Charter schools are eligible uses of New Market Tax Credits (NMTC). There have been 75 NMTC transactions in schools, and most of them have been charter schools. The full list of projects is hosted by the New Market Tax Credit Coalition and the list of schools can be found here.
What are the NMTCs?
The New Markets Tax Credit (“NMTC”) Program, an incentive for investment in economically distressed areas, is administered by the Community Development Financial Institutions (“CDFI”) Fund within the U.S. Department of Treasury. The NMTC Program attracts private capital into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax in exchange for making equity investments in qualified projects in designated low-income communities with poverty rates of at least 20 percent or median incomes at or below 80 percent of the area median. For more details, visit the CDFI Fund.
Are you Eligible?
To be eligible, the school needs to demonstrate that the project could not go forward “but-for” additional subsidy from the NMTC. Also, the use of NMTCs must be tied to a “substantial improvement” of the property which is generally 25% above the cost basis of the property. As described above, the project must be in designated low-income communities with poverty rates of at least 20 percent or median incomes at or below 80 percent of the area median.
To determine if a project site is NMTC eligible, check out this mapping tool.
How to Secure NMTCs for a Charter School Project:
Unlike some business tax credits, the NMTC Program is allocated a fixed amount each year. Community Development Entities (“CDEs”) apply for these tax credits each year. Competition for NMTCs is stiff, only about one-third of CDEs who apply are awarded funds. Because CDEs must compete for allocation, they look for high-impact, “shovel ready projects.” CDEs are certified by Treasury and can range from a local economic development authority to a national bank or nonprofit, so you will need to identify a CDE that serves your area. Many CDEs have online intake forms you can fill out to apply for credits, though this process varies. Be ready to provide CDEs with a full prospectus on your project, including projected job creation, square footage to be constructed or rehabilitated, children served, sources of funds, and project costs. To learn which of the recent CDEs finance educational community facilities, check out this list from the 2019 Round (Awarded in July, 2020):
|Local Initiatives Support Corporation (LISC)||$50,000,000|
|Partners for the Common Good||$35,000,000|
Some familiar charter school lenders are certified CDEs and have received NMTCs. To contact a few of these lenders for NMTCs, please visit The Lending Project, a new, free loan matching service.
To learn more about NMTCs
For additional information, these videos provide a quick overview.
Baker Tilly (4 minutes)
NMTC Coalition (3 minutes)