What Happened?
The neighborhood of North St. Louis recently utilized new market tax credits (NMTCs) to help fund a variety of revitalization projects focused on house, jobs and migration. The NMTCs were responsible for 95% of the projects’ funding while allowing the city to preserve historical infrastructure amid the improvements.
The Goal
As industries shifted over time, North St. Louis experienced an 85% decline in population between 1950 and 2000, which negatively impacted economic activity, housing values and overall growth. City officials laid out a land-use plan to revitalize the North St. Louis community that includes a list of improvements and construction to modernize the region while preserving its historical significance.
One way to fuel the changes was to designate specific areas of the community in need of improvements and apply for federal investment to support small business growth and housing construction. The city qualified for $14.9 million low-income housing tax credits and tax exempt bonds to support housing initiatives. Another $21.2 million to redevelop the commercial center of the neighborhood received financing through NMTCs.
Furthermore, North St. Louis also generated $17.5 million in NMTCs for the project from local community development groups. The City of St. Louis contributed $730,000 of community development block grant dollars as well. As a result of the NMTCs, North St. Louis was able to:
- Rehab 27 buildings
- Attract more than 20 companies to the region
- Construct 42 affordable housing units
- Boost population by 30%
NMTC Program Breakdown
In 2000, Congress launched the New Market Tax Credit Program to directly fund low-income housing and economic development programs nationwide. The program works by offering corporate and individual investors to receive a tax credit on their Federal income tax return when they help fund developments in low-income communities. The investments must be made into Community Development Entities, and 39 percent of the total funds is given back through credits over the next seven years.
When investments are made into Community Development Financial Institution Funds, the entities must establish the credit application process, eligibility guidelines and processes to rank applicants of NMTCs. The IRS is tasked with tax administration duties to Community Development Entities file and report the allocations accurately in compliance with federal regulations. This includes an audit program to protect taxpayer funds and increase efficiency in NMTC allocation.
According to the New Markets Tax Credit Coalition, 72 percent of NMTC investments made through 2013 were distributed in communities with at least one sign of severe economic distress such as:
- Unemployment rates of at least 1.5 times the national average
- Poverty rates above 30 percent
- Median income at or below 60 percent of the area median
The revenue generated by NMTC investments account for the federal cost to provide the credits, as well as provide capital at the state and local level for future projects. Between 2003 and 2011, NMTC investments created 350,000 new jobs at the price of $19,500 per position to the federal government.
Taxes for Growth
Gov1 has monitored a variety of tax incentive programs designed to boost economic activity as well as new taxes to support development projects.