E9-18525. Notice and Request for Comments

AGENCY:

Community Development Financial Institutions Fund.

ACTION:

Notice and request for comments.

SUMMARY:

The U.S. Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). Currently, the Community Development Financial Institutions Fund (the Fund) is soliciting comments concerning the “New Markets Tax Credit (NMTC) Program—Allocation Application” (hereafter, the Application).

DATES:

Written comments must be received on or before October 2, 2009 to be assured of consideration.

ADDRESSES:

Direct all comments to Matthew Josephs, NMTC Program Manager, Community Development Financial Institutions Fund, U.S. Department of the Treasury, 601 13th Street, NW., Suite 200 South, Washington, DC 20005, by e-mail to [e-mail], or by facsimile to [phone]. Please note this is not a toll free number.

FOR FURTHER INFORMATION CONTACT:

The Application and the NMTC Program Notice of Allocation Availability (NOAA) for the FY 2009 allocation round (74 FR 4077, January 22, 2009) may be obtained from the NMTC Program page of the Fund's Web site at http://www.cdfifund.gov. Requests for additional information should be directed to Matthew Josephs, NMTC Program Manager, Community Development Financial Institutions Fund, U.S. Department of the Treasury, 601 13th Street, NW., Suite 200 South, Washington, DC 20005, by e-mail to [e-mail], or by facsimile to [phone]. Please note this is not a toll free number.

SUPPLEMENTARY INFORMATION:

Title: New Markets Tax Credit (NMTC) Program—Allocation Application.

OMB Number: 1559-0016.

Abstract: Title I, subtitle C, section 121 of the Community Renewal Tax Relief Act of 2000 (the Act), as enacted in the Consolidated Appropriations Act, 2001 (Pub. L. 106-554, December 21, 2000), amended the Internal Revenue Code (IRC) by adding IRC § 45D and created the NMTC Program. The Department of the Treasury, through the Fund, administers the NMTC Program, which provides an incentive to investors in the form of tax credits over seven years, which is expected to stimulate the provision of private investment capital that, in turn, will facilitate economic and community development in low-income communities. In order to receive the tax credit, taxpayers make Qualified Equity Investments (QEIs) in Community Development Entities (CDEs): substantially all of the QEI proceeds must in turn be used by the CDE to provide investments in businesses and real estate developments in low-income communities.

The tax credit provided to the investor totals 39 percent of the amount of the investment and is claimed over a seven-year period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period without forfeiting any credit amounts they have received.

The Fund is responsible for certifying organizations as CDEs, and administering the competitive allocation of tax credit authority to CDEs, which it does through annual allocation rounds. As part of the award selection process, all CDEs are required to prepare and submit the Application, which includes four key sections (Business Strategy; Community Impact; Management Capacity; and Capitalization Strategy). During the first phase of the review process, each Application is rated and scored independently by three different readers.

In scoring each Application, reviewers rate each of the four evaluation sections as follows: Weak (0-5 points); Limited (6-10 points); Average (11-15 points); Good (16-20 points); and Excellent (21-25 points). Applications can be awarded up to ten additional “priority” points for demonstrating a track record of serving disadvantaged business and communities and/or for committing to make investments in projects owned by unrelated parties. If one or more of the three readers provides an anomalous score, and it is determined that such an anomaly would affect the outcome of the final awardee pool, then a fourth reviewer will score the Application, and the anomalous score would likely be dropped.

Once all of the scores have been finalized, including anomaly score adjustments, those Applications that meet minimum aggregate scoring thresholds in each of the four major review sections (as well as a minimum overall scoring threshold) are eligible to be considered for an allocation. They are reviewed by an internal Fund panel, with a Lead Panelist making an award recommendation to a Panel Manager, and the Panel Manager making an award recommendation to the Selecting Official. If the Selecting Official's award recommendation varies significantly from the recommendation of the Panel Manager, then a Reviewing Official makes the final award determination. Awards are made, in descending order of the final rank score, until the available allocation authority for a given round is fully expended.

Current Actions: Preparing for the upcoming FY 2010 NMTC Program allocation round.

Type of Review: Extension.

Affected Public: CDEs seeking NMTC Program allocation authority.

Estimated Number of Respondents: 249.

Estimated Annual Time per Respondent: 200 hours.

Estimated Total Annual Burden Hours: 49,800 hours.

Requests for Comments: Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget approval. All comments will become a matter of public record and may be published on the Fund Web site at http://www.cdfifund.gov. Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services required to provide information.

The Fund specifically requests comments concerning the Application, Application review process, and the following questions:

1. Is the information that is currently collected by the Application necessary and appropriate for the Fund to consider for the purpose of making award decisions? Please consider each question and table in the Application. Are there questions or tables that are redundant and/or unnecessary? Should additional questions or tables be added to ensure collection of more relevant information?

2. Are the thresholds contained in Question 17 of the Application appropriate, given current economic conditions? If not, what should the criteria include? Should the Fund provide a range of flexible product commitments based on a discount of interest rates below market as defined by basis point reductions (or other product flexibilities) or continue to present commitment options in percentage terms?

3. A CDE is entitled to earn five “priority points” for committing to invest substantially all of its QEI proceeds in businesses in which persons unrelated to the CDE hold the majority equity interest (within the meaning of I.R.C. section 267(b) or 707(b)(1)). With respect to the timing of this test, the CDFI Fund has determined that it is to be applied after the initial investment is made, and for the life of the seven-year compliance period (though an exception is permitted if events unforeseen at the time of the initial investment cause the CDE to have to subsequently take a controlling interest in the business). Is it appropriate that this test is applied after the investment is made, or should the CDFI consider applying this test before the investment is made? If the test is to be applied before the investment is made, then how should the Fund treat circumstances whereby the receipt of the QEI and the investment in the business is essentially a simultaneous transaction, particularly when the CDE may not have any owners identified prior to the QEI closing?

4. The Application currently collects outcome information on the applicant's historic community impacts and projected economic development impacts in Table C1 and Table C2, respectively, and collects information on projected community development impacts in Question 30. Are there changes that should be made in the way projected economic development is currently measured? Are there other outcomes/impacts for which the Fund should be collecting information to ensure effective use of the NMTC? Should the Fund have a greater focus on community development outcomes/impacts? Alternatively, should the Fund focus exclusively on economic development outcomes/impacts?

5. Do Question 56 and Table F1 of the Application capture all sources of compensation and profits that the applicant and its affiliates receive in connection with NMTC transactions? How can collection of this information be improved? How should the Fund use this information? For example, should the Fund make the applicant's stated fees a specific condition of the Allocation Agreement, and should the Fund set limits on fees in the Allocation Agreement?

6. In any given Application round, the Fund requires applicants that have received awards in previous rounds to demonstrate that they have been able to raise minimum threshold amounts of QEIs from their prior awards (see the 2009 NOAA for the current minimum threshold requirements). Are these current minimum threshold requirements sufficient? Should the Fund consider using different measurements, such as the amount of QEIs that have been deployed as investments in low-income communities?

7. The Fund generally caps award amounts to any one organization in a given round. In the 2009 Application round, this cap was set at $125 million. Is this an appropriate amount? Should the Fund consider raising the cap significantly (e.g., to $250 million), and prohibit a CDE that receives such a large allocation award from applying again for an established period of time?

8. In April 2009, the Government Accountability Office released a report titled: “New Markets Tax Credit: Minority Entities Are Less Successful in Obtaining Awards than Non-Minority Entities” (GAO-09-536). Are there actions that the Fund should take in order to increase the number of minority CDE applicants and allocatees?

9. Are there changes that can be made to the application process or elsewhere, that will increase the amount of Qualified Low-Income Community Investments that support activities that have not traditionally received large scale financing from NMTC investment proceeds (e.g., loans and investments for small business operations; loans to and investments in other CDEs, including CDFIs; purchase of loans from other CDEs; etc.)?

10. Currently, the Fund uses economic distress factors from the most recent decennial census to qualify eligible census tracts and to verify, when applicable, that awardees are serving “severely” distressed communities. Are there other public sources of data on economic indicators (e.g., American Community Survey three- and five-year estimates for poverty rate, area median income, and unemployment rate) that are updated more frequently and readily available that the Fund should accept?

Authority: 26 U.S.C. 45D; 31 U.S.C. 321; 26 CFR 1.45D-1.

Dated: July 28, 2009.

Donna J. Gambrell,

Director, Community Development Financial Institutions Fund.