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Details of the New Markets / Renewal Communities Agreement
Details of the New Markets / Renewal
Communities Agreement
NEW MARKETS INITIATIVES:
This proposals have been constructed with the assistance of the many
Members of Congress that are listed as cosponsors below and with substantial
input from the Congressional Black Caucus led by Rep. Clyburn and the
Congressional Hispanic Caucus led by Rep. Roybal-Allard.
New Markets Tax Credit. The deal includes the President's
New Markets Tax Credit to spur $15 billion in new private equity investment for
business growth in our nation's inner cities and isolated rural
communities.
Investors in eligible funds would receive a tax credit worth in
present value terms more than 30 percent of the amount invested. Investors
would take a 5 percent credit for the first 3 years of investment, and 6
percent for the next 4 years.
Eligible funds would include a wide range of entities, including
community development banks and other community development financial
institutions, venture funds, for-profit subsidiaries of community development
corporations, America's Private Investment Companies and New Markets
Venture Capital Firms.
The New Markets Tax Credit would be widely available on a competitive
basis to funds serving low- and moderate-income communities around the country,
those with census tracts with poverty rates of at least 20 percent or median
family income which does not exceed 80 percent of area income.
The proposal costs $1 billion over 5 years and $4.5 billion over 10
years.
The President's proposal had been introduced by Representatives
Rangel and Senators Robb and Rockefeller. Important House leadership has also
come from Reps. Becerra, Jefferson, Kanjorski, Matsui, Waters, Velasquez, and
Rep. Norton, with 38 co-sponsors. In the Senate, the bill has 13 co-sponsors.
America's Private Investment Companies (APICs): This HUD/SBA
legislative proposal will create investment funds with minimum private capital
of $25 million (which is eligible for the New Markets Tax Credit), that could
then borrow twice that amount at government-guaranteed rates and spur $1.5
billion in private investment.
APICs would be structurally similar to the existing SBA Small
Business Investment Company (SBIC) program, and the Investment Funds of the
Overseas Private Investment Corporation, but would generally be much larger.
APICs would fund larger businesses, such as new back office
operations, plant expansions, and conversions of old facilities into modern
industrial "incubators" for smaller businesses. Currently, there are few, if
any, sources of long-term risk capital for these landmark investments in most
poorer communities.
The agreement authorizes HUD to guarantee up to $1B in low-cost loans
that will match $500 million in private investors' contribution, to make a
total of $1.5 billion available to invest in low- and moderate-income
communities.
House sponsors include Representatives LaFalce, Kanjorski, Leach,
Vento, Lazio, Waters, and Jefferson.
New Markets Venture Capital Firms (NMVC): This SBA legislative
proposal would create a new class of venture capital funds that target a lower
rate of return (e.g., 10%) and provide more hands-on management assistance to
their small business portfolio investments.
NMVCs would target smaller firms with growth prospects that do not
currently have sufficient equity base.
NMVCs must have $5 million minimum in private equity, plus $1.5
million in cash or in-kind commitments raised from private sources to provide
operating and management assistance. For investment capital, the SBA would
provide up to $1.50 in low-cost loans for each $1 that private investors
contribute. The SBA would also match privately raised operating assistance
one-to-one.
The agreement authorizes SBA to guarantee up to $150 million in loans
to match $100 million in private equity, for a total of $250 million in
investment capital for these communities. In addition, the agreement authorizes
SBA to make $30 million in grants to match private commitments for operating
assistance to the NMVC's portfolio companies.
Lead advocates in the House include Reps. Velasquez and Talent.
Senate sponsors include Sens. Kerry, Wellstone, Bingaman, Levin, and
Cleland.
EMPOWERMENT ZONES:
Empowerment Zones. The agreement authorizes the designation of 9
new Empowerment Zones, bringing the total number to 40 EZs, and extends the
duration of the EZ designation in all 40 EZs to 2009.
In all EZs, the following incentives are available:
Wage credit equal to 20 percent on the first $15,000 of qualified
wages per employee;
Authority to issue tax-exempt bonds to promote business
development;
Incentives for EZ business investment by permitting EZ businesses to
deduct an additional $35,000 in capital expenditures;
Zero-rate on capital gains rolled over to another EZ business
investment, and a 60 percent exclusion of capital gains derived from small
business stock.
The EZ provision also includes an extension through 2009 of the
Empowerment Zone incentives for the District of Columbia.
The agreement also includes $200 million in discretionary investment
for "Round 2" Empowerment Zones.
The EZ provisions cost $2 billion over 5 years and $4 billion over 10
years.
The President's proposal had been introduced by Representative
Rangel. Other key leaders include Reps. Clyburn, Jefferson, and Lobiondo in the
House and Sens. Daschle, Dorgan, Torricelli in the Senate. Key leadership for
the discretionary funding was provided by Reps. DeLauro and Meek (FL), and
Sentor Robb.
RENEWAL COMMUNITIES:
Creation of Renewal Communities: These newly created Renewal
Communities will be available in 40 competitively-selected communities that
meet certain criteria showing economic distress in the community.
"Renewal Communities" will have the following incentives:
Zero rate on capital gains derived from businesses located in the
renewal communities;
Wage credit equal to 15 percent on the first $10,000 of qualified
wages per employee;
Incentives for RC business investment by permitting RC businesses to
deduct an additional $35,000 in capital expenditures;
Commercial revitalization tax deduction to promote commercial
development;
Sponsors of the House Renewal Communities include Rep. Watts, Talent,
and Davis (IL).
EXPANSION OF THE LOW INCOME HOUSING TAX CREDIT:
Low Income Housing Tax Credit. The deal includes the
President's proposal to expand the low income housing tax credit by 40
percent, from $1.25 per capita to $1.75 per capita, and to index the credit for
inflation thereafter.
The tax credit, which is administered by the states, currently helps
to build 90,000 affordable housing units each year, but demand for the credits
outstrips supply by three to one, and more than 5 million low income Americans
live in inadequate housing.
The proposal would help create an additional 180,000 units of
affordable housing over the next five years for low-income families.
The proposal costs $1 billion over 5 years and $6 billion over 10
years.
The President's proposal had been introduced by Representatives
Rangel and Johnson, with 372 co-sponsors in the House, including most members
of the Ways & Means Committee. Senator Mack introduced the Senate version,
with 78 co-sponsors.
ALLOWING FAITH-BASED ORGANIZATIONS TO QUALIFY FOR SUBSTANCE ABUSE
FUNDS:
The provisions included in this agreement will allow faith-based
organizations to qualify for substance abuse prevention and treatments funds on
the same basis as other non-profit organizations.
Both the President and Vice President believe that faith-based and
community-based organizations can play an important and constructive role in
addressing some of our nation's most pressing problems, including
preventing and treating substance abuse. At the same time, the Administration
has been clear that the ‘1charitable choice provisions' included in
this agreement and in other legislation the President has signed can and must
be construed and implemented consistent with the constitutional line between
church and state.
The provisions are substantially similar to the charitable choice
provisions included in the welfare reform law signed by the President in 1996
and in the substance abuse bill that passed the Senate on a bipartisan basis
last fall.