
NMTC investment which it used, in part, to set up a tutoring program 
with 45 recent college graduates who were hired to live in dormitories 
at the high school and tutor the students.
    Shaniqua lives in Dorchester in a single-parent home with a mother 
who, while she was growing up, only had a GED. She would get up at 4:30 
am every day, traveling an hour and half on the train to make it to 
school on time. She entered Match High School as a freshman in 
September 2005 performing at a 5th grade math level. Now, four years 
later, she will soon become the first in her family to go to college, 
attending Massachusetts College of Liberal Arts in North Adams in the 
fall. Shaniqua says the tutoring program is essential to the Match 
School's success and to her success.
    These are the stories and community impacts that are often 
undetected among the statistics and data of program evaluations but are 
the most important aspect of what we are trying to accomplish with 
programs like the New Markets Tax Credit Program.
    The CDFI Fund
    In 1994, Congress enacted the Riegle Community Development and 
Regulatory Improvement Act (P.L. 103-325) to create the CDFI Fund. 
Congress found that many of the Nation's distressed urban, rural, and 
Native American communities faced critical social and economic problems 
arising in part from the lack of economic growth, people living in 
poverty, and the lack of employment and other opportunities. The CDFI 
Fund's mission is to expand the capacity of financial institutions to 
provide credit, capital, and financial services to underserved 
populations and economically distressed communities across the United 
States.
    The CDFI Fund achieves its mission through five distinct 
competitive programs:

       CDFI Program: Provides Financial Assistance awards to 
institutions that are certified as CDFIs, which in turn provide loans, 
investments, financial services (including financial education) and 
technical assistance to underserved populations and low-income 
communities; the CDFI Fund also provides Technical Assistance grants to 
certified CDFIs and entities that will become certified as CDFIs within 
three years.

       Native Initiatives: Provides Financial Assistance 
awards, Technical Assistance grants, and training to Native CDFIs and 
other Native entities proposing to become or create Native CDFIs.

       Bank Enterprise Award Program: Provides monetary awards 
to FDIC-insured banks to increase their investment in low-income 
communities and/or in CDFIs.

       New Markets Tax Credit Program: Provides tax allocation 
authority to certified CDEs, enabling investors to claim tax credits 
against their Federal income taxes; the CDEs, in turn, use the capital 
raised to make investments in low-income communities.

       Capital Magnet Fund: Authorized under the Housing and 
Economic Recovery Act of 2008 but not yet funded, the Capital Magnet 
Fund will provide a source of funding for CDFIs and other non-profits 
to finance the development, rehabilitation and purchase of affordable 
housing for low-income persons. The Administration has requested $80 
million for this new initiative in FY 2010.
    Among the beneficiaries of the CDFI Fund's programs are low-income 
people and/or economically distressed communities, which include, among 
others, populations that otherwise lack adequate access to capital and 
financial services. Since its creation in 1994, the CDFI Fund has made 
more than $949.3 million in awards to CDFIs, community development 
organizations and financial institutions through the CDFI Program, the 
Bank Enterprise Award Program, and the Native American Initiatives CDFI 
Assistance Program. Since 2002, the year of our first New Markets Tax 
Credit Program round, the CDFI Fund has allocated $21 billion in tax 
credit authority to CDEs, including the $1.5 billion that was awarded 
in May of 2009 under the Recovery Act authority.
New Markets Tax Credit Program Overview
    The NMTC Program was initially authorized through the Community 
Renewal Tax Relief Act of 2000.\1\ This unique tax credit program 
facilitates investment in low-income communities by permitting 
taxpayers to receive a credit against Federal income taxes for making 
Qualified Equity Investments (QEIs) in designated Community Development 
Entities (CDEs). Substantially all of these QEI dollars must in turn be 
used by the CDE to provide investments in businesses and real estate 
developments in low-income communities.
---------------------------------------------------------------------------
    \1\ The original legislation that authorized the program allowed 
for $15 billion in tax credit authority for the NMTC program through 
2007. Pub. L. No. 106-554, App. G, Sec. 121, 114 Stat. 2763A-587, 608 
(``There is a new markets tax credit limitation for each calendar year. 
Such limitation is--(A) $1,000,000,000 for 2001, (B) $1,500,000,000 for 
2002 and 2003, (C) $2,000,000,000 for 2004 and 2005, and (D) 
$3,500,000,000 for 2006 and 2007.''). However, the Gulf Opportunity 
Zone Act of 2005 authorized an additional $1 billion of NMTC equity for 
qualified areas affected by Hurricane Katrina over a period of 3 years: 
$300 million in 2005, $300 million in 2006, and $400 million in 2007. 
Pub. L. No. 109-135, Sec. 101, 119 Stat. 2577, 2592. The Tax Relief and 
Health Care Act of 2006 and the Emergency Economic Stabilization Act of 
2008 extended the amount of NMTC authority available by $3.5 billion 
for 2008 and 2009, respectively. Pub. L. No. 109-432, Sec. 102, 120 
Stat. 2922, 2934 (2006); Pub. L. No. 110-343, div. A, Sec. 302, 122 
Stat. 3765, 3866 (2008). The American Recovery and Reinvestment Act of 
2009 provided an additional $3 billion of NMTC allocation authority to 
be split equally between the 2008 (retroactively) and 2009 allocation 
rounds. Pub. L. No. 111-5, div. A, Sec. 1403(a).
---------------------------------------------------------------------------
    The credit provided to the investor totals 39 percent of the amount 
of the investment and is claimed over a seven-year credit allowance 
period. In each of the first three years, the investor receives a 
credit equal to five percent of the total amount paid for the stock or 
capital interest at the time of purchase. For the final four years, the 
value of the credit is six percent annually. Investors may not redeem 
their investments in CDEs prior to the conclusion of the seven-year 
period.
    A CDE is a domestic corporation or partnership that serves as an 
intermediary vehicle for the provision of loans, investments, or 
financial counseling to low-income communities. To qualify as a CDE, an 
entity must: 1) have a mission of serving, or providing investment 
capital for, low-income communities or low-income persons; 2) maintain 
accountability to residents of low-income communities through their 
representation on a governing board of or an advisory board to the 
entity; and 3) be certified by the CDFI Fund as a CDE. Applicants may 
submit CDE certification applications throughout the year and are 
approved by the CDFI Fund on a rolling basis.
    The CDFI Fund is responsible for administering the competitive 
allocation of tax credit authority to CDEs, which it does through 
annual allocation rounds. To date, the CDFI Fund has made 386 NMTC 
allocation awards totaling $21 billion, through six different 
allocation rounds. The CDFI Fund will award an additional $5 billion of 
allocation authority, including $1.5 billion of allocation authority 
that was made available under the Recovery Act, under the 2009 
allocation round. The CDFI Fund anticipates making these award 
announcements in October of 2009.
    To date, investors have invested $13.7 billion into CDEs, or over 
70 percent of the NMTC allocation authority that was awarded to CDEs 
through 2008. In fact, since September of 2008, investors have invested 
close to $2 billion into CDEs, demonstrating the resiliency of this 
program in even the most difficult of economic times.
    Through FY 2007, the most recent year for which the CDFI Fund has 
complete data, CDEs invested $8.96 billion of NMTC proceeds into 1,981 
businesses and real estate projects in low-income communities, 
supporting over $30 billion in total project costs. These investments 
have financed a wide variety of projects, including charter schools, 
health care facilities, performing arts centers, manufacturing 
companies, alternative energy companies, business incubators, grocery-
anchored shopping centers, substance abuse treatment facilities, and 
facilities for the homeless. NMTC awardees reported that, through 2007, 
their investments have helped to develop or rehabilitate 63 million 
square feet of real estate, create 240,000 temporary construction jobs, 
and create or maintain 45,000 jobs at businesses in low-income 
communities.
Success of the New Markets Tax Credit Program
    One of the greatest innovations of the NMTC Program is that it 
combines the features of a competitive grant program with the 
advantages of private sector investment and decision-making. Most 
Federal tax credits are simply claimed by taxpayers rather than 
competitively allocated, and most community development programs of 
comparable size to the NMTC Program are administered through formula-
funding mechanisms. Through competition under the NMTC Program, the 
CDFI Fund selects only the most qualified CDEs, and requires them to 
meet higher standards and achieve greater results than would otherwise 
be minimally required under Internal Revenue Service program rules.
    For example, while all awardees are required to invest 
substantially all (generally 85 percent) of the qualified equity 
investments they receive in low-income communities, most applicants 
commit to making investments in areas characterized by ``severe'' 
economic distress--and are held to these commitments as part of their 
award agreements with the CDFI Fund. As a result, over 75 percent of 
NMTC transactions financed through 2007 were located in census tracts 
with a poverty rate of at least 30 percent, a median family income at 
or below 60 percent of the applicable area median family income, and/or 
an unemployment rate at least 1.5 times the national average.
    Similarly, IRS regulations do not specify that CDEs must offer 
beneficial rates and terms to the borrowers and investees in low-income 
communities. However, as part of the application materials, CDEs 
generally commit to providing flexible and non-traditional product 
offerings, and are held to these commitments as part of their award 
agreements with the CDFI Fund. Through 2007, over 98 percent of the 
transactions offered preferential rates and terms to the borrowers. The 
most common features are below market interest rates (83 percent of 
transactions), lower origination fees (59 percent of transactions), and 
longer than standard periods of interest-only payments (54 percent of 
transactions).
    CDEs are also committing to increasing their investments in low-
income communities. NMTC Program regulations generally require that at 
least 85 percent of QEI proceeds be invested in qualified, low-income 
community investments. However, as part of the application materials, 
CDEs generally commit to investing significantly more of these funds 
into low-income communities. In fact, all 32 awardees recently selected 
to receive $1.5 billion in Recovery Act awards indicated that they 
would invest at least 94 percent of their NMTC proceeds into low-income 
communities, and 24 of the 32 awardees indicated that at least 97 
percent of their QEI dollars would be invested into low-income 
communities.
    These and other program successes were highlighted in a 2007 
evaluation of the NMTC Program conducted by the GAO. As part of this 
evaluation, officials from the GAO met several times with officials 
from the IRS and the CDFI Fund. GAO officials collected documents on 
program status and efforts to monitor NMTC compliance; analyzed 
transactional data reported by CDEs to the CDFI Fund; analyzed tax 
return data reported by NMTC investors to the IRS; surveyed investors 
in the NTMC program; and compared NMTC investors with a stratified 
random sample of investors that did not make NMTC investments. This 
extensive research led to several findings pointing to the 
effectiveness of the NTMC Program, including:

       An estimated 88 percent of investors said that they 
would not have made the same investment without the NMTC.

       Of these investors who would not have made the same 
investment without the NMTC, 75 percent of investors also indicated 
that in the absence of the NMTC, they would not have made a similar 
investment in the same community.

       Sixty-nine percent (69 percent) of the investors making 
investments in CDEs in 2006 had not previously made investments in 
those entities.

       An estimated 64 percent of NMTC investors reported that 
they increased the share of their investment budget for low-income 
communities because of the credit.

       Communities receiving NMTC investments tend to be more 
highly distressed than minimally required under program rules.
    These findings, among others, led the GAO to ultimately conclude 
that ``the results of our survey and statistical analysis are 
consistent with the NMTC program increasing investment in eligible low-
income communities by the investors who participate in the program and 
with investment coming primarily from funds shifted from other uses.''
    NMTC Application Review Process
    The successes that we've seen to date under the NMTC Program are a 
result of the high demand for credits, coupled with a rigorous 
application process. In any given application round, only about one in 
four applicants is selected to receive an award, and requests for tax 
credit authority have been between six and nine times greater than what 
is available to award.

                                                      Table 1
                        Allocation History since Program Inception (Dollars in Billions)
----------------------------------------------------------------------------------------------------------------
                                        Applications                                    Awards
----------------------------------------------------------------------------------------------------------------
         Round                  Number            Amount Requested           Number                Amount
----------------------------------------------------------------------------------------------------------------
1 (2001/2)              345                    $25.8                  66                    $2.5
----------------------------------------------------------------------------------------------------------------
2 (2003/4)              265                    $29.6                  63                    $3.5
----------------------------------------------------------------------------------------------------------------
3 (2005)                203                    $22.5                  41                    $2.0
----------------------------------------------------------------------------------------------------------------
4 (2006)                239                    $27.2                  63                    $4.1
----------------------------------------------------------------------------------------------------------------
5 (2007)                252                    $27.4                  61                    $3.9
----------------------------------------------------------------------------------------------------------------
6 (2008)                239                    $21.3                  102                   $5.0
----------------------------------------------------------------------------------------------------------------
All Rounds............  1,543                  $153.8                 396                   $21.0
----------------------------------------------------------------------------------------------------------------

    As part of the selection process, all CDEs are required to prepare 
and submit a uniform application form, which includes four key sections 
(Business Strategy; Community Impact; Management Capacity; 
Capitalization Strategy). During the first phase of the review process, 
each application is rated and scored independently by three different 
Readers, who are typically external to the CDFI Fund. Readers are 
selected on the basis of their knowledge of community and economic 
development finance and experience in business or real estate finance, 
business counseling, secondary market transactions, or financing of 
community-based organizations.
    In order to maintain the integrity of the review process, all 
potential readers are screened for any potential or real conflicts of 
interest. They are brought to Washington, DC for a two-day orientation 
and training session. The Readers then work remotely, submitting on-
line review forms, which include detailed notes and instructions 
pertaining to how the application must be scored. Each application 
write-up is reviewed by a CDFI Fund staff person to ensure that the 
reviewer has: (1) provided clear and substantive comments; (2) adhered 
to the scoring guidelines; and (3) provided scores that are consistent 
with their ratings.
    In scoring each application, reviewers rate each of the four 
evaluation sections as follows: Weak (0-5 points); Limited (6-10 
points); Average (11-15 points); Good (16-20 points); and Excellent 
(21-25 points). Applications can be awarded up to ten additional 
``priority'' points for demonstrating a track record of serving 
disadvantaged businesses and communities and/or for committing to make 
investments in projects owned by unrelated parties. Readers are not 
permitted to discuss their application ratings or scores with one 
another. If one or more of the three Readers provides an anomalous 
score, and it is determined that such an anomaly would affect the 
outcome of the final awardee pool, then a fourth reviewer will score 
the application, and the anomalous score would likely be dropped.
    Once all of the scores have been finalized, including anomaly score 
adjustments, those applications that meet minimum aggregate scoring 
thresholds in each of the four major review sections (as well as a 
minimum overall scoring threshold) are eligible to be considered for an 
allocation. They are reviewed by an internal CDFI Fund panel, with the 
Panel Manager making an award recommendation to the Selecting Official 
(generally the NMTC Program Manager). If the Selecting Official's award 
recommendation amount varies significantly from the recommendation of 
the Panel Manager, then the Reviewing Official (generally the Deputy 
Director for Policies and Programs) makes the final award 
determination. Awards are made, in descending order of the final rank 
score, until the available allocation authority for a given round is 
fully expended.
    In any given allocation round, there are many CDEs that meet the 
minimum requisite scoring thresholds, but which do not receive an award 
because the CDFI Fund runs out of allocation authority. Each applicant 
that is not selected to receive an NMTC allocation award is provided 
with a written debriefing document. This document provides to the 
applicant the strengths and weaknesses that were identified by the 
application reviewers. The debriefing documents are very useful tools 
for applicants wishing to reapply in future rounds.
Application Success Rates of Minority-Owned CDEs
    The CDFI Fund agrees with the GAO's conclusions that, within this 
highly competitive application environment, organizations that have 
identified themselves as minority-owned CDEs have not received 
allocation awards in proportion to their representation in the 
application pool. The CDFI Fund does not believe that this lower rate 
of success for minority CDEs, or for that matter the success rate of 
any other category of CDE, is attributable to biases in the application 
review or selection process. Rather, the CDFI Fund believes that it is 
the relative capacity of each applicant, reviewed under its own merits 
without regard to its ownership structure, which determines the award 
outcomes. As the GAO noted in its evaluation:
    ``The analysis does not exclude the possibility the minority status 
is associated with other characteristics of the CDE, such as management 
capacity for which we do not have independent data, which account for 
the lower probability. In that case, it would not be minority status 
per se that lowers the probability of success but its association with 
other factors not included in the analysis.'' (page 38).
    Without discounting the importance of GAO's findings, it is also 
worth noting that the GAO relied on information self-reported by the 
applicants at the time of application submission, which may have 
resulted in an undercounting of awardees that are minority-owned CDEs.
    Each applicant CDE is required to ``check a box'' indicating 
whether it, or its parent company, is minority-owned or controlled. 
This check-box appears alongside several other check-boxes that address 
the ownership structure/purpose of the CDE. It is quite likely that, in 
any given application round, a number of organizations that would 
otherwise qualify as minority-owned CDEs fail to check the box. This 
failure may result from simply overlooking the check-box, or it may 
occur because an organization did not thoroughly review the definition 
of a minority-owned entity that is provided in the glossary that 
accompanies the application.
    It could be the case that many non-profit organizations which have 
significant minority executive control fall within the CDFI Fund's 
definition of a minority-owned entity, but perhaps have not been 
checking the box. It does not appear as though the GAO attempted to 
adjust for this potential under-reporting by reaching out to a sample 
of non-minority CDEs to determine whether they may have failed to 
identify themselves as minority CDEs. This type of analysis would have 
probably had an impact on their findings, and perhaps led them to 
determine that a larger number of minority-owned or controlled CDEs 
have received allocation awards than were initially self-identified.
    Again, this observation is being raised simply to add a little more 
context to the GAO's findings. It should not be construed in any way as 
a criticism of GAO's analysis, which we believe was thorough and 
accurate with respect to information that was self-reported by the 
CDEs.
Investments in Minority Communities
    Despite the application challenges that are faced by minority-owned 
CDEs, the CDFI Fund believes that the NMTC Program has been extremely 
successful at bringing benefits to communities with large minority 
populations. As noted in the GAO report, a 2008 study that was jointly 
sponsored by the CDFI Fund and the Federal Reserve Board of San 
Francisco found that census tracts that receive NMTC investments have, 
on average, non-white populations totaling 47 percent--compared with an 
average of 26 percent for all census tracts nationwide. Further 
analysis by the CDFI Fund has revealed that, through 2007, over $4.1 
billion (or over 45 percent of the $8.96 billion invested by CDEs 
through 2007) was invested in census tracts where non-white populations 
exceeded 50 percent of the total population. In 2007, the most recent 
year for which the CDFI Fund has transaction-level data, over 51 
percent of the dollars invested by CDEs were invested in census tracts 
with majority non-white populations.
    My point here is that many non-minority CDEs are extremely 
successful at working with minority communities. One such example is 
Stonehenge Community Development LLC, which has received three NMTC 
awards totaling $287.5 million. Stonehenge has formed strategic 
alliances with groups such as the National Urban League, the National 
Association of Black Hotel Owners, and the National Minority 
Development Council to target minority-owned businesses and other high-
impact projects in minority communities. Stonehenge has used its NMTC 
allocation to finance an African-American owned car dealership in Lake 
Charles, Louisiana that suffered severe damage in the wake of Hurricane 
Rita; a social service center in San Antonio Texas; a health center in 
Kansas City Missouri; and an African-American led social service agency 
in New Jersey. All of these projects serve severely distressed 
communities with majority minority populations.
    One project that really interested me, due to its historical 
significance, is the International Civil Rights Center and Museum in 
downtown Greensboro, North Carolina, which is in Congressman Watt's 
district. Stonehenge helped finance this $23 million dollar project, 
which included the conversion of the 1929 Woolworth store that was the 
site of the historic 1960 sit-in that helped launch the national civil 
rights movement. Stonehenge's role in the construction of this museum 
is significant, as there was a shortfall between what was raised 
through fundraising and the actual cost of the project. NMTCs were 
identified as the only source of funding that could keep the project on 
schedule while retaining the confidence of the investors and other 
supporters.
    Stonehenge is of course just one of many CDEs that have 
significantly contributed to the economic wellbeing of distressed 
minority communities. The Massachusetts Housing Investment Corporation, 
a certified CDFI that has received four awards totaling $435 million, 
made a NMTC investment in the Holyoke Health Center in Chicopee, 
Massachusetts, in Congressman Neal's district. Holyoke Health Center 
serves over 16,000 patients annually, the majority of whom are 
Hispanic. More than 80 percent of the health center's patients live at 
or below the Federal Poverty Level and all of the health center's 
patients live below 200 percent of the Federal Poverty Level. The NMTC 
financing helped the lender to finance the health center at below 
market rates, saving the borrower $88,000 in interest expense annually. 
This savings allows the health center to devote more of its cash flow 
to direct care of its patients.
    Rockland Trust CDE, a community bank headquartered in Rockland, 
Massachusetts, has received two NMTC awards totaling $75 million, and 
has made several investments benefiting minority populations in 
Congressman Frank's district. Most notable amongst these were a loan to 
support a minority-owned beauty supply business headquartered in 
Brockton, Massachusetts; a loan to support a minority-owned medical 
practice in Taunton, Massachusetts; and a real estate loan that 
supports a Latino health clinic in Brockton, Massachusetts.
    In Columbus, Ohio, ESIC New Markets Partners, partnered with the 
Columbus Housing Partnership to construct and rehabilitate up to 700 
affordable housing units. The entire project used $9.5 million in NMTCs 
and has leveraged $19 million in project related costs. The homes are 
targeted for households earning less than 80 percent of the area median 
income and are located in communities throughout Columbus.
    I point out these specific projects not only for the Members of 
this Committee, but to demonstrate that NMTC projects and high-impact 
community benefits are occurring all over the country, even in our own 
backyards. For example, here in Washington, DC, NMTC investments have 
been used to finance charter schools with populations that are 100 
percent minority; minority-owned businesses; a community and cultural 
center in a neighborhood where 93 percent of the residents are African-
American; and, in that same neighborhood, a shopping center anchored by 
a Giant supermarket.
    The construction of this grocery store is notable because for 
almost ten years, residents of this neighborhood had been without a 
supermarket. Those who did not have cars would either have to carpool 
to the closest supermarket with friends, find a bus, or rely on the 
neighborhood convenience stores for food. This project has had several 
positive community impacts, including the addition of 375 construction 
and 175 permanent jobs. Finally, the new supermarket is one of 
Washington, DC's largest Giants, providing residents with ready access 
to affordable fresh food.
Next Steps
    I would now like to turn to the ways we can work together to 
increase participation by minority-owned CDEs in the NMTC Program. The 
CDFI Fund is committed to ensuring that the pool of CDE awardees 
represents a diversity of institutional types, and that minority CDEs 
are assured fair access to these scarce resources. To this end, the 
CDFI Fund will focus on the following initiatives:
    1. Continued outreach to minority-owned CDEs. The CDFI Fund has 
been actively seeking to promote participation by minority-owned CDEs 
since the program's inception. Most notably, we have conducted multiple 
outreach sessions with the National Banker's Association (NBA), a trade 
association of minority-owned financial institutions, and with the 
Federal Deposit Insurance Corporation's Minority Depository Institution 
Program, and participated at the Native American Finance Officers 
Association conference.
    Upon release of the 2009 NMTC application materials, we reached out 
to the NBA, the Minority Business Roundtable, and the National Black 
Chamber of Commerce and offered to set up conference calls with their 
members. Just last month, the CDFI Fund presented information about the 
NMTC Program at a national conference sponsored by the Department of 
Commerce's Minority Business Development Agency. The CDFI Fund intends 
to continue to vigorously pursue these outreach and training 
opportunities, to ensure that minority institutions are aware of the 
benefits of the NMTC Program, and are given every opportunity to apply 
for allocation awards.
    2. Solicitation of public comments. Another component that is 
connected to our outreach efforts is incorporating public feedback into 
our work. Later this summer, the CDFI Fund will be soliciting comments 
pertaining to the NMTC allocation application and related 
implementation matters. As part of this solicitation of public 
comments, the CDFI Fund will ask for comments specifically pertaining 
to how it can expand the participation of minority-owned and controlled 
CDEs in the NMTC allocation process.
    3. Continued dialogue with Congress. The CDFI Fund has always been 
responsive to instructions from Congress regarding the NMTC program 
priorities. The authorizing statute indicated that a preference was to 
be given to organizations with a track record of working in 
disadvantaged communities, and a preference as well to organizations 
that would invest in ``unrelated entities''--entities that they would 
not control through ownership. Congress later instructed the CDFI Fund 
to ensure that a proportionate amount of investments are made in rural 
communities. In response to direction from Congress on these three 
issues, the CDFI Fund included specific protocols within its 
application process to ensure that Congressional intent was being 
satisfied. The CDFI Fund very much looks forward to continued dialogue 
with Congress to improve the effectiveness of the NMTC Program.
Conclusion
    The CDFI Fund is committed to giving support to communities and 
financial institutions. We have a wide variety of programs that reach 
America's most underserved and underinvested communities. Our mission 
is not only to ensure that we serve these communities, but that we also 
maintain the integrity and competitiveness of these programs. I hope 
that through our current and new outreach efforts we will be better 
able to reach a greater audience of potential awardees and also 
encourage greater collaboration with organizations and federal agencies 
that serve minority populations. The NMTC Program has been a tremendous 
success in low-income and minority communities throughout the country, 
and I am confident that it will continue to be so in the future.
    Never before in the history of the CDFI Fund have we been in such a 
strong position to be able to support and serve minority communities. 
Thank you for inviting me here today.

                                 

    Mr. BROSTEK, will you proceed?

 STATEMENT OF MICHAEL BROSTEK, DIRECTOR, TAX ISSUES, STRATEGIC 
  ISSUES TEAM, UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. BROSTEK. Mr. Chairman, Ranking Members and other 
Subcommittee Members. Thank you for inviting me today to 
discuss our work done at your request on minority community 
development entities' participation in the New Markets Tax 
Credit.
    During the period we reviewed, allocation rounds from 2005 
to 2008, Minority CDEs were successful with about nine percent 
of their applications and received about four percent of the 
allocation dollars they applied for. Non-minority CDEs were at 
least three times as successful with their applications and in 
obtaining allocation dollars.
    Each New Markets Tax Credit application is scored by three 
external reviewers based on business strategy, community 
impact, management capacity and capitalization strategy. Each 
of these sections includes several subcategories. Minority CDEs 
generally receive lower application scores overall and in each 
of the four application sections. Overall, minority CDEs scored 
about 11 points lower than non-minority CDEs on applications.
    On average from 2005 to 2008, minority CDE application 
scores did not meet the minimum threshold for advancing past 
the application round in order to be eligible for allocations. 
After applications are scored those that meet the threshold 
pass on to be considered by CDFI Fund staff for award of credit 
allocations. CDFI's staff generally award allocation amounts in 
the order of CDEs' final ranking scores. When recommending 
allocation amounts, staff are to consider the amount of equity 
investment the CDE can expect to raise within two years, the 
amount of investment in low income communities that can be 
deployed within three years, the quality of the financial 
products being offered and the projected impact on low income 
communities or low income persons.
    Some CDEs that exceed the allocation threshold do not 
receive allocations because the amount of allocation authority 
is insufficient to fund everyone. Minority CDEs' receipt of 
only four percent of the allocation dollars they applied for is 
a function both of the number of minority CDEs that failed to 
make the application threshold and that those exceeding the 
threshold tended to have lower scores than other applicants and 
thus tended not to be funded.
    Based on interviews we had with minority and non-minority 
CDE representatives, we identified characteristics like CDE 
size that are likely to affect applicant's success. To test 
whether minority CDEs' relative lack of success in applying for 
and receiving credit applications was due to their minority 
status or these other characteristics, we performed statistical 
analysis to control for those characteristics other than 
minority status that might be affecting outcomes.
    We found that when controlling characteristics like asset 
size, proposed project characteristics and CDE type, minority 
status still was associated with a lower probability of 
success. Our analysis does not show why minority CDE status is 
associated with lower probability of receiving allocations or 
whether any actions taken or not taken by Treasury or the CDFI 
Fund contributed to this statistical relationship.
    Factors we could not control for or measure, such as 
applicant's loan loss reserves and operating costs, may affect 
CDEs' success. We previously had found minority owned banks, 
many of which are minority CDEs, have higher loan loss reserves 
and operating costs than non-minority-owned banks, and this 
might contribute to their lack of success. Some believe that 
minority CDEs are better positioned to serve the communities in 
which they are located than other CDEs would be. If so, 
minority CDEs may have advantages that are not being fully 
utilized in the New Markets Program.
    The legislative history of the credit does not indicate 
whether Congress intended for minority CDEs to participate at 
any particular level in the program. GAO is not making any 
recommendations for action. However, if Congress intends for 
minority CDE applicants to succeed at a greater rate than what 
we have found, it may want to consider legislative changes if 
the program is extended for future years. Such changes could 
include requiring that a certain portion of the overall amount 
of allocation authority be designated for minority CDEs, 
exploring the potential for creating a pool of New Markets Tax 
Credit allocation authority to be dedicated specifically for 
community banks to compete for it, offering priority points to 
minority CDEs in the application process and requiring Treasury 
and the CDFI Fund to explore options to provide technical 
assistance and training to minority CDE applicants. This 
concludes my statement.
    I'd be happy to answer questions.
    [The prepared statement of Mr. Brostek follows:]

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    Chairman NEAL. Thank you very much, Mr. Brostek.
    What we would like to do now is to have the other witnesses 
join us, if we could, and have an opportunity to hear from them 
as well.
    The Chair will recognize Mr. Phillips for his testimony.

  STATEMENT OF RON PHILLIPS, PRESIDENT, COASTAL ENTERPRISES, 
       INC.; PRESIDENT, NEW MARKETS TAX CREDIT CO-ALITION

    Mr. PHILLIPS. Thank you, Representative Neal, 
Representative Tiberi, Representative Watt and members of the 
subcommittee on Select Revenue Measures.
    My name is Ron Phillips. I am the current chair of the New 
Markets Tax Credit Coalition, 150-member, Washington, D.C. 
based group that advocated for the passage of the New Markets 
Tax Credit Program in the late 1990s and I have the honor of 
having been right at the get-go of this program. So I'm very 
glad to be here and express our point of view.
    Since our passage of the legislation in 2000, our coalition 
has advocated successfully to extend this program in the 
initial seven years and increase the amount of credits that 
could be raised. As a result of our advocacy, even in the 
stimulus bill, we got an additional $5 billion. So we've got a 
lot of capital to access out there and very excited about it.
    I am here today to respond to the GAO report on the lack of 
an already-owned and controlled participation in the program. I 
want to say right off that this report is being taken very 
seriously by our coalition. We discussed it earlier this week 
at our annual policy conference here in D.C. and at our board 
meeting. Many of our members and board members are also 
representatives of minority communities, so we are in good 
company to sort through how to increase participation.
    What's more, I want to point out right off that we're very 
excited about getting to the heart of the matter, reaching out 
through various minority trade groups, including the National 
Banker's Association, Latino Organizations, Native American 
Groups such as Oweesta and others. Even the American Banking 
Association, which attended our conference, is looking for ways 
to engage their members. So we are in a good spot here. The 
reason is this credit program, which we sincerely love to be 
made permanent by the way, has such tremendous potential to 
redirect capital to worthy investments in this country, but 
that the more participation in it the better.
    Now, I am also President of Coastal Enterprises. It's a 
501(c)(3) non-profit organization based in Wiscasset, Maine; 
and, our primary Markets is Maine and rural communities, but we 
also work throughout New England and other parts of the United 
States. We have had five rounds of allocation valued at $481 
million, and have to-date invested half those funds in 
primarily rural New England.
    Half of these funds are already invested in 30 projects, 
mainly as I said in Maine and rural New England, Western 
Massachusetts and upstate New York. We have invested in 
community facilities such as an historic paper mill and 
timberland of Katahdin Forest management in the Millinocket 
region, a Gulf of Maine research facility supporting the 400-
year-old fishing industry, the River Valley Markets in 
Northhampton, Massachusetts, an up and running new facility 
supplying area residents with naturally and locally grown foods 
of some 50 farmers and healthcare clinics such as the Plymouth 
Community Health Center, New Hampshire, connected to the Speare 
Memorial Hospital. These funds are creating and sustaining some 
7,800 jobs, over two million acres of sustainably managed 
forestland and spurring private capital, a ratio of $3 for 
every $1 of allocation investment in low-income communities.
    CDFI's story is, however, only the tip of the iceberg, as 
stories from our field abound all across the U.S. in both rural 
and urban areas. As our recent report, ``50 Projects, 50 
States,'' and I hope we can get you a copy of that, notes they 
could be charter schools in Los Angeles, educating young kids 
and minorities, a LEEDs standards community service center 
constructed on vacant ground fill in Chicago, an ethanol plant 
in Minnesota owned by a group of farmers. The list is of 
exciting and inspiring projects is endless.
    And even the story more convincing as one gets into the 
power of the New Markets Tax Credit to bringing together the 
best of community social goals and the best of private capital 
and investment to help make the dreams of millions of people on 
the margins of our society come true is because of the 
flexibility of the New Markets Program that we can achieve 
these multiple objectives. The program has been successful 
beyond anyone's expectations in attracting investment capital 
to distressed communities including many minority communities. 
Each year of the program so far the competitive processes 
require those winning allocations to agree to target their 
investments to area of higher distress than minimally required 
by the Program's statute.
    Now, coming to a close here I wanted to contribute my main 
points here to this session this morning. One item in the GAO 
report that was of great concern to us and we should emphasize 
is that according to the CDFI Fund data the census tracks that 
have received New Market investments have on average non-white 
populations of 47 percent. So I want to note that the benefit 
of this program has been flowing much more largely to 
minorities we could presume than would meet the eye. On the 
other hand, that does not make up the difference in terms of 
the emphasis one should bring to supporting minority-owned and 
controlled CDEs. So that is still a challenge ahead.
    The credit has made a significant contribution to improving 
many communities across the country, and that success should 
not be confused with the attributes of the CDEs that compete 
for and are awarded credits. A second point I want to make is 
that according to our analysis from the coalition, there are 
actually 17 CDEs that have achieved an allocation of over $1 
billion, far more than what the GAO report said. So we have 
made some progress in that regard.
    In conclusion what I want to offer are two recommendations. 
The central recommendation of the New Markets Coalition is that 
Congress establish a technical assistance program and capacity 
building program aimed at helping minority CDEs better prepare 
themselves participate in the New Markets Tax Credit Program. 
We believe that the best way to build a more diverse set of new 
markets allocatees is to provide assistance to organizations, 
to build the capacity of those that have not been successful in 
applying for the credits, rather than through any sort of set-
aside or priorities for any particular class of CDE or business 
sector. And the second recommendation we want to make is that 
H.R. 2628 be supported in terms of the extension that is 
critically important going forward to ensure that the tax 
credit becomes in the future a permanent credit. And, also, 
attached to the tax credit is the AMT relief, which will allow 
us to open up more investment, and particularly among 
independent and community banks at the regional level, a sorely 
needed new capital flow for this program.
    Thank you very much. And I'm sorry I went over my time.
    [The prepared statement of Mr. Phillips follows:]


    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman NEAL. Thank you, Mr. Phillips.
    Ms. Pinnock.

 STATEMENT OF BLONDEL A. PINNOCK, PRESIDENT, CARVER COMMUNITY 
DEVELOPMENT CORPORATION, SENIOR VICE PRESIDENT, CARVER FEDERAL 
                          SAVINGS BANK

    Ms. PINNOCK. Thank you.
    Good morning Chairman Watt, Chairman Neal and other 
distinguished committee members.
    My name is Blondel Pinnock and I am the President of Carver 
Community Development Corporation, a minority, for-profit, 
community development entity. I also serve as the senior vice 
president for Carver Federal Savings Bank, the largest 
minority-owned thrift in the United States, headquartered in 
Central Harlem in the 15th Congressional District, with nine 
branches throughout New York City. Deborah C. Wright, Chairman 
and CEO, extends her regards.
    Carver is very supportive of the CDFI Fund and the New 
Markets Tax Credit Program. LMI communities need our 
investment. We are delighted to participate in the program and 
Carver has been successful. Carver's experience in applying for 
New Markets Tax Credits coincide with the findings of the April 
2009 GAO report. Carver's CDE applied consecutively for New 
Markets Tax Credits from 2005 through 2008.
    We have been successful, however, in receiving two 
allocations from the CDFI Fund: round 4 allocation in 2006 for 
$59 million, and the most recent Recovery Act allocation in 
2009 for $65 million. Our $59 million allocation has allowed 
Carver's CDE to invest in 10 projects within low income and 
distressed communities throughout New York City and to develop 
partnerships in economic projects with more flexible terms that 
the bank would otherwise not be able to offer.
    For example, one of our New Markets Tax Credit loans was to 
finance the renovation of the first state of the art privately-
owned, free-standing healthcare facility in Central Harlem 
known as Citicare. The loan also helped preserve one of 
Harlem's architectural landmarks, the Jazzmobile Building. 
Carver provided six million in below-Markets financing for a 
project that serviced over 20,000 patients in the last fiscal 
year and is located in a census track that had over a 19 
percent unemployment rate, and where nearly 50 percent of the 
residents lived below the poverty line.
    Another project financed through our New Markets Tax Credit 
allocation was a $5.3 million below Markets-rate, pre-
development loan to Abyssinian Development Corporation, a 
strong, committed community development corporation in Harlem. 
The loan was used for the renovation and redevelopment of their 
legendary Renaissance Ballroom. The building had been vacant, 
boarded up and a community eyesore for over 30 years. 
Abyssinian, with the aid of Carver's New Markets Tax Credit 
loan will be able to bring this historic building back into 
service offering community, cultural space, and up to 150 units 
of affordable for sale housing. The project will create 
hundreds of construction and permanent jobs providing economic 
viability and much needed services for a highly distressed 
area.
    Through our New Markets Tax Credits we've been able to 
partner with a large, money-centered bank, who has invested 19 
million in our allocation to finance a six-story commercial and 
office facility, known as Harlem Gateway. Given Carver's asset 
size of 800 million and a loan limit of 10 million, Carver 
would never have been able to put a $19 million on our balance 
sheet. But with our partners at J.P. Morgan Chase we helped in 
providing the financing for a project that created as many as 
100 construction jobs and over 90 permanent jobs in addition to 
providing vital community and retail services in an LMI census 
track.
    Carver agrees with the recommendations outlined in the GAO 
report for positioning minority CDEs to maximize New Markets 
Tax Credits; however, we would also suggest one giving 
preference to or targeting institutions who are either 
headquartered or have significant facilities in distressed 
communities, or who served as communities in an operating or 
programmatic basis--in other words, CDFIs and CDEs that are on 
the front line of LMI communities every single day--as the 
report recommends, providing more meaningful technical 
assistance in the preparation and completion of the 
application, specifically in the area of data collection and 
impact analysis required for the CDFI funds.
    Three, provide treatment to major financial institutions 
with favorable treatment that partner with minority CDEs and/or 
community banks to assist with application readiness and 
encourage mutually beneficial collaboration. Minority CDEs like 
Carver are well suited to identify and finance New Markets Tax 
Credit projects that enhance and address local, underserved 
communities, and would otherwise fly under the radar of larger 
commercial banks and financial institutions.
    Thank you very much for allowing me the opportunity to 
testify and I would gladly answer any questions you may have.
    [The prepared statement of Ms. Pinnock follows:]
                    Testimony By Blondel A. Pinnock
          President, Carver Community Development Corporation,
 Senior Vice President, Carver Federal Savings Bank, New York, New York
    Good Morning. My name is Blondel Pinnock, and I am President of 
Carver Community Development Corporation (``Carver CDE'') & a Senior 
Vice President of Carver Federal Savings Bank (``Carver''), a leading 
community development financial institution which recently celebrated 
its 60th anniversary. Deborah Wright, Chairman and Chief Executive 
Officer of Carver extends her regards.
    We are very appreciative and supportive of the CDFI Fund and the 
New Markets Tax Credit (NMTC) program. Low and moderate income 
communities need investment and we are very happy to participate in the 
NMTC program and have been successful.
    Carver is the only African-and-Caribbean American managed thrift in 
the state of New York and, with assets of $812 million, we are the 
largest in America. Nevertheless, Carver is a very small institution in 
the context of money-center financial institutions.
Summary of GAO Report
    Carver's experience with applying for New Markets Tax Credits 
coincides exactly with the 2005-2008 period studied and the Bank's 
success rate is 33%. The success rate of all minority CDEs relative to 
all applicants was 9% according to the report.

    - Applied in 2005 for the first time--awarded $59 million in 2006
    - Applied in 2007 for the second time - no award received in 2007
    - Applied in 2008 for the third time - no award received in 2008
    - 2008 application reconsidered in 2009 based on ARR Act - awarded 
$65 million in 2009

    Our $59 million NMTC allocation in 2006 allowed Carver, through its 
CDE affiliate (Carver CDE) the ability to expand and offer financing 
products and services that the bank, as a regulated financial 
institution, might not be able to offer directly. The NMTC award 
enabled Carver CDE to invest with community and development partners in 
economic projects with attractive terms including below market interest 
rates. These projects provide economic revitalization to the 
communities that Carver serves and attracts additional capital to these 
underserved communities.
    One of Carver CDE's NMTC loans was used to consolidate, expand and 
upgrade an existing health care clinic and at the same time preserve 
one of Harlem's architectural landmarks. Jazzmobile, a non-profit 
founded in 1964 as a pioneer organization committed to the preservation 
of Jazz musical genre, was housed in a historic building in Harlem. 
Jazzmobile was at risk of losing its historic headquarters building. 
Citicare, a health care provider that has been serving residents of New 
York since 1982, approached Jazzmobile about acquiring the property and 
converting it to a community health facility. With the help of Carver 
CDE's NMTC financing, Citicare was able to purchase and preserve the 
historic structure and develop it as the first state of the art 
privately owned health facility in central Harlem. In addition, 
Citicare is allowing Jazzmobile to maintain occupancy of the building 
until they find a new and affordable home.
    Through this project, Carver Bank and the NMTC Program have helped 
provide quality affordable medical services to a historically 
underserved, low-income community. Citicare handled more than 20,000 
patient visits last fiscal year in a census tract that has an 
unemployment rate of over 19% and in which nearly half (49%) of all 
residents live below the poverty line.
    The total cost of the Citicare renovation project was just under $8 
million and Carver provided $6 million in the form of a NMTC loan. The 
debt was structured as interest only loan with a below-market interest 
rate of 5%.
    Citicare Before and After Photos

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Abyssinian Renaissance Ballroom--Before and After Photos 
    Carver CDE also provided a $5.3 million pre-development loan to 
Abyssinian Development Corporation for the pre-development related to 
the renovation of the legendary Renaissance Ballroom in Harlem which 
has been boarded up and vacant for over 30 years. Carver's NMTC loan 
will enable Abyssinian Development Corporation to bring the historic 
building back into service offering community and cultural space as 
well as up to 150 affordable condominium units. The project expects to 
create hundreds of construction and permanent jobs providing economic 
viability for a distressed area.
    Carver provided $19 million of its 2006 NMTC allocation to finance 
a loan to Harlem Gateway Ventures, a New York based real estate 
developer who is developing a six story commercial facility in Harlem 
that will provide quality retail for the community and office space for 
two providers of vital community services and a third floor showroom 
for a national furniture retailer. The office spaces, which are in 
short supply in Harlem, will be occupied by Independence Care Systems, 
a non-profit home care patient services provider and the Association 
for Help for Retarded Children, a non-profit that serves more than 
10,000 individuals with mental retardation and other developmental 
disabilities and their families. Utilizing NMTC allowed Carver to offer 
the developer a rate concession and other benefits that made the 
project possible and created as many as 100 construction jobs and 90 
permanent jobs. The project is located in a low-income census tract 
that will benefit greatly from the services and job creation.
    In addition, Carver has provided a $2 million loan to the Community 
Partnership Development Corporation to capitalize a revolving loan fund 
that provides no-interest pre-development loans and equity stakes to 
small minority-and-women owned housing builders and developers in New 
York City. The loans will promote the business growth of builders, 
including small, minority-owned contractors who need assistance with 
equity contributions and predevelopment costs. It is expected that the 
loans will contribute to the development of more than 800 homes or 
1,000 new affordable and workforce housing units in New York City 
neighborhoods. These projects are expected to leverage millions of 
dollars in public and private sector resources and also create hundreds 
of construction jobs.
    In just three years, Carver CDE has placed all of its initial $59 
million NMTC allocation and financed 10 businesses, all of which are 
located in highly distressed census tracts within Carver's service 
area. While the average deal size of all ten projects financed with our 
2006 allocation was $6 million, the impact to the community has been 
measurable and lasting. Smaller deals in this size range are no less 
impactful to our neighborhoods by way of jobs, resources and services 
provided.
    According to the GAO report, officials from minority CDEs 
identified the following as challenges that CDEs may face in applying 
for NMTC allocations:

    - Lack sufficient pipeline to justify NMTC capital applied for
    - No track record for both investing in LMI communities and in 
large projects that would generate significant impacts
    - No capacity to complete high impact projects
    - Complexity of NTMC transactions translates to higher transaction 
costs which is favorable to larger CDEs (minority CDEs tend to be 
smaller in size)
    - High application costs (consulting fees, staff time, etc.) are a 
deterrent

    Carver CDE responds to these challenges in the following way:

    - High application costs: costs are much higher than estimated in 
report; from our experience and in speaking to fellow community banks, 
costs for outside consultants can run as high as $200,000.
       We also would like to point out that whether outside 
consultants are engaged or not, there is a very significant cost of 
staff time; for minority CDEs which as the report notes, tend to be 
small in size completing an application often means significant 
disruption to the Lending or Loan Operations departments to compile the 
necessary data for an effective application.
       The time commitment is largely related to gathering the 
historical data on existing loan portfolios as well as demographic 
information regarding the applicant's assessment area.
    - Lack of sufficient pipeline:
       Comments from reviewers of our 2008 NMTC application 
stated that ``The applicant is lacking in detail regarding specifics of 
pipeline deals'' I think this gets back to the issue of size and staff 
time. There is significant time involved in sourcing deals and 
beginning the due diligence process. For a small staff, this means that 
everyone is involved or as we say at Carver ``all hands on deck''. We 
believe that there is a clear advantage to larger CDEs with staff 
dedicated to completing the NMTC application.
       Diversification of pipeline has also been an issue for 
Carver. We are limited to debt deals because that is our traditional 
track record; equity deals are preferred by many non-profit 
participants, however, they require a specific skill set and focus; 
further the financial risks are too great for a bank the size of Carver 
or smaller to absorb, we simply could not afford the loss of an equity 
investment.
    - No capacity to complete high impact projects: At $812 million in 
assets, Carver is the largest minority CDE and community bank in the 
country and our deal size as a percentage of assets is capped at $10 
million. This speaks to the limitations of smaller community banks as 
deal size is proportional to impact as qualified by the CDFI, e.g. 
number of housing units, number of jobs, amount of community space, 
etc. These financial metrics do not always correlate to impact on a 
neighborhood by neighborhood bases whereas a new grocery store, charter 
school or development of a blighted vacant lot can have a meaningful 
and visible impact.

    The reported noted that multiple factors appear to be associated 
with a CDE receiving an allocation:

    - larger CDEs, as measured by asset size, appear to be more likely 
to receive NMTC awards while smaller CDEs are less likely to receive 
awards
    - We agree with this assessment whole heartedly and can attest to 
the fact that for a small/minority CDE to complete an application as 
stated earlier takes up every available resource with our without a 
consultant. Invariably a small team stretched beyond limitations 
produces a different result than would be produced by a dedicated team 
or set of individuals focused on completing an application.
    - after controlling for characteristics such as CDE type, asset 
size, and proposed projects, minority status is associated with a lower 
probability of receiving an allocation

    There is a direct correlation between size and minority status; 
minority CDEs are smaller in terms of asset size, number of employees, 
etc. As a result, their ability to access larger high impact projects 
is limited by many factors including equity capital, track record and 
the resources to develop a diversified pipeline. Their ability to 
access the capital markets and invest in their own CDEs is limited by 
their size and capitalization levels. However, this does not mean 
smaller deals have any less impact as stated earlier and can be noted 
from deals highlighted from our 2006 NMTC allocation.
    Other key findings from the report:

    - according to industry association representatives, minority-owned 
banks have traditionally had a more difficult time accessing capital 
markets than their non-minority peers
    - Carver has had more success in accessing the capital markets 
given our publicly traded status. Yet raising more capital is always 
harder than it is for our larger competitors.
    - It was inconclusive whether it is the tendency of minority CDEs 
to be smaller that lowers their success rate or their minority status.
    - Again, minority CDEs are by nature smaller so it is not their 
minority status that lowers their success rate. This is obvious in our 
opinion given there are no large minority CDEs to use as a basis for 
comparison. Minority CDEs are smaller as measured by asset size than 
their counterparts. This means they are starting from behind in all the 
categories reviewed on the NMTC application both quantitative and 
qualitative.
    - legislative history for NMTC does not address whether Congress 
intended for minority CDEs to benefit directly from the NMTC program
    - Agree that the intention was for low-and-moderate individuals and 
communities to benefit directly from the NMTC program so one would 
presume that the institutions in these communities who know these 
communities best would certainly have been given greater tools to 
succeed.
    - However, if Congress intends for minority CDEs participation in 
the NMTC program to exceed the current levels and Congress believes 
that minority CDEs have unique characteristics that position them to 
target the NMTC to its most effective use, Congress may want to 
consider legislative changes to the program should the New Markets Tax 
Credit be extended beyond 2009. Potential changes that could be 
considered include, but would not be limited to the following:
       similar to provisions for certain federal grant 
programs, requiring that a certain port of the overall amount of 
allocation authority be designated for minority CDEs
       pool of NMTC capital dedicated specifically for 
community banks (minority banks in most cases)
       offer priority points to minority CDES that apply for 
NMTC allocations

    Carver agrees with these recommendations but offers the following 
suggested solutions to make the CDFI capital programs more accessible 
to minority CDEs and community banks:

      1. Make small CDFI banks a priority for CDFI Fund financing

    This goal could be achieved by targeting institutions that are 
predominantly headquartered or have significant facilities in 
distressed communities or who serve this population in an operating and 
programmatic basis, rather than a project to project basis. There is 
ample precedent for such a practice. Most CDFI NOFA's now have built in 
preferences (in the form of extra credit points). Recent examples 
include targeting geographic areas of higher distress, such as FEMA 
Disaster Areas, after Hurricane Katrina.
    Today the lion's share of dollars granted in the New Markets Tax 
Credit Program, for example, is awarded to large real estate 
developers, money center banks/investment banks and large national non-
profits. In some cases the same recipients have been awarded 
significant ($100 million) allocations annually for five or more years.

      2. Streamline the application process (or provide more meaningful 
technical assistance in completing it)

    Smaller community banks and non-profits generally do not have the 
infrastructure to collect the extensive data and analysis required for 
CDFI applications and follow up monitoring. This results in lower 
scores and missed financial and revenue generating opportunities. 
Remedies include:

    -- providing funding/grants for hands on assistance during the 
``ramp-up'' period prior to application process (i.e., grant to become 
CARS rated (CDFI assessment and rating system operated by the 
Opportunity Finance Fund recognized by the CDFI, foundations and other 
investors); provide technical support and financial assistance for 
compliance reporting and data mining).
    -- providing favorable treatment to major financial institutions 
that partner with community banks to improve application readiness, 
thereby leveling the playing field.
    -- providing better training for readers; more hands on training

                                 

    Chairman NEAL. Thank you Ms. Pinnock.
    Mr. Haskins, the bells that you heard mean that we have 
about 15 minutes, probably closer to 13 minutes, but we'll try 
it from there. Thank you, Mr. Haskins.

STATEMENT OF JOSEPH HASKINS, JR., CHAIRMAN, PRESIDENT AND CHIEF 
           EXECUTIVE OFFICER, HARBOR BANK OF MARYLAND

    Mr. HASKINS. Thank you, Chairman Neal. I will try to speak 
quickly.
    Good morning Chairman Watt, Chairman Neal, again, and 
members of this distinguished committee. I am delighted to say 
to you that I am the chairman, president and CEO of Harbor 
Bankshares Corporation, which is a bank holding company in 
Maryland that currently oversees a $300 million commercial 
bank.
    Although the scope of the GAO is very broad, I have decided 
to focus my attention almost exclusively as it relates to 
Harbor Bank and Harbor Bankshares Corporation. However, I do 
have a couple of recommendations that I will share at the end 
of my comments. I do want to be on record to state that I 
believe that the New Markets Tax Credits Program under the CDFI 
Fund is a very important and vital tool for stimulating 
economic growth and development, especially as it relates to 
the minority or low-income communities.
    The four points that I would like to make are as follows: 
first, that Harbor Bank has a long and distinguished record of 
success servicing low income people and communities. When we 
look back at the past five years, the period of this analysis, 
we find that we have deployed over $140 million in loans to the 
communities that we focus on, which is the low income 
community. The specific item that I'd like to lift here for 
your information is the fact that our first award, which was in 
round 2 of $50 million in New Markets Tax Credits, $25 million 
of that was allocated to one project. And one might say, why so 
much to one project?
    This one project represented 88 acres of an urban 
community, a city that is among one of the highest in crime as 
you've heard in reports, highest in unemployment, highest in 
drug addiction, and so forth and so on; and, while the city is 
high in regards to these numbers, this community that we focus 
on doubles those statistics, deplorable, not to say the least. 
This effort of 88 acres was designed to focus on creating a new 
science and biotech park, building out two million square feet 
of science and technology park space and to create 2,000 new 
and renovated homes for this low income community.
    Our $25 million in this project resulted in $5 million 
going to a not-for-profit that focused on establishing drug 
rehabilitation programs, job training programs, and educational 
housing programs. So when we look at the impact we were 
significant. The other part of this is that we initiated the 
first building of that science park, a 300,000 square-foot 
building that employed in excess of 200 residents of that 
community through its various different phases of development. 
But moving quickly I want you to know that we think that our 
efforts have also been successful in being a stimulus as well 
as being an identifier of future opportunities, because we were 
the stimulant in a second science park on the West side tied to 
the University of Maryland, two very great and outstanding 
institutions.
    I want to quickly tell you that while we were successful in 
the second round we applied it every single round, and of the 
eight different allocation periods, we received two 
allocations; and, that last allocation came at the end of this 
'08 award, which is a part of the stimulus package. Our concern 
here is that we have a proven track record of being able to put 
our money out. We have evidenced that by having our money on 
the street in 14 months, what is interesting, that of the 
allocation I received already, the $50 million that I received 
under the 2009 period I already have applications in excess of 
three times that amount, all for very relevant products and 
services.
    I know that my colleagues have already spoke to some of the 
recommendations that they see as possible. I agree with some of 
the observations made by the GAO. What I would say to you is if 
you focus on lenders who have history in the communities that 
they've served and add that as a part of the criteria, I think 
we go a long ways in helping to up the number of minority 
applicants in this process. And, ladies and gentlemen, or 
gentlemen as I see sitting before you, I am available to have 
you witness firsthand the developments of our money and the 
outcomes; and, I'm available to answer any questions that you 
might have.
    Thank you very much for the opportunity.
    [The prepared statement of Mr. Haskins follows:]

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    Chairman NEAL. Thank you, Mr. Haskins.
    Mr. Cunningham.

   STATEMENT OF WILLIAM MICHAEL CUNNINGHAM, SOCIAL INVESTING 
          ADVISOR, CREATIVE INVESTMENT RESEARCH, INC.

    Mr. CUNNINGHAM. Thank you, Chairman Neal, Chairman Watt, 
Ranking Member Tiberi.
    I really appreciate you inviting me here. I am going to 
make this very quick. Before I get started, I would like to 
introduce a member of my staff, Marie Cunningham Brown. She is 
also my mother. She worked for 30 years on Capitol Hill. In her 
last posting she was an assistant to Congressman Claude Pepper. 
If I say anything intelligent, you have her to thank. If I say 
anything stupid, and I will, you can blame me.
    Now, one of the things I want to point out is that the 
misallocation of economic resources kills people. Not two days 
ago a homeless woman, not 1.14 miles away from where we sit 
today was waiting for shelter at a homeless shelter close to 
here, and she died, basically because the economic resources 
weren't available to help her out. These are the kinds of 
people that the New Markets Tax Credits Program was designed to 
assist.
    In our 2008 application we created a financial instrument 
designed to help and address the problem of homelessness. That 
application was not funded. So that's part of the problem that 
we have with the program. We just think that, again, the 
misallocation of economic resources based on racial prejudice 
is wrong. It kills people, markets, firms and economies, and we 
pointed this out in numerous comments to the Securities and 
Exchange Commission and to other bodies. Now, with respect to 
kind of what our problem is with the program, we've applied in 
virtually every round of the New Markets Tax Credits Program.
    I actually gave a speech in 1994 in San Francisco, 
California, where I called for the creation of New Market type 
vehicles to get venture capital into underserved communities. 
So we take great pride and credit in being one of the 
intellectual forefathers of this program. You know, but we just 
have not had a lot of success in accessing those resources for 
a number of reasons. Now, we concur with the statistical 
findings of the GAO report that's included in Appendix A in our 
testimony, a statistical analysis that was conducted by two 
interns that worked for us.
    I do want to point out our 2004 New Markets Tax Credit 
Application in particular because we partnered with the City of 
Minneapolis to apply for $120 million in New Markets Tax 
Credits. We had a letter of commitment from Piper Jaffray, 
letter of commitment and a partnership with a city, and we were 
not funded. So, obviously, from our perspective there is a 
problem with this program. In our last application we partnered 
with an African-American individual with a net worth of $150 
million, who basically supported our application to create a 
$50 million pool of New Markets Tax Credits that we were going 
to allocate to minority-owned banks.
    In the review of our application, the reviewer said ``We're 
not sure that minority-owned banks either want or can use New 
Markets Tax Credits.'' They turned around and then they gave 
two minority-owned banks New Markets Tax Credits when we 
applied to do exactly the same thing a year earlier. Again, 
from our perspective there is a problem with this program. Now, 
what we suggest you do is we suggest you look at the 
transaction record for the New Markets Tax Credits allocations. 
When I say the transaction record, what I mean is we suggest 
you look at the commissions paid to investment banks, 
consultants, lawyers and accountants.
    Basically, we want to outline. We want to put some sunlight 
on this allocation process and determine who is benefiting up 
front from these New Markets Tax Credits allocations. According 
to the data that we have, because the spreads are so large and 
because this is one of the most generous Federal Government 
programs in the Federal Government community development 
inventory, the fees that we've seen go to some of the 
investment banks can get as high as 10 percent of the 
allocation. So 10 percent of the allocation goes to an 
investment bank before a dollar goes to the community to repay 
that investment bank for bringing investors into the pool. We 
think that's unfair.
    We think that's unfortunate. In Appendix C of our testimony 
we have outlined further suggestions for enhancing this 
program. Basically, we suggest that you increase the New 
Markets Tax Credits for equity investments in low income 
businesses located in some of the more distressed areas of the 
country. That's the core of our recommendation.
    Again, I understand the time pressure you are under. I 
appreciate you inviting me here to testify today. I am 
available to answer any questions that you have.
    Thank you.
    [The prepared statement of Mr. Cunningham follows:]

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    Chairman NEAL. Thank you, Mr. Cunningham.
    We have two minutes on the floor. Mr. Klein, if you want to 
give this a quick go, we'll accept your testimony in part 
verbally and part written testimony, if we could.
    Mr. KLEIN. I will go as fast as I can.
    Chairman NEAL. You're on.

  STATEMENT OF JAMES R. KLEIN, CHIEF EXECUTIVE OFFICER, OHIO 
               COMMUNITY DEVELOPMENT FINANCE FUND

    Mr. KLEIN. Thank you for the opportunity to testify 
specifically. Thank you to Congressman Tiberi for your 
invitation.
    Finance Fund is a statewide non-profit in Ohio that 
provides services to low-income communities around the state. 
We work exclusively in these low-income urban and world 
communities, doing a number of different kinds of projects, 
affordable housing, childcare, learning facilities, small 
business community facilities and so forth.
    We work with for-profit and non-profit clients around the 
state. We've been doing this for 22 years. We've got 15,000 
units of affordable housing, 9,000 jobs, 8 million square feet 
of revitalized, commercial space. New Markets Tax Credits fits 
pretty much dead center into our mission and product mix. We 
provide a lot of products and services to small businesses, 
minority businesses, and we use a non-leveraged model. A non-
leveraged model is a model which is not as complex as the 
primary used model in this product in this program which is the 
leveraged model.
    The non-leveraged model allows us to do blind pools, which 
are investment commitments that are made without actually 
identifying a specific project. Now, we've gotten four 
allocations out of this program; 30 projects have resulted. 
We've got deals as small as 86,000, our largest investment has 
been five million.
    Let me talk very briefly about the report. In my 
perspective the outcomes of this report are somewhat 
predictable. We are talking about highly distressed communities 
here. Highly distressed communities have specific kinds of 
characteristics. They have limited assets. They have limited 
capacity to do these kinds of complex deals that go through 
many public programs. We have businesses that operate in a 
market that is limited, depressed asset values, and so forth.
    It is my opinion that the complexity of the finance model 
becomes a systemic barrier to minority and small CDE 
participation in this program because of its complexity and its 
cost.
    [The prepared statement of Mr. Klein follows:]
    Chairman NEAL. I apologize. The clock has run to zero on 
the House floor. I am going to recognize a suggestion from my 
friend Mr. Watt.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. WATT. Thank you, Mr. Chairman.
    I reluctantly move that we not try to come back and hold 
these witnesses here. It will be two hours before we get 
through the votes and I think it would be more productive for 
us to just submit our questions in writing to the panelists. It 
would be probably more productive for them and for us, so I 
move that we follow the rules. I mean, they would have to 
answer written questions any way, that we do all of the 
questioning by written question.
    Chairman NEAL. Let me thank the panelists and apologize for 
the floor schedule today. This was not to be the case as of 
yesterday, but I do want to let you know that there will be 
some follow-up questions; and, if there are no further 
comments, then the hearing is adjourned.
    Thank you.
    [Whereupon, at 10:55 a.m., the subcommittees were 
adjourned.]
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