Looking back — and forward — at the New Markets Tax Credit
“I ask Congress to give businesses the same incentives to invest in America’s new markets that they now have to invest in foreign markets.” — President Bill Clinton
Betsy Biemann, CEO of Coastal Enterprises, Inc. (CEI), and Traci Vaine, CEO of CEI’s wholly-owned subsidiary, CEI Capital Management, share their thoughts on the impact of the New Markets Tax Credit (NMTC) through the years. The program was part of a series of community development initiatives established by the Clinton administration, and approved by Congress, that accounted for billions in private investment to benefit low-income communities.
Editor’s note: The New Markets Tax Credit (NMTC) was established in 2000 and signed into law by President Clinton. NMTC promotes the flow of capital to businesses in low-income and rural communities by providing a tax incentive to investors such as Community Development Finance Institutions. This month, we spoke to Betsy Biemann and Traci Vaine about the impact of NMTC, and how it has helped to support financial inclusion for these communities, especially in light of the COVID-19 pandemic.
Tell us why CEI chose the New Market Tax Credit (NMTC) Program as one of your investment vehicles, and how do you use it?
Coastal Enterprises, Inc. (CEI) was founded in 1977, and over its first 20 years, the organization worked hard to get more capital to low-income rural communities. CEI offered loans to small businesses in Maine and invested equity capital in growth-oriented companies across New England. In 1993, CEI’s founder Ron Phillips and other advocates helped to create the Community Development Corporation (CDC) Tax Credit, administered by the U.S. Department of Housing and Urban Development, which served as a model to mobilize new private capital for the NMTC program. By 2000, still seeing a consistent and widening investment gap in rural America, Ron testified in support of the Community Renewal Tax Relief Act, the legislation that created the New Markets Tax Credit program, arguing for the creative use of tax credits to attract new, private capital to low-income communities.
With the strong leadership of President Clinton and his team, the act passed and the NMTC program was signed into law. Later, CEI and other advocates, recognizing disparities between rural and urban America, advocated for 20 percent of the capital from the program to benefit rural regions.
CEI applied for and received one of the first NMTC allocations and became one of the largest allocatees of these tax credits in the country. A wholly-owned subsidiary, CEI Capital Management, was founded by CEI to deploy the tax credits and manage them, helping to create good jobs and contributing to the lives and livelihoods of people living in underinvested communities.
Can you tell us about projects that have benefited from CEI Capital Management and the New Market Tax Credit Program?
Lāna‘i Community Health Center
To reach Lāna‘i, Hawai‘i’s smallest publicly-accessible inhabited island, there are two options: a $200 roundtrip flight from Honolulu or a $60 ferry ride from Maui. For the 44 percent of the island’s population that live at or below 200 percent of the Federal Poverty Level, the only option for affordable on-island health care is the Lāna‘i Community Health Center (LCHC). LCHC previously operated out of a converted three-bedroom home, unable to provide adequate healthcare to the remote island community. They were not able to offer services including obstetrics, mammography, psychiatry, inpatient substance abuse treatment, and oral health care. Typically, babies were born in Honolulu or Maui, and mothers-to-be relocated preterm to avoid endangering themselves or their babies.
In order to improve access in this remote rural community, CEI Capital Management used the NMTC program to attract private capital to the native Hawaiian-led Federally Qualified Health Center. LCHC constructed a new, 6,800 square-foot health care facility that opened in 2016. At the end of the 2019 fiscal year, LCHC was serving 70 percent of the island’s population and continues to focus on providing the highest quality health care to all their patients, regardless of insurance status. LCHC employs 38 full-time and eight part-time staff. Throughout the COVID-19 pandemic, LCHC has served as an important community resource, both for testing and for information shared in an accessible and culturally sensitive way. It is clear that in all their actions, LCHC remains focused on their motto: E Ola nō Lāna‘i — Life, Health and Well Being for Lāna‘i.
St. Croix Tissue, Inc.
The story of St. Croix Tissue, Inc. in the rural Maine town of Baileyville (population ~1,450), illustrates the unique role that CEI plays in community investing. CEI Capital Management invested in St. Croix Tissue using NMTCs, which provided an opportunity for partial vertical integration of the host pulp mill operations of Woodland Pulp LLC. This investment contributed significantly to the stability and future viability of Woodland Pulp’s 300 employees, while also creating 80 new jobs at St. Croix Tissue. CEI stayed close to the company in this growth phase, partnering to provide expertise on workforce development, public sector resources, and qualified organizations able to provide job training — essential support for a distressed community. This investment with wrap-around services has helped jumpstart the economy and provide some hope in Maine’s second poorest county.
How has your program helped reach and attract investment to underserved communities? What has been the impact of using the New Market Tax Credit Program?
The rural areas of America provide natural resources for U.S. manufacturing, food and fiber production, and recreation; natural resource-based businesses were historically the mainstays of rural economies. However, consolidation, offshoring, and technological advances have contributed to job losses in these industries. While rural manufacturing remains a vital sector of the economy, companies must innovate to meet changing market demands to grow and sustain good jobs. That means investing in new technology and skills training, and incorporating environmental sustainability into their business models to remain cost competitive and relevant.
Despite these capital-intensive needs, rural regions secure significantly less private capital than urban areas. Furthermore, federal community development spending is two to five times less in rural counties, and only six to seven percent of foundation grants benefit rural areas. This lack of capital and business development capacity contributes to widening income inequality. We know from the Great Recession that in a downturn, those who are most vulnerable fall further behind. In the face of the COVID-19 pandemic, without targeted investment, rural regions risk greater and protracted job loss and ultimately, entrenched disparity between the rural and urban regions of the U.S. economy.
In order to help rural businesses innovate and evolve their business models, CEI Capital Management leverages NMTC incentives, helping to offset the complexity and risk associated with investments in new-to-market products and next generation processes. CEI Capital Management also invests strategically in community facilities that help sustain the quality of life in rural regions.
Since 2004, CEI Capital Management has placed over $1.05 billion of state and federal New Markets investment capacity into 95 projects from Maine to Hawaii. Together, these projects have:
- Created or preserved 6,463 permanent full-time jobs*
- Created 2620 jobs in construction*
- Generated 79 MW of renewable electricity capacity
- Developed 3,086,344 sq ft of property
- Developed 557 units of affordable housing
- Protected 855,596 acres of land
- Capitalized $8.8 M of targeted loan funds
Unless otherwise noted, all job data contained herein is taken directly from the Transactional Level Reports submitted by CEI Capital Management to the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund. All jobs data is reported by the project borrower and is not independently verified by CEI Capital Management.
About the Authors
Betsy Biemann is the CEO of Maine-based community development financial institution, Coastal Enterprises, Inc. (CEI).
Traci Vaine is the CEO of CEI’s wholly-owned subsidiary, CEI Capital Management, which provides access to project financing through the federal New Market Tax Credit program and the Maine New Markets Capital Investment program.
