February 11, 2011
New Markets Tax Credits Come Under Media Scrutiny
by Robert Kropp
Mark Pinsky of the Opportunity Finance Network talks with SocialFunds.com about revelations that
tax credits intended for underserved communities were used to finance the renovation of a luxury
hotel in Chicago.
The Treasury Department's New Markets Tax Credit
(NMTC) program, which since 2003 has led to $50 billion in investments in 3,000 businesses,
came under fire in the media recently, when Bloomberg reported that funds from the program were used to finance
the $116 million renovation of the Blackstone, a luxury hotel in Chicago.
to Bloomberg, both Prudential Financial and JPMorgan Chase received millions of dollars in the tax
credits for lending money for the upscale project, while Chicago's West Side, where unemployment
was 35% in 2000, "languishes without money from New Markets."
Given the current political
environment, in which an ideologically driven Congress seeks to slash spending on social programs
regardless of their long-term economic benefits, community development financial institutions
(CDFIs) and other organizations that direct NMTC funds to underserved communities responded with
concern over the allegations. After CBS picked up
the story, the New Markets Tax Credit
Coalition issued a statement in which it
took issue with important aspects of the coverage.
"Both CBS and Bloomberg contend that
the individual poverty rate…includes the counting of students and others in similar living
situations," the Coalition stated. "According to the US Census Bureau, students and others living
in similar circumstances are not included in the determination of the individual poverty rate for a
Furthermore, the statement continued, "CBS and Bloomberg make much of the
absence of NMTC projects in the economically distressed west side of Chicago. Yet, a
Chicago‐based organization is providing $12 million of NMTC allocation for an expansion of a
community-based health center creating over 100 new permanent jobs within three blocks of St.
Agatha's church in the North Lawndale community on Chicago's west side."
President and CEO of Opportunity
Finance Network (OFN), a network of more than 170 CDFIs, also issued a statement in response to the media coverage.
intent of the New Markets Tax Credit Program is to spur new investments from new sources in new
markets," Pinsky wrote. Observing that CDFIs have provided "financing that benefits low-income,
low-wealth, and other disadvantaged people and communities…to the tune of more than $30 billion,"
Pinsky continued, "OFN has always strongly supported disciplined targeting of NMTCs to ensure that
they maximize value for underserved communities and taxpayers alike."
spoke with Pinsky about the NMTC program, the recent media coverage, and what can be done to
prevent funds from the program being used in such a manner as occurred in Chicago.
Market Tax Credits were created to spur economic growth in markets that were underserved, by
bringing new investors in," Pinsky said. "They are issued to institutions called Community Development Entities
(CDEs), which could be CDFIs, or banks, or government entities."
According to the
Treasury Department, "In order to be certified as a CDE, an organization must… have a primary
mission of serving Low Income Communities or Low Income People and maintain accountability to
residents of the Low Income Communities that it serves."
"The program requires that you
meet certain criteria on the ground, a certain level of poverty and that sort of thing," Pinsky
said. "But statutes can be imperfect measures, and it's unfortunate but not entirely avoidable that
one or two projects got used for purposes like that. An overwhelming majority of the credits get
used for the right purposes."
The Bloomberg article noted that JPMorgan Chase was not the
only big bank to secure tax credits for projects that seem at odds with the mission of NMTCs. US
Bancorp used $39 million to finance an antique car museum in Tacoma, Washington, setting up an
affiliated corporation to qualify for the funding.
In Pittsburgh, Goldman Sachs used NMTCs
to invest $30.5 million in the construction of a shopping center in an area that included a Whole
According to Goldman spokesman Stephen Cohen, "Now…Goldman is putting
hundreds of millions of dollars of its own money into New Markets developments in what it calls
highly distressed neighborhoods," Bloomberg reported.
"Goldman Sachs has a subsidiary that
is certified as a CDE, as does JPMorgan Chase and all the big banks," Pinsky said. "That's not a
bad thing at all, because we need as many institutions as possible working in these markets."
"We'd like to see priority given to CDFIs as recipients of the credit allocations," he
continued, "But we would not want to see only CDFIs being eligible."
Asked what steps can
be taken to maintain the program's integrity, Pinsky said, "We've advocated for tighter control by
Congress over the use of the funds. We'd like to see a greater scrutiny over the use of funds
during the application process."
"If there's a problem, let's fix it," he continued. "It's
a really important program that's worked well and benefited millions of people. Anything draconian
would be irresponsible."
The statement from the New Markets Tax Credit Coalition
concluded, "There is substantial evidence that the New Markets program is working. According to the
Government Accountability Office (GAO) the Credit is an effective incentive for spurring long term
investment in low income areas."