Detailed Information on the
New Markets Tax Credit Assessment

Conducting an independent assessment of the program, including use of the credits and overall program management. The Fund contracted Urban Institute to perform an independent evaluation of the NMTC program. Current actions include UI finalizing the research design, going through the OMB clearance package, and prelimanry analyisis of data provided by the Fund. The evaluation process is expected to be completed in September 2011. Additionally, the Fund has developed a standardized NMTC report from data collected in CIIS (Community Investment Impact System) that will be published either annually or semi-annually (TBD). The report will provide information on the following: (1) applicant/awardee information; (2) issuance of Qualified Equity Investments (QEI); (3) data focused on Qualified Low Income Community Investments (QLICIs).

Ensure that a proportional number of allocatees serve rural communities. As mandated by Congress (Legislative H.R. 6111, The Tax Relief and Health Care Act of 2006), the Fund must ensure that a proportionate amount of Qualified Equity Investments are allocated in non-metropolitan counties. Beginning with the 2008 allocation round, the Fund will ensure that "Rural CDEs" receive allocation awards in proportion to their representation in the pool of eligible and qualified applicants.

Ensure that a proportional number of allocatees serve rural communities.

Has collected initial program data and developed baselines for the two annual measures. The Fund has established its long term and annual measures for this program.

Establishing and refining baselines and targets for its long-term and annual measures.

Measure: Community Development Entities' investments in low-income communities

Explanation:Cumulative investment in Low Income Communities that Community Development Entities have made with capital raised through their NMTC allocations. The Fund will report NMTC Qualified Low-Income Community Investments (QLICIs) that are supported by NMTC Qualified Equity Investments (QEIs).

Measure: By 2010, the average median home purchase loan value will increase faster than inflation for census tracts that received $5 million or more in NMTC investments. (Baseline and targets under development.)

Explanation:The Urban Institutes 2003 evaluation of the CDBG program identified increases in median home loan values in a community as a good proxy for the increase in quality of life.

Measure: Community Development Entities' annual investments in low-income communities

Explanation:Amount of annual investments in Low Income Communities that Community Development Entitites have made with capital raised through their New Markets Tax Credits (NMTC) allocations. The Fund will report NMTC Qualified Low-Income Community Investments (QLICIs) that are supported by NMTC Qualified Equity Investments (QEIs).

Measure: Administrative cost per NMTC applications processed.

Explanation:

Measure: Percentage of loans and investments that went into severely distressed communities.

Explanation:This measure determines the % of loans and investments that went into severely distressed communities that meeting any one of the following criteria: Poverty>30%; Median Income<60%; Unemployment Rate 1.5x Nat. Avg

Is the program purpose clear?

Explanation: The CDFI Fund issues new markets tax credits to certified community development entities (CDEs) in an effort to attract private sector capital into low-income communities.

Evidence: CDFI Fund Revised Goals and Measures, Updated 5/5/04; FY 2003 Notice of Allocation Availability (NOAA) published 7/18/03.

Does the program address a specific and existing problem, interest or need?

Explanation: The program addresses financial market limitations by facilitating the flow of equity capital into areas underserved by conventional lenders and investors.

Evidence: The National Venture Capital Association reported three straight years of declining venture capital (VC) investments, from a high of 8,068 deals totaling $106 billion in 2000 to a low of 2,779 deals totaling $18 billion in 2003. A 2003 report prepared by Columbia Business School ('The Double Bottom Line Private Equity Landscape,' by Clark and Gaillard) found that socially-oriented VC firms' investment activity decreased by 41% between 2001 and 2002, and that investments from all VC firms experienced a similar level of decline (44%) during that same period.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: While possessing some unique qualities the program's purpose and funding mechanism (i.e. tax credits) are similar to other federal and State programs

Evidence: Applicants often note that NMTC allocations complement state and local tax credit programs. Further, federal tax credits are available for selected Empowerment Zones and Renewal Communities. Finally, numerous programs at the departments of Housing and Urban Development (Community Development Block Grants) and Commerce (Economic Development Administration) augment the NMTC goal of improving low-income communities.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: There is no evidence to suggest another approach would be more efficient to acheive the program's purpose of attracting private capital into low-income communities. The program is designed so that each dollar of tax credits is leveraged 2.5 times initially. Further leveraging occurs at the project level. While leveraging ratios vary project by project, it is estimated that total leverage can reach 20:1.

Evidence: The Allocation Tracking System, a web-based system that permits allocatees to enter investor data on a real time basis when qualifying equity investments are issued, indicates that as of March 29th, 2004, 30 CDEs issued a total of $478 million (out of $2.5 billion total) of equity investments for which credits may be claimed. Additional data will become available throughout the summer.

Is the program effectively targeted, so that resources will reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: Approximately 40% of census tracts meet NMTC eligibility requirements, pursuant to regulation and allocation agreements. Allocation agreements and follow-on reporting requiremensts ensure that allocatees provide services to these communities. Further, regulations stipulate that only 15% of the proceeds can be spent to cover opeartional expenses of the CDE.

Evidence: NMTC authorizing statute. Allocation applications and agreements.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: CDFI recently established two long-term performance measures for the NMTC program that focus on attracting private sector capital into low-income communities through CDEs.

Evidence: CDFI Fund Revised Performance Goals and Measures, Updated 5/5/04.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: Both of the program's long-term measures -- amount of investments in low-income communities and increase in average median home purchase loan value -- have ambitious targets and specific deadlines.

Evidence: CDFI Fund Revised Performance Goals and Measures, Updated 5/5/04.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The agency recently developed two annual measures that demonstrates progress towards achieving both long-term goals. CDFI also established one efficiency measure.

Evidence: CDFI Fund Revised Performance Goals and Measures, Updated 5/5/04.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The annual performance measures do not have targets. Treasury will work to establish targets for inclusion in the FY 2006 Budget, however.

Evidence: Beginning in June 2004, the Community Investment Impact System (CIIS) will collect compliance and performance data from allocatees. The Fund will use this data to establish a baseline and a target for annual outcome measures.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: All organizations receiving a tax credit allocation are bound by Allocation Agreements that help achieve the program's annual and long-term goals. Allocatees report performance and compliance data to the Grants Compliance and Monitoring (GCM) unit via the New Markets Compliance Monitoring System (NMCMS). In addition, the GCM unit conducts site visits to a sample of allocatees each year.

Evidence: Allocation agreements require entities to: 1) invest in the geographical service area designated in the application and approved by the Fund; 2) invest in the same type of activities indicated in the application and approved by the Fund; 3) invest a certain percentage of investments (generally 50% or higher) in "non-traditional or flexible" types of financings, as specified in the agreement; 4) invest a certain percentage of investments (generally 60% or higher) in areas of severe economic distress, as specified in the agreement; 5) issue at least 60% of their qualifying equity investments within three years; and 6) provide compliance and performance reports to the Fund on an annual basis.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Although the General Accounting Office is mandated to conduct a multi-year review of the NMTC program, it does so only every three years. CDFI expects to contract an independent and comprehensive evaluation of the NMTC program in FY 2005, however.

Evidence: GAO report 04-326 "NMTC Program: Progress Made in Implementation, but Further Actions Needed to Monitor Compliance."

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The NMTC program will extend $15 billion in tax credits from FY 2002-2007. The Fund receives an annual appropriation to administer the program but that funding source has less impact on annual and long-term performance goals than the credits themselves.

Evidence:  

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: Once allocatees begin reporting performance information in June 2004 the Fund will be able to identify and correct and strategic planning deficiencies.

Evidence:  

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Allocatees submit investment and performance data through two web-based data collection systems, the Allocation Tracking System (ATS) and the Community Investment Impact System (CIIS). The ATS is a real-time system in which allocatees enter data as they receive investments. CIIS is an annual data collection system.

Evidence: Financial data collected through CIIS is verified against the allocatee's audited financial statements, and other data is checked for reasonableness against financial statements and other sources. Data obtained through CIIS and ATS will be analyzed and used to measure the Fund's progress towards its performance goals as well allocatee compliance with allocation agreements.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: NMTC managers' performance goals are directly tied to implementation of key milestones relating to program operations (e.g., date by which allocation award decisions are made; date by which debriefings are provided to applicants that were denied allocations; frequency with which CDE certification applications are reviewed). As noted in Question 2.5, allocation recipients are also held accountable for performance results through their allocation agreements.

Evidence: Fund managers' performance plans. Allocation agreements.

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: CDFI issued $6 billion in tax credits from FY 2002-2004, the exact amount permissible by statute. Further, although NMTC allocatees have five years to extend credits to investors, preliminary data shows that allocatees are well ahead of this requirement (see Question 4.1).

Evidence: Community Renewal Tax Relief Act of 2000; CIIS and ATS

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Although the program recently established an efficiency measure it has not yet established a baseline target. The Fund expects to produce a target in FY 2005.

Evidence: CDFI Fund Revised Performance Goals and Measures, Updated 5/5/04.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The Fund worked with the IRS in developing program regulations and is finalizing an MOU to formalize a compliance and monitoring relationship with the Service. The Fund also works with the OCC to ensure that banks investing in CDEs receive credit under the Community Reinvestment Act. Further, NMTC applicants are scored more favorably to the extent they will work with other Federal programs (e.g., EZs/ECs; Hope VI; Brownfields) and/or in conjunction with locally-designated community revitalization efforts. Finally, the Fund is an activate participant in the Interagency Collaborative on Community and Economic Development (ICCED).

Evidence: Draft Memorandum of Understanding between the Fund and the IRS. 2003 NMTC Allocation Application.

Does the program use strong financial management practices?

Explanation: The Fund has received a clean audit opinion during the past six years, with no reportable conditions nor any instances of non-compliance with laws and regulations. The Fund also reports no instances of non-compliance with Sections 2 and 4 of the Financial Managers Financial Integrity Act within the same time period.

Evidence: CDFI Fund Audited Financial Statements, which also includes the Fund's FMFIA certification. Review of Fund programs under the Improper Payments Information Act of 2002.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: A recent GAO analysis found no deficiencies with respect to administrative review and selection of applications (both for CDE certification and for NMTC allocations), though it did make a recommendation that the Fund and the IRS develop schedules and milestones for completing monitoring elements. As noted in Question 3.5, CDFI and the IRS are finalizing a Memorandum of Understanding to address monitoring elements.

Evidence: GAO Report 04-326 "NMTC Program: Progress Made in Implementation, but Further Actions Needed to Monitor Compliance."

Are grants awarded based on a clear competitive process that includes a qualified assessment of merit?

Explanation: All program allocation decisions are made on the basis of merit. All applicants are reviewed and approved on a competitive basis established in the Notice of Allocation Availability (NOAA) and detailed in the allocation application. The Fund engages in significant outreach to promote the program, including a video teleconference that is open to the general public and broadcast to every HUD field office in the nation.

Evidence: 2003 Allocation application materials. Outreach schedule.; reviewer guidance materials and panel review policies.

Does the program have oversight practices that provide sufficient knowledge of grantee activities?

Explanation: Allocatees submit via CIIS and ATS: 1) reports that track the issuance of tax credits to investors, updated on a real-time basis; 2) annual institution level reports, which trace the characteristics of the entity that received the allocation over time; and 3) annual transaction-level reports, which track the use of NMTC proceeds on an investment-by-investment basis.

Evidence: These reports are used by the Fund and IRS to monitor compliance with program regulations. In addition, they permit the Fund to collect key evaluation data (e.g., jobs created; increased business revenues) to support overall strategic goals. The Fund's Grants Compliance and Monitoring unit will review data to ensure allocatees are in compliance with their allocation agreements. This unit is developing policies and protocols for on-site audits of allocatees.

Does the program collect grantee performance data on an annual basis and make it available to the public in a transparent and meaningful manner?

Explanation: Once the Fund collects and analyzes performance data beginning in June 2004 it will disseminate data to the public at an aggregate level. To the extent possible within the confines of privacy and financial disclosure laws and consideration for allocatees and their clients, the Fund will make disaggregated data available as well.

Evidence:  

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The first round of award announcements was made in March of 2003 with the earliest allocatee report due through CIIS in June 2004. However, preliminary data from ATS shows signs that its long-term measures are attainable.

Evidence: Data collected on a real-time basis through ATS indicates that approximately 20% of the $2.5 billion in allocation authority has already been issued to investors within 7 months of closing allocation agreements. This pace is well ahead of what is minimally required in awardees' allocation agreements (i.e. 60% issued within three years), and even further ahead of what is permissible in the statute (i.e. 100% issued within five years).

Does the program (including program partners) achieve its annual performance goals?

Explanation: As noted in Question 2.4, the Fund has not yet established targets for its annual goals. Beginning in June 2004, the Community Investment Impact System (CIIS) will collect compliance and performance data from allocatees which will be used to establish targets.

Evidence:  

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The program has an efficiency measure but can not establish a baseline target until FY 2005 when sufficient data is available through ATS and CIIS (see Question 3.4).

Evidence:  

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The program is new and therefore data is not available to compare its performance to other programs at this time.

Evidence: The aforementioned ICEED is working to establish common measures to evaluate comparable community development programs.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: The Fund will conduct an independent evaluation in FY 2005. The evaluation will be designed to meet the evaluation criteria set forth in the PART guidelines (see Question 2.6).

Evidence: