[Congressional Record Volume 152, Number 14 (Wednesday, February 8, 2006)]
[Extensions of Remarks]
[Pages E99-E101]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       THE NEW MARKETS TAX CREDIT

                                 ______
                                 

                             HON. RON LEWIS

                              of kentucky

                    in the house of representatives

                      Wednesday, February 8, 2006

  Mr. LEWIS of Kentucky. Mr. Speaker, I commend my colleagues to an 
article entitled, ``Luring Business Developers Into Low-Income Areas'' 
that appeared in the New York Times on Wednesday, January 25, 2006.
  The article details how the New Markets Tax Credit is transforming 
low-income urban and rural communities across the United States. The 
New Markets Tax Credit works by providing investors with a tax credit 
worth thirty-nine cents over seven years for every dollar in private 
capital they invest in economically distressed communities.

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  These investments flow to the low-income areas through intermediaries 
called Community Development Entities or CDEs. The CDEs are extremely 
knowledgeable about the communities they serve. They also are very 
experienced in providing the types of patient, flexible capital which 
conventional lenders and investors are unable to provide directly in 
that market.
  The empowerment of CDEs is just one example of what sets the New 
Markets Tax Credit program apart from other anti-poverty initiatives. 
It also makes sense from a business standpoint since it helps to manage 
the risk to investors, many of whom had never before invested in a low 
income community.
  In Kentucky, the Credit is being utilized to finance economic 
development projects, invest in new and expanding businesses, provide 
community services including health care and child care, and create new 
jobs. Since the first allocations were awarded in March 2003, seven 
Community Development Entities in Kentucky have been awarded a total of 
$153 million.
  These investments are supporting a wide range of projects in 
Kentucky, particularly in rural areas where the need is so great. 
Community Ventures Corporation, a CDE based in Lexington, is using the 
Credit to enable a coffee company to purchase land in West Louisville, 
build a new 17,500 square foot facility, and renovate a 4,000 square 
foot structure. The new business site is located in a census tract 
where the poverty rate is 44.8%. This project doubled the number of 
employees at the company, enabling it to develop new product lines, 
allowing it to start a new division to refurbish coffee-brewing 
equipment, and even made possible the enhancement of its employee-
training program.
  Another Kentucky-based CDE, Kentucky Highlands Investment 
Corporation, was awarded $22 million in New Market Tax Credits last 
year. It plans to use its allocation to invest in health-related 
businesses and health care facilities throughout rural Eastern Kentucky 
where many counties are considered to be medically underserved.
  In September, I introduced a bipartisan bill, H.R. 3957, which 
extends the Credit for five years. I hope my colleagues will take some 
time to read the attached article, learn more about how the program is 
improving economically distressed urban and rural areas across America 
and support our efforts in Congress to extend this program.

                [From the New York Times, Jan. 25, 2006]

            Luring Business Developers Into Low-Income Areas

                         (By Lisa Chamberlain)

       When the low-income housing tax credit was created in 1986, 
     it took years for developers, investors and advocates to 
     understand the program and to learn how to make the most use 
     of it. Now it is one of the most important tools for low-
     income residential real estate, responsible for creating 
     approximately 1.5 million units of affordable housing to 
     date.
       Advocates of a little-known development tool called new-
     market tax credits, the only federal tax credit program for 
     commercial projects in low-income areas, believe the same 
     thing is beginning to happen with commercial real estate. 
     Efforts are already under way to reauthorize the program, 
     which expires next year.
       Enacted in December 2000, the new-market tax credit program 
     is helping to create jobs and revitalize streets and even 
     entire downtowns. Projects large and small that most 
     financial specialists agree would never come to fruition 
     otherwise are taking shape because of tax credits worth 
     $500,000 to $150 million and even more.
       For instance, the tax credits are currently financing the 
     rebuilding of a butter manufacturing cooperative in New Ulm, 
     Minn., that was damaged in a fire. The loss of the 
     cooperative put 130 people out of work, caused economic 
     hardship for 400 family farms and indirectly affected 
     hundreds more jobs in the low-income rural area.
       Just south of the central business district in Grand 
     Rapids, Mich., is a nearly completed arts-related mixed-use 
     redevelopment project in an area largely abandoned since the 
     1950's. Called Martineau Division-Oakes, the 12,000-square-
     foot commercial space is occupied by the art department of 
     Calvin College and a cafe. There are also 23 spaces for 
     artists to live and work in. Once the project got off the 
     ground, the city committed $2 million to landscaping, 
     repaving, new lighting, signage and sidewalk improvements in 
     the development's neighborhood.
       ``It's a very flexible and powerful program,'' said Robert 
     Poznanski, president of the New Markets Support Company, one 
     of the main recipients of credits from the Treasury 
     Department, which administers the program.
       ``It's driven by market forces. The federal government 
     doesn't say, `Use it for this type of business.' It can be 
     used for commercial real estate, a charter school or a 
     community center, as long as the application is competitive 
     and the project is in a low-income area as identified by 
     census tract data.''
       Tax credits make riskier projects more viable by reducing 
     the debt associated with development costs. Private investors 
     pay less in taxes and the developer passes the savings on to 
     the community by, for example, lowering rent per square foot.
       The federal program will allocate up to $15 billion in tax 
     credits to community development groups over seven years to 
     make businesses or commercial real estate projects in low-
     income areas more attractive to private investors. Applicants 
     vie for the credits, and so far the process has been highly 
     competitive. In the first three rounds of allocation, 
     beginning in 2003, demand for the credits has outpaced supply 
     by 10 times, according to figures provided by the Treasury 
     Department. Though the tax credits can be used for business 
     development, the majority are used for commercial real estate 
     because of the way the program is structured.
       The most recent allocation was completed last fall, 
     bringing the total disbursement to $8 billion to date. 
     Recipients have five years to use the tax credits to attract 
     private investment, or they are withdrawn and can be reissued 
     elsewhere through 2014.
       Dennis Sturtevant, president of Dwelling Place, a nonprofit 
     community development organization, spearheaded the Martineau 
     Division-Oakes project in Grand Rapids. The project used 
     historic tax credits and other grants, in addition to new-
     market tax credits, to generate $2.2 million in equity from 
     National City Bank.
       ``When you're talking about tough neighborhoods and all the 
     costs associated with renovating dilapidated, obsolete 
     buildings with lead and everything else,'' Mr. Sturtevant 
     said, ``you need to combine all these resources to make it 
     work.''
       Sean P. Welsh, regional president of National City Bank, 
     said: ``It required a lot of creativity. It's complicated, 
     but it's really driving a lot of the urban redevelopment in 
     this and other areas around the country.''
       One deal that most everyone agrees would have never 
     happened were it not for the tax credits is Plaza Verde in 
     South Minneapolis. Formerly an abandoned building in a low-
     income Hispanic neighborhood, it is now a 43,000-square-foot 
     business incubator, with locally owned retailing on the 
     ground floor, office space on the second level and a theater 
     company on the top floor.
       JoAnna Hicks is the director of real estate for the 
     Neighborhood Development Center, the nonprofit organization 
     that spearheaded Plaza Verde. Even after expenses were 
     deducted, including legal fees, new-market tax credits 
     created almost $1 million in equity for a project that cost 
     $4.2 million total.
       ``Because it's such a complicated financial tool, it's hard 
     for small nonprofits to use,'' Ms. Hicks said. ``But now that 
     we understand it better, we're able to apply it to other 
     projects as well.''
       Using another allocation of the tax credits, Ms. Hicks's 
     organization has also undertaken the development of a nearly 
     completed public market, called Midtown Global Market, a $17 
     million project that will be home to more than 60 vendors 
     selling fresh and prepared foods, as well as handmade arts 
     and crafts.
       As the program has only begun to mature, larger projects 
     are just getting under way. Bridgeport, Conn., is undertaking 
     a major redevelopment of its downtown, with approximately 25 
     percent of the financing coming from new-market tax 
     credits. The total project is estimated to cost up to $150 
     million.
       ``If structured properly, it makes a real difference 
     between a scary development and the deal not being done at 
     all,'' said Kevin Gremse, director of the National 
     Development Council, which provides financial advice and 
     services to municipalities.
       Mr. Gremse used his organization's new-market tax credit 
     allocation to attract a New York City-based private 
     developer, Eric Anderson of Urban Green Builders, to take on 
     the task of reviving downtown Bridgeport, which has suffered 
     years of decline.
       Advocates are cautiously optimistic that the program will 
     be reauthorized in 2007. Congress recently passed a bill to 
     assist Gulf Coast states with rebuilding efforts after 
     Hurricanes Rita and Katrina, which included $1 billion more 
     for the new-market tax credit program geared toward that 
     region.
       ``The fact that Congress expanded the program is a good 
     sign,'' said Robert Rapoza, who manages the New Market Tax 
     Credit Coalition, an advocacy organization pushing for the 
     program's reauthorization. ``But we have work to do. This is 
     a new tool and government-sponsored finance is relatively 
     uncommon. We're continuing to put together data to strengthen 
     our case.''
       Of course, it helps to have banks advocating for the tax 
     credit as well. As one of the more active players in the tax 
     credit industry, Zachary Boyers, a senior vice president of 
     US Bank in St. Louis, closed more than 50 deals involving 
     new-market tax credits in 2005 alone.
       ``The banking community is behind this,'' Mr. Boyers said. 
     ``We are deeply involved in spreading the word. We are 
     working on ways to quantify its impact, which is not easy to 
     do. But other investors, including banks and large 
     corporations, would confirm that they would never be 
     investing in these projects without it.''

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