New Markets Tax Credit Program, 68841-68843 [2011-28687]

Agencies

• Community Development Financial Institutions Fund
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 76, Number 215 (Monday, November 7, 2011)]
[Notices]
[Pages 68841-68843]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28687]


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DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund


New Markets Tax Credit Program

AGENCY: Community Development Financial Institutions Fund, U.S. 
Department of the Treasury

ACTION: Request for public comment.

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SUMMARY: This notice invites comments from the public regarding the New 
Markets Tax Credit (NMTC) Program, which is jointly administered by the 
Community Development Financial Institutions Fund (CDFI Fund) and the 
Internal Revenue Service (IRS). All materials submitted will be 
available for public inspection and copying.

DATES: All comments and submissions must be received by February 6, 
2012.

ADDRESSES: Comments may be sent by mail to: Bob Ibanez, Manager, New 
Markets Tax Credit Program, CDFI Fund, U.S. Department of the Treasury, 
601 13th Street NW., Suite 200 South, Washington, DC 20005; by email to 
cdfihelp@cdfi.treas.gov; or by facsimile at (202) 622-7754. Please note 
this is not a toll-free number.

FOR FURTHER INFORMATION CONTACT: Information regarding the CDFI Fund 
may be found on the CDFI Fund's Web site at https://www.cdfifund.gov.

SUPPLEMENTARY INFORMATION: The New Markets Tax Credit Program was 
authorized by the Community Renewal Tax Relief Act of 2000 (Pub. L. 
106-554). It has been extended and amended since initial authorization. 
The CDFI Fund periodically seeks the views of the public on the NMTC 
Program, seeking to increase its effectiveness, while reducing cost and 
burden on program participants. Currently the CDFI Fund is conducting 
through a third-party a long term, longitudinal study of the NMTC 
Program, including an evaluation of investor behavior. This study will 
be completed in 2012. Once this study is complete, the CDFI Fund may 
seek comments from the public about whether additional modifications to 
the program should be made based upon study findings.
    In response to this Request for Public Comment, the CDFI Fund 
invites and encourages all comments and suggestions germane to the 
mission, purpose and implementation of the NMTC Program. The CDFI Fund 
is particularly interested in comments in the following areas:

1. Low-Income Communities and Areas of Higher Distress

    The NMTC Program targets Low-Income Communities (LICs), including 
Targeted Populations, as defined in 12 U.S.C. 4702(20). To encourage 
investment in areas experiencing greater economic distress, the CDFI 
Fund also provides an opportunity for applicants to score more highly 
by committing to making investments in Areas of Higher Distress. The 
CDFI Fund welcomes comments on the definition of ``Low Income 
Community'' and designation as an Area of Higher Distress. 
Specifically:
    LICs are generally defined by statute as census tracts with a 
poverty rate of at least 20 percent or a median family income at or 
below 80 percent of the area median income. The CDFI Fund has relied 
upon decennial census data in determining whether census tracts meet 
these qualifications, and deems as eligible those census tracts which 
meet the statutory criteria, provided that the decennial census data 
shows that the ``population for which poverty is determined'' is 
greater than zero.
    (a) Should the CDFI Fund consider using different standards or 
methodologies for determining whether census tracts meet the statutory 
definition of low-income communities? For example, could using 
different census data or a different methodology appropriately include 
census tracts that are currently excluded? Conversely, could using 
different census data or a different methodology appropriately exclude 
census tracts that are currently eligible (e.g., census tracts with low 
populations)? Please cite specific examples of census tract types (not 
individual census tracts) and sources of national census tract-level 
data the CDFI Fund could use to both map eligibility and monitor 
compliance.

[[Page 68842]]

    (b) In the allocation award process, should the CDFI Fund increase 
the commitment percentage from 75 percent of investments made in Areas 
of Higher Distress in order to receive the highest scores for this sub-
section of the Community Impact score (See question 25(a) of the 2011 
application)? Should the CDFI Fund include additional distress 
indicators, alter or eliminate any existing indicators?

2. Treatment of Certain Businesses

    The NMTC Program statute (at Internal Revenue Code Sec.  45D(d)(2)) 
provides the definition of a Qualified Low-Income Community Business 
(QALICB), including certain types of businesses that cannot qualify 
based upon the nature of their operations (i.e., any trade or business 
consisting of the operation of any private or commercial golf course, 
country club, massage parlor, hot tub facility, suntan facility, 
racetrack or other facility used for gambling, or any store the 
principal business of which is the sale of alcoholic beverages for 
consumption off premises).
    (a) Are there certain other types of businesses that should be 
discouraged or barred from receiving NMTC investments? If so, what 
types of businesses, and what administrative means could be utilized to 
discourage such investments?
    (b) Should the CDFI Fund provide additional opportunities in the 
allocation award process for applicants to score more highly by 
committing to invest in certain business types over others (e.g., small 
business or rural investment, operating businesses vs. real estate 
projects, etc.)?
    (c) Are there specific administrative or regulatory changes that 
would facilitate the financing of specific types of businesses while 
preserving public policy objectives and safeguards?

3. Community Accountability

    The authorizing statute (Title I, subtitle C, Section 121 of the 
Community Renewal Tax Relief Act of 2000 (Pub. L. 106-554), as amended) 
and the CDFI Fund require certain community accountability and primary 
mission standards be met in order for an entity to qualify as a 
Community Development Entity (CDE). Moreover, the CDFI Fund evaluates 
CDE Applicants on certain community accountability dimensions. The CDFI 
Fund welcomes comments on the community accountability of CDEs. 
Specifically:
    (a) Should the CDFI Fund increase the community accountability 
standards for an entity to qualify as a CDE? For example, (1) increase 
the minimum percentage of Low-Income Community Representatives required 
on the board (governing or advisory) that is providing accountability 
for the CDE; or (2) require some minimum of Low-Income Community 
Representatives to be locally based, such as local residents and/or 
government officials?
    (b) Should CDE community accountability standards differ for CDEs 
depending on whether they use governing or advisory boards to 
demonstrate accountability?
    (c) Should the CDE be required to have Low-Income Community 
Representatives approve of investments made by the CDE?
    (d) Should CDE activities be required to be coordinated with 
community stakeholders? If so, how should this coordination be 
conducted and demonstrated?
    (e) Should the CDFI Fund implement measures to increase the 
transparency of CDE activities? For example, should it (i) require CDE 
board meetings to be open to the public and require advance public 
notice of such meetings; (ii) require CDEs to keep and publish minutes 
of board meetings; or (iii) require CDEs to make board member contact 
information readily available to the public?
    (f) If a CDE has a Controlling Entity, should the CDFI Fund require 
that the Controlling Entity of the CDE also meets community 
accountability requirements? If so, what requirements should be 
applied?
    (g) Should CDE community accountability requirements differ for 
allocatee CDEs and non-allocatee CDEs?
    (h) Are there other ways in which CDEs can enhance their 
accountability to the Low-Income Communities in their respective 
service areas?

4. Transaction Costs

    The CDFI Fund requests comments on whether additional rules, 
restrictions, and requirements should be imposed related to fees and 
expenses charged by CDEs. Specifically:
    (a) Should there be greater disclosure of (and perhaps limitations 
on) the fees and other sources of compensation and profits that NMTC 
applicants propose and NMTC allocatees and their affiliates charge to 
(or receive from) their borrowers, investors or other parties involved 
in NMTC transactions? Should such information be made available by 
applicants and allocatees directly or through the CDFI Fund to the 
public or should it remain excluded from disclosure as proprietary 
business information?
    (b) Should the CDFI Fund provide an opportunity for CDEs that 
commit to limit fee and other forms of compensation to earn a higher 
score in the allocation award process? If so, please provide specific 
standards that could be used.
    (c) Are there specific administrative or regulatory changes that 
would reduce transaction costs while preserving public policy 
objectives and safeguards?

5. Evaluation of Financial Products

    The CDFI Fund provides an opportunity in the allocation award 
process for applicants to earn a higher score in the Business Strategy 
section by committing to providing equity, equity-equivalent financing, 
debt with below-market interest rates, or debt with certain flexible 
terms (question 15 of the 2011 application). The CDFI Fund welcomes 
comments on the CDFI Fund's evaluation of the quality of an applicant's 
financial products. Specifically:
    (a) Should the CDFI Fund adopt the use of a defined Effective 
Annual Percentage Rate for purposes of the application and compliance 
measurement? Should the CDFI Fund alter the flexible rates and terms 
question (question 15 of the 2011 application) to base the scoring 
preference on a basis point reduction from a market benchmark 
determined by the CDE (or a standard metric such as LIBOR) instead of a 
percentage? Should the benchmarks be raised?
    (b) Are there specific administrative or regulatory changes that 
would facilitate the provision of specific financial products while 
preserving public policy objectives and safeguards?

6. Use of Other Federally Subsidized Financing in Conjunction With 
NMTCs

    Often, CDEs and NMTC investors use other sources of federally 
subsidized financing (e.g., historic tax credits, Section 108 loan 
guarantees) to help finance NMTC transactions. These sources of 
financing are sometimes used in addition to the Qualified Equity 
Investment (QEI), as part of a leveraged debt transaction, or as 
simultaneous investments made at the project-level. Currently, the only 
restriction against commingling of federal funds is that NMTCs may not 
be used in conjunction with Low Income Housing Tax Credits.
    (a) Should there be any additional restrictions in the allocation 
award process regarding the use of NMTCs with other sources of 
federally-subsidized financing? If so, are there certain types of 
federal financing that should be disallowed? Should it matter whether 
the financing is made as part of

[[Page 68843]]

the QEI investment (e.g., through the leveraged debt structure) or at 
the project level?
    (b) Assuming that it is appropriate for any other source of 
federally-subsidized financing to be used in conjunction with NMTC 
investments, would it be prudent for the CDFI Fund to limit, as part of 
the allocation process, the overall amount of QEI dollars or project 
level investments that may be supported with other sources of federal 
financing?
    (c) Are there specific administrative or regulatory changes that 
could facilitate the coordination of other federally subsidized 
financing in conjunction with NMTCs while preserving public policy 
objectives and safeguards?

    Authority:  26 U.S.C. 45D; 31 U.S.C. 321; 26 CFR 1.45D-1.

    Dated: November 1, 2011.
Donna J. Gambrell,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2011-28687 Filed 11-4-11; 8:45 am]
BILLING CODE 4810-70-P