Treasury Awards US Firms USD1.5bn In Stimulus Tax Credits

by Leroy Baker, Tax-News.com, New York

01 June 2009

United States Treasury Secretary Tim Geithner announced on May 27 that USD1.5bn in New Markets Tax Credits (NMTC) has been awarded to 32 organizations since President Obama signed the American Recovery and Reinvestment Act (ARRA) in February.

Established by Congress in December 2000, the NMTC program permits individual and corporate taxpayers to receive a credit against federal income taxes for making qualified equity investments in investment vehicles known as Community Development Entities (CDEs). The credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year period. However, the rules stipulate that most of taxpayer's investment must in turn be used by the CDE to make qualified investments in low-income communities.

The Treasury Department said that the awardees are planning investments in renewable energy projects, charter schools, health care facilities, manufacturing companies and retail centers across 33 states, the District of Columbia, and Puerto Rico.

"The Recovery Act was a crucial step toward restoring economic growth, getting Americans back to work, and strengthening our nation's financial stability" said Geithner. "Many communities have been left with a shortfall of financial support and are unable to pursue desperately needed projects, leaving residents to fall even further behind. The New Markets Tax Credit program helps break that cycle by providing an incentive to invest in communities to break ground on new projects, create jobs, and offer much needed services."

Geithner's announcement was made at Project Hope, a New Markets Tax Credit award recipient in Boston.

Community Development Financial Institutions (CDFI) Fund Director Donna Gambrell said that the project was a “shining example” of how New Markets Tax Credits can transform communities.

"Through USD4.8m in New Markets Tax Credit financing, the center we are gathered at today is providing expanded adult education, job placement and career development services,” she explained.

To date, close to USD12bn of private-sector capital has been invested through the NMTC Program into urban and rural communities throughout the country. According to the Treasury, USD9bn dollars of NMTC capital had been invested into approximately 2,000 businesses and real estate developments through 2007.

Under a provision of the ARRA legislation, the money available for New Markets Tax Credits was increased to USD5bn for each of 2008 and 2009, up from USD3.5bn. This provision is estimated to have a 10-year cost of USD815m.

Another legislative provision of the ARRA designed to help depressed communities was the creation a new category of tax credit bond for investment in 'economic recovery zones.' These Recovery Zone Bonds are allocated to state governments based on job losses in a state as a percentage of national job losses. These in turn are sub-allocated to municipalities to invest in infrastructure, job training, education, and economic development in areas significant poverty, unemployment or home foreclosures. This bond is estimated to cost almost USD5.4bn over 10 years.

Signed by President Obama on February 17, the stimulus legislation had a final price tag of USD787bn, of which most was made up of new spending provisions. Approximately USD220bn in tax cuts was apportioned to boost business investment and consumer spending. These included the President’s signature ‘Making Work Pay’ tax credits, improved loss and expensing provisions for small businesses, and a host of tax credits to encourage sustainable energy production.

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