What Is The New Markets Tax Credit?
On December 21, 2000, the Community Renewal Tax Relief Act of 2000 was signed into law as a result of a bipartisan initiative of President Clinton and Speaker Hastert, and key Republican and Democratic Senators and Representatives. This landmark legislation includes the New Markets Tax Credit, providing the vehicle of investment of $15 billion in new private capital into a range of privately managed investment vehicles that make loans and equity investments in New Markets business.

By making an equity investment in an eligible "community development entity" (CDE), individual and corporate investors can receive a New Markets Tax Credit worth more than 39 percent of the amount invested. Eligible CDEs could include for-profit community development financial institutions (CDFI's), for-profit subsidiaries of community development corporations, SBA-licensed New Markets Venture Capital companies, and Specialized Small Business Investment companies.

Why Do Low-Income Urban And Rural Communities Need Help?
Markets in America's inner cities and distressed rural areas possess enormous untapped economic potential. However, growing businesses in these communities are unlikely to attract the attention of venture capitalists who generally work within their existing relationships and communities. The smaller local venture funds that exist in some communities may have difficulty raising capital, developing deal flow, providing the requisite investment and management expertise, and managing the risks inherent in less diversified local economies. Greater distances in rural areas often mean that capital providers may incur higher costs for travel and information. That is even more true of businesses in isolated rural or inner-city communities that are cut off from mainstream business networks. In urban markets, information barriers may prevent investors and lenders from discovering and fully appreciating business opportunities.

What Investors Will Be Eligible For The New Market Tax Credit?
Any taxable investor - including an individual, a company, or an investment fund - that makes an equity investment in a qualified CDE is eligible for the tax credit. The kind of eligible investors that may be interested in New Markets Tax Credits include banks and thrifts, insurance companies, investment banks, venture capital and other investment funds, finance companies, individuals, corporations, and others.

What Businesses Will Qualify For CDE Loans And Investments?
The CDE, using its local knowledge and expertise, will jointly decide with the investor which businesses to invest in or lend to with the funds raised with the New Markets Tax Credit. Almost all businesses located in low or moderate-income census tracts could qualify for loans or equity investments. Based on the portfolio of existing successful business investors in New Markets areas, typical firms could include; small technology firms, inner-city shopping centers, manufacturers, retail stores or micro-entrepreneurs. A business must meet the following two eligibility requirements to qualify:

The business must be located in either a census tract with a poverty rate of at least 20 percent , or a census tract with a median income that does not exceed the greater of 80 percent of the median income for the MSA, or 80 percent of the statewide median income

The business must have a substantial connection to that location, as measured by the following criteria: at least 50 percent of the business's income must be derived from activity in a low-income community, a substantial proportion of the business's property must be located in a low-income community; the employees of the business must perform a substantial proportion of their work in the low-income community; and less than 5% of the business's assets can be held in unrelated investments.

These requirements may be met by the business unit receiving the investment, such as a branch plant or division of a company, rather than the entire corporate entity. This means that a company does not need to establish a new corporation in the eligible census tract so long as the CDE's investment can be traced to the facility in the low- income census tract.

What Types Of Community Development Entities Will Be Eligible?
The New Markets Tax Credit will build upon the knowledge and expertise of local institutions that understand the local business terrain and have a proven record of success in community and economic development. A wide range of for-profit community development entities will qualify including the following:

• Community Development Financial Institutions (CDFI's)
• Community Development Corporations
• New Markets Venture Capital Companies
• Small Business Investment companies Focused on Low and Moderate-Income Areas