The New Markets Tax Credit (NMTC) program attracts private-sector capital to low-income communities for economic and community development purposes. Authorized by the Community Renewal Tax Relief Act of 2000 (Public Law 106-554) and jointly administered by the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund and the Internal Revenue Service (IRS), NMTC has been the largest federal effort for the past decade to stimulate the economies of distressed communities, allocating a total of $33 billion in tax credit authority since it began in 2002.

The program works by providing a 39 percent tax reduction that corporations and individuals can take over seven years in exchange for investments in mission-driven, for-profit intermediaries called Community Development Entities (CDEs). CDEs identify projects located in distressed geographies and underwrite them via the funds generated from the tax credits.  The projects include commercial and mixed-use developments, office buildings, arts centers, charter schools, medical clinics, and small business expansions

The CDFI Fund contracted with the Urban Institute in 2007 to conduct this first formal, independent evaluation of the NMTC program. National and program-wide in scope, it focuses on program design, execution, outputs, and outcomes. Between 2002 and 2010, the CDFI Fund made 664 awards to 350 CDEs, allocating $12.9 billion in tax credits in nine separate allocation rounds. Through the end of the federal government’s fiscal year 2010, the latest point for which administrative data on NMTC projects are available, 3,060 projects had received NMTC investments.

The design of the NMTC program has interesting implications for how it has been implemented and what benefits have been produced. NMTC is a public-private partnership that was designed to be flexible, based on the premise that local needs vary and that investors, not the federal government, are better able to discern the right mix in each community. The program’s designers did not intend for NMTC to be primarily a poverty alleviation program, but believed that low-income persons would benefit from economic development in low-income areas, even if indirectly.

Information collection for this evaluation was limited to projects that were initiated as of December 2007. Projects were randomly selected for inclusion in the study, which included a web-based survey and in-depth telephone interviews. We found that, in its early years, the NMTC program operated as intended—encouraging investments in low-income areas for a diverse range of community and economic development projects, with varying results. The most prevalent results were provision of advantageous financing, real estate development in low-income areas, additions to local tax bases, and job creation or retention. NMTC projects also added to or expanded community amenities, services, and facilities and supported small businesses and organizations. Projects varied with respect to the kinds of outputs and outcomes with which they were associated, the need for a public subsidy, and project viability. As is generally the case with programs operating within dynamic community and economic-development contexts, some outcomes are especially difficult to measure and assess, and some cannot be attributed directly or solely to the NMTC program.