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By Senator Olympia Snowe
One of the challenges in economic development is enticing investment
in low-income communities. One program run by the Treasury Department
called the New Markets Tax Credit has proven successful in bringing
new capital to underserved communities. Due to the success of the
New Markets Tax Credit (NMTC) program in helping to revitalize low-income
and rural communities across the country, I introduced legislation
(S. 1800 - the New Markets Reauthorization Act) that would reauthorize
the program for an additional five years. I am pleased that 13 of
my Senate colleagues have joined me in cosponsoring this important
legislation.
Enacted in December 2000 as part of the Community Renewal Tax Relief
Act, the NMTC offers a seven-year, 39 percent federal tax credit
made through investment vehicles known as Community Development
Entities (CDEs). CDEs combine private investment dollars with capital
raised through the tax incentive to make loans or investments in
businesses in low-income communities.
In its brief period of existence, the NMTC has had tremendous success
in strengthening and revitalizing communities in New England and
across the country. In Maine, Coastal Enterprises, Inc. issued a
$31.5 million long-term NMTC loan to Katahdin Forest Management,
which provided additional working capital for two large pulp and
paper mills. These investments resulted in the direct employment
of 650 people and potential jobs for another 200. The Katahdin project
has helped to diversify the area economy through the development
of new, high-value wood-processing enterprises and recreational
tourism. This success has been reported in projects throughout the
country.
CDEs have also invested in a new childcare facility on Chicago's
west side, the first new supermarket and shopping center in inner-city
Cleveland in 30 years, and a new aerospace facility in rural Oklahoma.
All of these projects demonstrate the revitalization and strengthening
of communities that the program is helping to make possible. After
only two years, CDEs raised nearly $3 billion of capital for direct
investment in economically distressed communities across the nation.
This impressive activity over a short period points to the need
and opportunity for such investment in low-income communities.
Unfortunately, as effective as the NMTC has been, demand for the
incentive has far exceeded supply. In fact,
the average demand in the first three rounds was a staggering 10
times the amount of available credits. The Treasury Department awarded
the first round of $2.5 billion in equity investments eligible for
the credit in March 2003, a second round of $3.5 billion in May
2004, and a third round worth $2 billion in May 2005.
The NMTC is achieving its goal of stimulating investment in economically
distressed communities. In fact, 93 percent of CDEs reported that
they are targeting areas with poverty rates higher than 30 percent
and unemployment greater than 1.5 times the national average. These
results go far beyond what is required by law. Private investors
have clearly responded to the opportunity provided by the program
and are exceeding performance standards. CDEs are moving aggressively
to implement lending and investing programs that finance a range
of projects and businesses in low-income urban and rural communities.
Despite the track record of the NMTC and continued demand for it,
the program is scheduled to expire at the end of 2007. Congress
must reauthorize this credit to ensure investment capital continues
to flow to our most disadvantaged communities. My bill renews this
valuable incentive for five additional years, through 2012, with
an annual credit volume of $3.5 billion per year, adjusted for inflation.
It is critical that Congress act to renew the New Markets Tax Credit.
It is a modest incentive that clearly works. I am pleased to report
that the Senate recently acted to show its support for the program
by including a one-year reauthorization in recently passed tax legislation.
I am very appreciative of Senate Finance Committee Chairman Chuck
Grassley (R-Iowa) for working with me to see that this important
provision was included in the tax package. I have written him along
with nine of my colleagues requesting that the reauthorization remain
part of the tax package when the House and Senate work out the differences
between their respective tax reconciliation bills.
While this one-year reauthorization is a very positive show of
support for the program by the Senate, I believe that it is vitally
important to reauthorize the program for a full five years, as my
legislation does, to provide potential investors assurances that
Congress is committed to this very successful program.
Olympia J. Snowe is the senior senator from Maine.
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