Investing in Projects or Places? Examining Factors That Influence New Markets Tax Credits Allocations

Background & Purpose: The New Markets Tax Credits (NMTC) program is designed to stimulate private investment in low-income communities throughout the US. Authorized under the Community Renewal Tax Relief Act of 2000, the program has invested billions of dollars into local communities to support businesses, create jobs, and sustain local economies. Communities are eligible for NMTCs if at least 20% of residents are below the federal poverty line, or if median family income is below 80% of the area median income. Studies of the NMTC program are minimal but suggest that the program has modest positive effects on community-level outcomes, especially in neighborhoods that receive higher levels of investment. However, few studies have examined how NMTC project funds are allocated. Therefore, little is known about the factors that drive project allocation decisions beyond basic programmatic requirements. This study addresses this knowledge gap by examining project and neighborhood-level factors that influence NMTC allocations.

Methods: This study used the NMTC Public Data Release 2018 from the Community Development Financial Institutions (CDFI) Fund which consisted of NMTC project allocations from 2001 to 2016 (n=5,333). The dataset included project-level data including project allocation amount, project location, investment purpose, whether the investment was a project between multiple community development entities (CDEs), and whether the project served multiple census tracts. Decennial Census data and American Community Survey (ACS) data were collected for the year 2000 and 2010 (ACS 2006-10 5-year estimates) to examine contextual factors influencing allocation decisions. Data analysis occurred in two steps. First, log-linear regression models were utilized to examine project-level effects on NMTC allocations. Next, multilevel random intercepts models were utilized to examine neighborhood-level variation in NMTC allocations. Data were analyzed using Stata 15.1.

Results:  Roughly $44-billion in NMTC funding was allocated to 3,380 census tracts during the study period. The number of NMTC projects per census tract ranged from 1 to 35, with most census tracts receiving 1 project (M=1.58, SD=1.73) and roughly $8-million per project on average (M=$8.33 million, SD=$10.85 million). Linear regression results suggest that investments in multi-CDE projects (b=1.81, SE=0.05) and multi-tract projects increased project allocations (b=0.46, SE=0.08). Construction (b=0.86, SE=0.21) and commercial (b=0.84, SE=0.21) investments increased allocations by 86% and 84% respectively. Non-real estate investments decreased allocations by 52% (b=-0.52, SE= 0.08). For projects that originated prior to 2010, census tract poverty rates decreased allocations (b=-0.007, SE=0.15), while unemployment rates increased allocation amounts (b=0.016, SE=0.004). For projects originating in 2010 and later, the percentage of African-American/Black residents decreased allocation amounts (b=-0.005, SE=0.001). Finally, multilevel modeling results revealed similar trends for project-level factors and indicated that neighborhood-level factors accounted for roughly 46% of the variation in NMTC allocation amounts (ICC=0.46, SE=0.02).

Conclusions & Implications: Findings of this study suggest that neighborhood-level factors influence NMTC allocation decisions above and beyond project-level factors. Although modest, neighborhood poverty and proportion of African-American/Black residents decreased project allocation amounts. Research is needed to examine additional factors that influence NMTC allocations to ensure that funds are allocated equitably.