New Markets Tax Credits: An Innovative Approach to Public/Private Financing

On Monday, February 11th, Kentucky Governor Steve Beshear and U. S. Congressman Hal Rogers joined other federal, state and local officials to announce a unique $29.3 million public and private financing package to assist Morgan County, Kentucky, rebuild its community from the destruction and damage caused by the tornado in March 2012. The funds will support the reconstruction of five major building projects in the county; projects that are critical to stabilizing services and restoring a sense of permanency to the community. The use of New Markets Tax Credits, a federal income tax credit, was instrumental in providing nearly $10 million of capital for the recovery and Stites & Harbison played an important role in putting this transaction together.

The New Markets Tax Credits program is a federal tax subsidy administered by the Community Development Financial Institutions Fund, a branch of the U.S. Department of the Treasury, which provides a 39 percent credit against federal income tax spread over seven years . The program is available to for-profit and non-profit companies and organizations with projects located in both metro and rural census tracts that are labeled as distressed-low income and is designed to provide private capital in to projects in areas that would not normally attract this type of investment capital.

The Stites & Harbison Tax Credit Service Group has assisted developers and sponsors of projects as well as NMTC investors and financial institutions in the planning and structuring transactions which, over the past three years, translates into over $170 million of economic activity in the Commonwealth of Kentucky. Our expertise allows us to leverage the NMTC capital with various other sources of financing to maximize the NMTC dollars while ensuring compliance with complex federal, state and local statutory regimes. With our experience, we can also monetize other federal and state tax credits, such as historic rehabilitation, renewable energy and to some extent low income housing tax credits by combining these credits with federal and state NMTCs to obtain substantial tax credit financing for our clients' projects. Our success, in large part, is the result of working successfully on these projects with local, regional and national community development entities, lenders, tax credit investors, project accountants, and federal and state governmental agencies.

The New Markets Tax Credits program was extended for two years as part of the American Taxpayer Relief Act of 2012 (H.R. 8) signed into law by President Obama. The Act provides for a maximum of $3.5 billion of qualified equity investment for each of the next two years. With this extension, the NMTC program will continue to support and incentivize investment in qualified low-income community businesses, resulting in job creation and providing an economic catalyst in highly distressed, low income communities. We encourage you to take advantage of this opportunity, as the NMTC program can provide the necessary capital which may prove to be the difference in getting the deal done.