| Posted: December 9th, 2013
In 2007 a new Giant grocery store opened in Southeast Washington, D.C., becoming the only major supermarket in the area. Two years earlier the historic Tivoli Theater, newly restored, had opened at the corner of a new neighborhood square in the rapidly-developing Columbia Heights neighborhood. Across town, the renovated, 70-year-old Atlas theater stood as the anchor project in a large-scale H St. neighborhood redevelopment.
All three buildings are part of the federal New Markets Tax Credits (NMTC) program, an ongoing public-private effort to invest in underserved American communities. So, how successful were these and thousands of other NMTC investments? Did they direct money to projects and communities that wouldn’t have gotten it otherwise? Did they create jobs? Did they improve services, access to amenities, and the vitality of communities?
The Urban Institute recently completed the first formal, independent evaluation of the program, which between 2002 and 2010 supported 3,060 projects through allocation of $12.9 billion in tax credits. Projects took many forms, including office, retail, mixed use, hotel, social services, educational, arts/cultural, manufacturing/industrial, agricultural/forestry, brownfields, health facility or equipment, and housing. They occurred in hundreds of communities throughout the U.S.
1. What is the NMTC program?
Administered by the U.S. Treasury Department and the IRS, NMTCs are intended to incentivize private investment capital to low-income and economically distressed communities. Federal tax credits are competitively allocated to intermediaries that select projects to invest in, directing capital from investors to businesses or nonprofit organizations. As an incentive, those choosing to invest in NMTC projects receive a reduction in their federal income taxes over a period of seven years.
2. What did the Urban Institute find in its evaluation?
Our evaluation focused on a randomly selected sample of projects initiated during the first four years of the NMTC program, allowing focus on projects that had been completed and, therefore, where results had taken shape.
After detailed review of the economic and community development literature and based on the evidence gathered under this study, we concluded that NMTCs have become an important part of the toolkit to promote economic development in some low-income neighborhoods. We found that, in its early years, the program generally operated as intended: it encouraged investments in low-income areas for a diverse range of economic and community development projects.
There were many different kinds of projects and they produced a wide variety of outcomes. Some projects needed the public subsidy, while others didn’t. Most projects are still thriving, though some are not.
- We estimated that in its first four years the NMTC program created or retained approximately 136,000 permanent jobs and 151,000 construction jobs.
- 80% of project representatives claimed that their projects enhanced the local tax base.
- 10% of projects encouraged support for small businesses, start-ups and nonprofits
- 88% of projects brought quality-of-life improvements to their communities–parks, playgrounds, shopping centers, health clinics, and other amenities.
- 36% of projects were expected, based on their design and scale, to have had the potential for positive area-wide spillover effects, and roughly one-third were undertaken in conjunction with larger-scale development initiatives in their communities.
When considering how closely these investments were tied to the NMTC program itself—i.e. would they have happened without the NTMC financing?—we concluded that:
- 3 or 4 of every 10 projects would likely not have proceeded without NMTCs;
- Approximately 1 of every 10 projects would likely have proceeded without NMTCs, but probably in a different location or on a delayed schedule;
- Approximately 2 of every 10 projects might have been viable without NMTCs.
3. What conclusions did the Urban Institute reach about the NMTC program?
As is generally the case with respect to any new program, in its first four years the NMTC program was a work in progress. The evaluation clearly shows many positive outcomes during that period, but also identifies areas where there might be possibility for improvement.
The Urban Institute does not take positions such as whether the program should be extended permanently, temporarily, or discontinued. But our hope is that this first formal evaluation of the NMTC program will serve as a useful input to the policymaking process and a foundation for further research about the program’s activities and outcomes.
Atlas Theatre image from Flickr user Black Stove ((CC BY-NC 2.0)Economy |Tags: development, investment, New Markets Tax Credits, NMTC, public private, Urban Institute
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