The government tries to encourage economic growth and push businesses to be more innovative and bolder. Such strategies are usually designed for distressed communities that have face problems like insufficient healthcare access or inadequate education.
Sadly, there are many places like this in our world, but the good thing is that programs that encourage people to invest are starting to get more and more popular. The distressed communities that face problems similar to those mentioned above cause an economic downturn, which is terrible for every citizen of that particular country.
One of the best programs that have been introduced by the United States from the department of federal financing is the New Markets Tax Credit, NMTC. Stimulating businesses in distressed communities are the primary focus of such a plan. If you want to keep reading about this topic, follow the link: https://www.wsj.com/articles/SB125692382031219045.
History of NMTC
In 2000 the establishment of the New Markets Tax Credit Program began. The community of Renewal Tax Relief Act introduced this program in order to stimulate low-income communities in the US. But the beginning of this program date much earlier than 2000.
The idea of this program started to grow in the early 90s, where various foundations were trying to help the ones from low-income communities get a job. From then till now, this program has grown, and it offers a variety of advantages.
The program is designed for target groups that are located in areas similar to the ones mentioned above. The plan covers a lot of types such as retail, education, office, etc. This will bring a lot of positive results in the future.
How do NMTC works?
The New Markets Tax Credit Program is designed to encourage private investors throughout the United States’ disadvantaged communities. The goal is to create community impacts that would improve job creations, goods, services, etc.
The program administrator is the Community Development Financial Institutions (CDFI) Fund, and they can provide authority for Community Development Entities, CDE. This CDE later sells the tax credits.
The mission of CDE is to provide the capital needed for a private investor impacted by the low-income community. The money usually comes from the state of local governments, banks, as well organizations like Prestamos CDFI or other similar ones. If the investor provides capital to the CDE, he is entitled to a tax credit that is taken over seven years.
Taxpayers, investors, or others can get a 5% tax credit in the first three years, and the following four he or she can take 6%. In the end, this makes 39% in total of the equity investment in CDE. This significantly increases the capital of CDE hence allowing them to invest nearly 75% in different areas that are in distress.
Which business is the most attractive for NMTC?
Because the market is competitive, it is difficult to decide which businesses should be funded and which not. Usually, a company that will offer a lot of new job positions upon opening is the one that is the most attractive for this program. This is because they will boost the community and will allow the whole area to have a higher income.
means that these new businesses will make a huge community impact, which is the goal of this program. The disadvantaged community with firms like this will have better job positions, better food options, better healthcare, and better education. Click here to read more.
How does NMTC impact low-income communities?
Several studies showed that low-income communities suffer greater than the high-income neighborhoods during the pandemic. So, a program like NMTC could really help boost the economic growth in these areas. Seeing that America already had a lot of protests this year regarding these kinds of problems, everyone can agree that it’s especially important.
As mentioned above, around 75% has been invested in these communities to allow citizens of these parts to enjoy better conditions. This 75% represents a budget of $95 million from 2003 until 2018. In 2011 it was estimated that this program financed nearly 3,500 new businesses and projects in the real estate field. What are the benefits of the NMTC?
More job positions
The program is designed to encourage investors to open a business, thus opening more job positions. This is a considerable advantage, especially in distressed areas of the country. These job positions will give the community better and more stable financial situations. Reducing the unemployment rate in these areas of the country will significantly contribute to the whole country’s economy.
Better options for goods and food
Business like markets and malls, which can be funded with this program, will allow citizens affected in those communities to have access to various goods and food. This will produce economic growth and give motivation to people to work harder and improve.
Access to better goods not only applies to clothes and food but also medication and everything needed for better healthcare. Opening a new business that will allow the citizens to have access to medicine and everything required for their health improvement will help this community to raise the income and offer better living conditions.
Disadvantaged communities find it challenging to develop because of their low incomes. If you don’t hope for a better future, you are probably not investing. This stops every economy in that particular area. Sad but true regions like this are common all around the globe.
This program encourages the citizens of these areas to invest and to build a more stable future for themselves and their families. At the same time, they are making a more robust global economy, reflecting on everybody. A study showed that around 90% of the people who were helped by this program would not have invested if the program didn’t exist in the first place.
Who initiates these types of projects?
As intermediaries, usually community development entities serve to make investments. The first thing they need to do is to apply to the Treasury Department’s CDFI Fund. After that, they need to wait for this organization to approve their application and give them authority over the tax credit. Follow this link for more info http://sacobserver.com/2020/12/small-businesses-can-apply-for-up-to-100000-in-tax-credits-starting-this-week/.
After that, CDEs can sell these credits to other investors and invest in disadvantaged communities. Banks, governments, or other enterprises can become part of the CDE team.
This program is pretty exciting and is the right tool to improve the economic situation in every country. Simultaneously, two different parties benefit significantly from the program with one united goal: to build a better future. This program is expected to grow even more in the future and provide even more beneficial options for every disadvantaged community.