NMTC Update on Congress: Tax Provisions, Infrastructure, and the NMTC Bills

House Leadership Released Puerto Rico Aid Bill - Includes New Markets Tax Credits

When Congress returned in early January, there was great interest in providing additional assistance to Puerto Rico in the wake of a several recent earthquakes that hit the island. Late yesterday (January 28), the House Democratic Leadership released a supplemental appropriations bill increasing aid to Puerto Rico. The bill, referred to as the Puerto Rico Earthquake Supplemental, contains over $4.6 billion in education, transportation, and infrastructure (CDBG) aid.

As word spread about a possible action on disaster assistance, the Coalition approached the Ways and Means Committee about the possibility of additional allocation for Puerto Rico, pointing out the success of the additional allocation for Gulf States that was included in the Gulf Opportunity Zone Act (GO Zone) of 2005 (PL 109-135). The GO Zone Act provided $1 billion in additional NMTC allocations over 2005-2007.

The bill contains $500 million in additional allocation for each of 2020 and 2021. The Credit will be available to "Specified Community Development Entities," defined as a qualified CDE with a history of making QLICIs in federally declared disaster areas or in Puerto Rico.

It worth noting that the bill includes an allocation for Puerto Rico for 2021, which is a sign of the support in the Ways and Means Committee for extending NMTC. As you know, in December Congress extended NMTC through 2020 with a 40 percent increase in allocation authority to $5 billion.

Below is the bill language for NMTC:

NEW MARKETS TAX CREDIT ALLOCATIONS FOR PUERTO RICO

Sec. 106

(a) IN GENERAL.--For purposes of section 45D of the Internal Revenue Code of 1986--

(1) the new markets tax credit limitation other wise determined under subsection (f)(1) thereof for

each of 2020 and 2021 shall be increased by $500,000,000, to be allocated among specified community development entities to make qualified low income community investments in Puerto Rico, and

(2) section 45D(f)(3) shall be applied--

(A) separately with respect to the amounts of the increases under paragraph (1), and

(B) solely with respect to the amounts of the increases described in subparagraph (A),

the last sentence of such section shall not prevent such amounts from being carried to calendar year 2026.

(b) SPECIFIED COMMUNITY DEVELOPMENT ENTITIES.--For purposes of this section, the term ''specified community development entity'' means any qualified community development entity if such entity has a history of making qualified low-income community investments in federally declared disaster areas or Puerto Rico.

(c) OTHER DEFINITIONS.--Terms used in this section which are also used in section 45D of the Internal Revenue Code of 1986 shall have the same meaning when

used in this section as when used in such section 45D.

Additional aid to Puerto Rico is controversial. There is substantial balance of appropriated, unspent Community Development Block Grant (CDBG) funds targeted to the island. The White House cites government corruption as the reason for slow pace of spending, the Democrats charge the administration has slow-walked funds available for political purposes.

In divided government nothing is over until Congress adjourns for the year. The Puerto Rico supplemental is likely to pass the House. With White House opposition, prospects for quick Senate action are dim. However, it is likely that there will be other requests for supplemental appropriations, either from the administration for defense or other domestic needs, or from other Members of Congress. Disaster assistance supplemental spending bills are becoming an annual fall exercise for Congress. If that turns out to be the case this year, then aid Puerto Rico may be back on the table.

Infrastructure Next?

In December at the Coalition's Capitol Hill reception, Ways and Means Chairman Neal (D-MA) told us that he had a deal with the White House: if trade legislation got through (it did), then they would work together on infrastructure. Today, House Democrats released their infrastructure package -- called Moving Forward -- which totals $760 billion over 5 years for bridge, road, water, clean energy, broadband, and telecommunications. The NMTC is in the framework.

Here here is an excerpt from the Moving Forward Framework:

Tax Credits: Expands existing infrastructure tax credits and creates new credits to improve all sectors of infrastructure investment, including community development projects driven by the new markets tax credit, housing investments incentivised by the low-income housing tax credit and community revitalization through the rehabilitation credit for historic buildings.

Read the Moving Forward Framework

This afternoon, the Ways and Means Committee will hold a hearing on infrastructure. Laura Canter from MassDevelopment, an NMTC allocatee is testifying. Her colleague, Pat Sluder of MassDevelopment, is an NMTC Coalition Board member.

In preparation for the hearing, the Joint Committee on Taxation issued a report on provisions and options related to infrastructure investments. It is significant that NMTC is included in the list of possible options.

Here is an excerpt:

NMTC and Infrastructure

Since inception of the credit, the CDFI Fund has allocated a total of $57.5 billion in tax credit authority to CDEs and CDEs have disbursed a total of $48.3 billion in qualified equity investment proceeds. The CDFI Fund reports data for all projects (5,799 qualified active low- income community businesses) between fiscal year 2003 and 2017 by State and zip code.67 The CDFI has also prepared a short report on their dataset which includes some geographic breakdowns (metro/non-metro, levels of economic distress, etc.).68

According to the report, 75.9 percent of investments occurred in metropolitan areas, and

75.3 percent of investments occurred in a census tract that experienced at least one criteria of severe distress. The report also indicates that 39.8 percent of the qualified active low-income community businesses that were beneficiaries of a qualified CDE investment were involved with the development or leasing of real estate (and they received $22.9 billion or 47.5 percent of the NMTC investments), 58.9 percent of the qualified active low-income community businesses were operating businesses (and they received $24.6 billion or 50.9 percent of the NMTC investments), and 1.3 percent of the qualified active low-income community businesses were the beneficiaries of loans or investments made by qualified CDEs through other unrelated CDEs (and they received $778 million or 1.6 percent of the NMTC investments).

Read the JCT Report

Extension Legislation

In December, Congress extended NMTC (PL 116-94) for 2020 at $5 billion in annual credit authority. While the action was obviously welcome, an extender is at the top of the Coalition's agenda for this year. Both H.R. 1680 and S. 750, the New Markets Tax Credit Extension Act of 2019, are still pending before Congress.

In the coming weeks, our lead sponsors will be reaching out to their House and Senate colleagues, urging them to join in the effort to extend NMTC. With 119 Members in the House and 36 in the Senate, the NMTC extension bills have more co-sponsors than in any past Congress. However, the best way to keep the pressure on the Congressional leadership is to continue building our list of supporters. Included is an up-to-date fact sheet on the NMTC bills. If you need assistance in working with your Representative or Senator contact the Coalition.