Corporate Law Blog

Community-Based Economic Development Projects: Gain a Boost Through New Markets Tax Credit Equity Financing

On December 23, 2025, U.S. Department of the Treasury’s Community Development Financial Institutions (the “CDFI”) announced the release of $10.0 billion in New Markets Tax Credits (“NMTCs”) allocation awards for calendar years 2024-2025 (the “Allocation Awards”).

NMTCs are economic development tools that drive private investment into economically distressed communities by providing a cash subsidy in exchange for a federal income tax credit. While securing NMTCs to finance projects, whether they be affordable housing, manufacturing, education, healthcare, or community facilities, is highly competitive, complex, and time-consuming, the juice is worth the squeeze, with an end result being a net cash benefit to a project equal to 15% to 25% of its development costs.

The CDFI annually allocates NMTC awards to financial intermediaries called Community Development Entities (“CDEs”). These CDEs, in turn, work with and partner with investors (“NMTC Investors”) who invest their private capital in a qualified business located in a “low-income community” census tract. In exchange for their cash investment, NMTC Investors receive a federal income tax credit equal to 39% of their original investment which is claimed over a seven-year period. With respect to the Allocation Awards, the CDFI reports that only 142 of the 216 applicants shared in the most recent $10.0 billion allocation. Of the 142 awardees, 65% target their NMTC deployment nationwide, 39% in a multistate area, 24% statewide, and 14% locally. As a practical matter, CDEs may also deploy their NMTCs into projects that satisfy their own specific investment criteria, which may focus on urban and/or rural areas, for-profit or non-profit or specific industry sectors like manufacturing, healthcare, food deserts, mixed use, education, green energy or technology.

The annual demand for NMTCs outstrips the supply. The CDFI reports the 216 applicants formally requested $19.2 billion for the $10.0 billion Allocation Awards, making the ability to secure NMTC financing challenging for both CDEs and potential projects. Since high-impact projects attract CDEs and the CDFI in turn awards CDEs that fund impactful projects, success for all parties involved relies upon the demonstrable achievement of the community outcomes or impacts attributable to the NMTC investment. A successful project might, for example, create a rise in local economic activities reflected by new jobs for community-based residents and overall improvement of public median income. Or, as another example, the project drives marked improvement in essential community facilities, such as healthcare centers, schools, and affordable housing. These examples would provide relevant outcome data and demonstrate community support for the NMTC-financed project, which will be critical in the allocation of NMTC funds.

CDEs operate with a sense of urgency and therefore before they commit NMTC to a project, the project must demonstrate it both (i) could not proceed but for the NMTC subsidy and (ii) raise the remaining funding if it receives the NMTC. Consequently, the CDE’s focus will initially be on the project’s financial viability. For example, a $30.0 million development project that secures a $30.0 million NMTC allocation will generate, based on current pricing, a net $6.2 million subsidy. This net benefit is cash that goes directly to a project’s bottom line that the sponsor doesn’t need to raise. The project will then only be able to secure the NMTC financing if it can demonstrate it has the means of securing the remaining $23.8 million in cash from other sources, be it commercial loans, bond proceeds, sponsor cash or governmental and/or nonprofit grants/awards.

Finally, CDEs will assess whether a project is “shovel-ready” to close. For example, with respect to a real estate project, the following items need to be completed or well on the way to completion to receive a commitment from one or more CDEs: (i) site control, (ii) title, title insurance, and survey, (iii) proper zoning, (iv) environmental reports, (v) architectural and construction contracts, (vi) plans & specifications, and (vii) evidence of community support.

Obtaining the capital needed to fund a project in an economically distressed community is a challenge in and of itself, but NMTCs are there to help. The attorneys at McBrayer PLLC have a wealth of knowledge, experience, and expertise with tax incentive financing and have participated in over a half a billion dollars of NMTC transactions. We can navigate projects through the complexities of the NMTC program and take the lead in reaching out to CDEs and NMTC investors to maximize NMTC allocation needed.

James C. Seiffert is Of Counsel at McBrayer PLLC and a seasoned corporate and business tax attorney whose practice emphasizes venture capital financing, taxation, mergers and acquisitions, and general business and corporate law. He can be reached at jcseiffert@mcbrayerfirm.com or (502) 327-5400.

Jameson M. Seiffert is a Member of McBrayer PLLC who practices in the business and corporate law group, with experience spanning tax credit equity financing, contract drafting and review, entity formation, economic development, and representing businesses in merger and acquisition transactions. He can be reached at jseiffert@mcbrayerfirm.com and (502) 327-5400.

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