Certified Community Development Entities (CDEs) in Arkansas as of April 2011

Following up on my previous post, here are the 16 CDEs in Arkansas, organized by community:

Arkadelphia

• South Arkansas Community Development
• Southern Bancorp Bank
• Southern Bancorp Capital Partners
• Southern Bancorp, Inc.

Bentonville

•  Neighborhood Revitalization Development Corp.

College Station

•  College Station Community Federal Credit Union

Fayetteville

• Bank of  Fayetteville Community Ventures, Inc.
• Bankshares of Fayetteville Community Development Company, Inc.
• Community Resource Group, Inc.

Fort Smith

• Forth Smith Regional NMTC Facilitators, LLC

Little Rock

• ADFA Certified Development Corporation
• Heartland Renaissance Fund, LLC
• Pulaski Enterprise Community Alliance, Inc.

Marianna

• Employ America, LLC

North Little Rock

• Argenta Community Development Corporation

West Helena

• First National Bank of Phillips County

New Markets Tax Credit Program: Becoming a Community Development Entity

As I’ve previously discussed, the Community Development Entity (“CDE”) is the central investment mechanism of the New Markets Tax Credit Program.  Under the NMTC Program, certified CDEs apply the U.S. Treasury Department for an award of tax credits, solicit investments, and make loans and investments into qualified businesses and projects.  An organization becomes a CDE by applying to the U.S. Treasury Department.  The U.S. Treasury Department has certified hundreds of CDEs since the inception of the NMTC program, including 16 in Arkansas.

To become a CDE, an organization must meet three basic qualifications:

First, the organization must be legally organized under the laws of the state in which it is incorporated and be a domestic corporation or partnership for federal tax purposes.  In other words, the organization must exist and have a federal tax ID.  No surprises here.

Second, the CDE must have a primary mission of serving or providing investment capital for low-income communities or low-income persons.  The key part of this requirement is that the CDE must demonstrate that at least 60 percent of its products and services are directed to or will be directed to low-income persons, to individuals, businesses, or organizations that serve low-income persons, or to residents of low-income communities. 

Activities that meet this requirement include:

• investing in, lending to, or providing technical assistance to businesses located in low-income communities or owned by low-income persons
• investing in or providing loans to support commercial properties that are located in low-income communities
• lending to low-income persons or residents of low-income communities
• investing in, lending to or providing technical assistance to organizations engaged in activities that promote community development in low-income communities or for the benefit of low-income communities.

Third, the CDE or proposed CDE must designate a “service area” and maintain accountability to the residents of the low-income communities in that service area.  A CDE meets this requirement if at least 20 percent of its governing or advisory board is representative of the low-income communities within the designated service area.  In other words, board members must either reside in a low-income community within the designated service area, or otherwise represent the interest of residents of the low-income communities within the service area – for example, by owning a business in the community.

The deadline for submission of CDE applications for the current round of NMTC awards is June 22, 2011.  A link to the CDE application can be found here: http://www.cdfifund.gov/what_we_do/programs_id.asp?programid=5

Sustainability Law 101: The New Markets Tax Credits Program

The New Markets Tax Credits Program is a key, if somewhat unheralded, incentive for investment in the sustainasphere.  Found in Section 45D of the Internal Revenue Code, the NMTC Program rewards investment in low-income communities with federal income tax credits.  In simple terms, investors in “Community Development Entities” get a federal income tax credit equal to 39% of the investment.  The credit is claimed over seven years at a rate of 5% of the investment for the first three years and 6% of the investment for the remaining four years.  All told, the NMTC credits have an estimated present value of about 30% of the investment.

Here are the basic elements of the program: 

• The NMTC credits are awarded by the U.S. Treasury Department to certified “Community Development Entities,” or “CDEs.” 
• A CDE must meet various criteria, but the basic qualification is that the CDE must have the primary mission of community development. 
• The CDE is the entity that applies to the Treasury Department for an allocation of credits.
• $3.5 billion in credits will be allocated in 2011, and it is expected that several hundred CDEs will compete for allocations ranging from several thousand dollars to several million dollars.
• Once a CDE receives an allocation of new markets tax credits, the CDE solicits investments.  Investments must be in cash. 
• The CDE uses the capital raised to make equity investments and loans to “qualifying businesses.” 
• Eligible businesses include for-profit retail, manufacturing, and service businesses and non-profit businesses. 
• Residential rental housing is expressly excluded from NMTC eligibility and, while a NMTC can be combined with other federal tax benefits, it cannot be combined with low-income housing tax credits or tax-exempt bonds.

Some see the prohibition against NMTC investment in residential rental housing as limiting the utility of the NMTC program, particularly as current economic conditions seem to devalue home ownership and affordable housing communities experience constant 100% occupancy.  But Arkansas cities and communities are becoming increasingly focused on revitalizing long neglected downtowns and business districts.  State and local governments are slowly, but steadily, “greening” municipal buildings.  And the state, under Governor Beebe’s stewardship, has done a remarkable job of attracting major out of state and foreign renewable and clean energy businesses to the state.  Effective, and, in some instances, creative, use of the NMTC program can and should facilitate all of these activities.

(Department of Things to Come: CDEs will be discussed in more detail in a future post.)