Keynote Address of Director Donna Gambrell at the New Markets Tax Credit Coalition’s 7th Annual Conference

December 2, 2008

Introduction

Thank you. It’s an honor to be here this afternoon for the New Markets Tax Credit Coalition’s Seventh Annual Conference. Since the Coalition’s founding in 1998, you have established yourselves as a leading proponent for the New Markets Tax Credit (NMTC). Through your efforts, the NMTC was authorized as part of the Community Renewal Act of 2000. Today, I applaud your successful campaign to extend the NMTC through 2009, and continued efforts for a 5-year extension.

As we all know, these are uncertain economic times. But I’ve always said that the key to any successful community development endeavor is cooperation. As I look out across this room, I see that you appreciate this as well. With more than 130 member organizations comprised of Community Development Entities (CDEs), investors, practitioners, and other key professionals, you are achieving our common goal of revitalizing urban and rural areas facing economic distress.

I’d like to share with you two stories of how a CDFI Fund allocation of NMTCs can benefit communities in need of investments. Coal Street Park is a landmark known to everyone in Wilkes-Barre. Its location makes it a gateway to the Northeastern Pennsylvania town. Its road is the most heavily travelled, bringing business and tourism to the town that recently celebrated its 200th anniversary.

Like other urban areas, Wilkes-Barre has had to struggle to maintain a solid infrastructure. In 1972, Hurricane Agnes flooded the nearby Susquehanna River causing more than $1 billion in damage. The effects of this disaster on the town are still felt today, almost four decades later. Coal Street Park is no exception.

The cornerstone of the park was once home to a recreational ice arena, which has fallen into a state of disrepair. Playground equipment has been removed, and the green grass that once welcomed visitors has been replaced by a barren dirt landscape. Mayor Tom Leighton recently stated that in its current condition, the park is "an unwelcome sight for residents who live near [it], and visitors who travel Coal Street every day."

Utilizing the NMTC Program, the Pennsylvania Housing Finance Agency is using their recent allocation to raise equity investments that will qualify for federal tax credits. The proceeds of those equity investments will be used to benefit the city: $2.6 million in Federal funding to help rebuild the park, making it more appealing to residents and visitors alike. The park will once again be a source of pride for the residents of the community.

Mayor Leighton added that, "The renovation…is a great example of how municipalities like Wilkes-Barre, working in cooperation with county, state and federal levels of government and the private sector can provide outstanding offerings for their residents."

Once the planned overhaul is completed, the refurbished ice arena will be home to the Wilkes-Barre/Scranton Penguins hockey team. A forty-three-thousand square-foot building will be constructed to house the many businesses that will follow, including a sports shop and training facilities. Rebuilding the park will bring new business opportunities for the economy.

NMTC-eligible investment proceeds will also be directed towards improving youth recreational activities. With the construction of two lighted basketball courts, tennis courts, a playground, and an all-purpose field, the park will once again welcome youth sports teams.

Another NMTC recipient was the Urban Development Fund, a CDE that invested its Qualified Equity Investments (QEIs) into the Roseland Medical Center in Chicago, which was completed earlier this year. The center was constructed in the Wentworth Redevelopment Area, which was established by the city as a means to encourage its redevelopment. The area meets several important criteria, including a poverty rate of 28.5 percent. Median family income is just 53.5 percent of the area median income.

The center will provide primary health care to the residents of South and Southeast Chicago. Services will be provided to anyone who requires medical attention, regardless of their race, age, gender or their ability to pay. It will also provide emergency medical services to residents who may not have access to other facilities. As an example, the nearest kidney dialysis center is more than 30 minutes away, but now residents will now have access 24 hours a day to many critical services.

The Urban Development Fund provided an interest-only loan of $3.2 million for the construction of the center, and it received a rate that was below market value. An additional $1 million loan was given on behalf of another CDFI-funded CDE.

The center has already received high praise from the community, not only for the services it will offer, but also for the center’s effect on the local economy. The project itself will create 50 full-time jobs. An additional 80 jobs were added during its construction.

Summary of the 2008 Allocation Round

The 2008 allocation round of the NMTC Program illustrates its popularity and success. A total of 239 CDEs applied for allocations, requesting $21.3 billion in tax credit authority. The CDFI Fund made awards to 70 CDEs, or roughly 29 percent of the application pool, totaling $3.5 billion. The average allocation was approximately $50 million, ranging from $6.25 million to $112 million.

Sixty-four percent of those receiving allocations were CDFIs, non-profit organizations or governmentally controlled organizations. Altogether, they received $2.16 billion in federal funding. Banks and bank-holding companies received allocations totaling $828 million, and real estate development companies received allocations totaling $297 million.

The success rate among all applicants proved the most impressive for CDFIs. While overall applicant funding was 29 percent, 51 percent of the CDFIs that applied were awarded allocations. Non-profit organizations and governmentally controlled entities had success rates of 40 and 33 percent, respectively, while 30 percent of all banking applicants were also successful. Real estate firms rounded out the list, with a success rate of 19 percent.

Based on estimates provided by the allocatees, it is anticipated that approximately $1.77 billion (just over 50 percent) will be invested in major urban areas; approximately $833 million (or 24 percent) will be invested in minor urban areas; and approximately $895 million (or 26 percent) will be invested in rural areas.

As you may be aware, beginning with the 2008 round the CDFI Fund will ensure that a proportional amount of capital is deployed to rural communities. Thirty-eight allocatees (or 54 percent) indicated that they would be willing to deploy some or all of their investments in non-metropolitan counties. These CDEs received allocations totaling just over $2.27 billion. Based upon their stated commitments, they will be required to deploy, at a minimum, at least $722.1 million in Qualified Low Income Community Investments (QLICIs) in non-metropolitan counties (20.6 percent of the $3.5 billion available this round.)

All 70 of the allocatees indicated that at least 85 percent of their activities will be provided in areas of higher economic distress than are minimally required under NMTC Program rules and/or in areas targeted for development by other government programs, including 60 that indicated that 100 percent of their activities would be provided in such areas.

What form will these community investments take? Sixty-three of the allocates indicated that their investments would come in the form of equity, equity equivalent financing, or debt that is 50 percent below market and/or characterized by five concessionary features; with the remaining 7 allocatees committing to providing debt that is at least 25 percent below market and/or characterized by at least three concessionary features.

As you can see, it was a highly competitive allocation round. The CDFI Fund strives to ensure the upmost integrity of our review policies and procedures. All applications were rated and scored by three different reviewers, and those that met minimum scoring thresholds in each of the four major review sections were deemed eligible for a second phase of review by CDFI Fund staff.

Many organizations met the minimum scoring thresholds, but did not receive an award because we ran out of allocation authority - despite making a record number of NMTC awards. As we look toward future rounds, the CDFI Fund may seek to expand the number of NMTC awards that can be used to serve distressed communities across the nation.

I am pleased to report that for those applicants who were not successful, your debriefing documents are now available in your myCDFIFund account. These documents provide the strengths and weaknesses that were identified by the application reviewers, and are very useful tools for applicants wishing to reapply in future rounds.

Highlights of the NMTC Trend Report

Earlier this year, the CDFI Fund released a report that analyzed NMTC Program activities since its inception in 2002. The report concluded that the NMTC has become a critical resource for acquiring the investment of private sector capital in low-income communities, and that the program’s popularity has risen every year.

The report describes the following conclusions:

• As outlined during the 2008 round, NMTC allocations are being invested in areas facing higher levels of economic distress than what is minimally required under the program. Census information confirms that over 75 percent of projects financed through NMTC were located in communities with a poverty rate of 30 percent, a median family income at or below 60 percent of the applicable area median family income, and an unemployment rate that is at least one and a half times the overall national average.
  
  
• Tax credit allocations are in great demand. Since the program’s inception, CDEs have requested over eight times the amount of available allocations.
  
  
• The NMTC Program is an extremely cost effective program. The ratio of dollars invested in NMTC projects versus the costs of foregone tax revenue is $14 to $1.
  
  
• The NMTC Program is fostering new investor relationships. Over 76 percent of NMTC investors were not affiliated with the CDEs in which they made an investment, and over 61 percent of the dollars invested came from entities that had never before made an investment in the CDE.
  
  
• Non-traditional rates and terms go hand in hand with NMTC services. Almost 99 percent of all transactions benefited the borrowers, as they were given preferential rates and terms. Common among these are below-market interest rates, lower origination fees, and periods of interest-only payments which are longer than usually required.

Impact Data

As of today, more than $12.1 billion in QEIs has been issued by CDEs. This figure represents more than 75 percent of the $16 billion of allocations issued through the first five rounds. Data from previous rounds indicate that the ability to raise QEIs is progressing at a healthy rate. In less than two years since receiving their allocation agreements, 2006 allocatees have now finalized over $3 billion in QEIs, which is over 75 percent of the total NMTC allocation of $4.1 billion.

Through 2007, CDEs who have received allocations have invested approximately $9 billion in NMTC proceeds to approximately 2,000 qualified businesses in low-income communities, supporting over $30 billion in total project costs.

NMTC investments have helped to support the development or rehabilitation of over 68 million square feet of real estate in low-income communities, creating 210,000 constructions jobs; and helped to create or maintain over 45,000 of full time equivalent jobs at businesses operating in low-income communities.

FY 2009

We are starting the new fiscal year with a renewed effort towards understanding the challenges facing CDEs and NMTC investors. As a first step in that process the CDFI Fund will be conducting a New Markets Tax Credit Investors Roundtable. Its purpose will be to discuss how financial market conditions and the economy could affect the demand for NMTCs and to analyze the possible impacts on the type or size of those projects to be financed.

To better understand the impact of this financial crisis on the institutions the CDFI Fund supports, the communities they serve, and to explore how the CDFI Fund might respond, I am pleased to announce the formation of a new Subcommittee that will report to the CDFI Fund’s statutorily mandated Community Development Advisory Board.

Specifically, the purpose of this Subcommittee is to gather information that will be conveyed to the full Advisory Board so that the Advisory Board can advise the CDFI Fund on policy and program recommendations it might consider related to the impact of the current global financial crisis on the institutions that the CDFI Fund supports.

Later this month the Subcommittee will be meeting in Washington, D.C. and the NMTC Coalition will be invited to participate and share information that represents all of your organizations.

In Fiscal Year 2008, the NMTC Program was named as one of the Top 50 Programs that advanced to the final stages of competition for the prestigious Innovations in American Government Award administered by the Ash Institute at Harvard’s Kennedy School. The NMTC Program was chosen from approximately 1,000 programs representing all levels of government across the nation. I'm pleased that the CDFI Fund has submitted an initial proposal for the Fiscal Year 2009 competition and been invited to participate.

With the new year also comes a new round for NMTC, and there are several key dates to consider. The 2009 allocation round will likely open in mid-January, and application materials will be released at that time. Those wishing to apply for the program will likely have until April to return their completed applications.

In order for an organization to be eligible for the program, it must first have certification as a CDE. Interested parties will have until early March to turn in their CDE certification application in order to be eligible for the 2009 round. We anticipate that the award announcement will be made in early October of 2009.

Following this presentation, I invite you to join Matt Josephs, Manager of the NMTC Program, for a panel discussion on the year ahead.

Closing

In closing, I’d like to thank you all again for your efforts and your expertise. We’ve seen that the NMTC Program has become both popular and successful, and that’s due in large part to each of you here today.

Our success has not gone unnoticed on Capitol Hill. Last month, ten U.S. Senators co-signed a request letter to party leaders, indicating their support for an additional $1.5 billion in New Market Tax Credits. They view the program as an opportunity to get the economy back on track and to help relieve our credit burden.

The CDFI Fund stands ready to act should Congress authorize their request. Now is the time for us to work together to meet the challenges before us, and I am confident that they will be overcome.

Thank You.

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