It has been four years since a global pandemic first shook the foundation of the economy.
Nationwide shutdowns led to disrupted or shuttered businesses small and large. Rebuilding efforts have been strong and often supported by government-funded programs intended to fuel growth and bring jobs back to those hardest-hit neighborhoods.
Though it has been around for more than two decades, the New Markets Tax Credit (NMTC) program is integral to the rebuilding efforts. It’s designed to incentivize the private sector to invest in low-income communities.
“The demand for NMTC financing has never been bigger than it is today,” noted Steve Ross, head of the New Markets Tax Credit platform at Regions. “When the program began, it was not very well known, but over the last 20 years it has proven to be a critical tool to help businesses and nonprofits grow.”
Ross said that many of these organizations would not exist today without NMTC financing and, as we look into the future, the way NMTC financing is used continues to expand.
“NMTCs can finance real estate, equipment and working capital, and can be used on a variety of asset types, including for-sale housing, mixed-use real estate, manufacturing facilities, schools, hospitals and so much more. Its flexibility is part of what makes it such a valuable financial product,” Ross said.
Rising inflation, supply chain disruptions, and a rocky labor market in the wake of the pandemic impacted businesses across various industries and geographies. Jobs were adversely impacted and in communities already facing higher rates of poverty, business closings and job loss reverberated through these already microeconomies.
Rising interest rates intended to cool rising inflation ushered in new challenges for some businesses.
“What has happened in the wake of rising interest rates is projects that wouldn’t normally need NMTC financing have started to look for that type of subsidy,” said Ross.
Many economists predict a few decreases in the Federal Funds rates in 2024, but that doesn’t necessarily mean that the demand for NMTCs will decrease, according to Ross.
“I anticipate demand increasing as rates drop, opening up opportunities for more typical NMTC borrowers, who may have slowed activity in the higher-rate environment, to begin investing in growth again,” he shared. “Many for-profit businesses chose not to move forward with planned expansions during the pandemic, but others did not have a choice – they had to invest to survive or to meet client needs.”
I anticipate demand increasing as rates drop, opening up opportunities for more typical new markets tax credit borrowers.
Steve Ross, head of Regions’ New Markets Tax Credit platform
New Markets Tax Credit: Attractive Financing for Nonprofits
Demand for NMTCs is also increasing among not-for-profit businesses, where fundraising efforts have become more challenging in the post-pandemic economy.
“In talking with our government and institutional bankers and not-for-profit clients, raising money is hard, particularly for mission-driven entities that rely on campaign fundraising and are not in the business of building up cash surpluses,” noted Ross. “We’ve seen significant challenges in fundraising from those clients and NMTC investments can be an attractive alternative for funding.
“Most non-profit organizations did not have the luxury to simply hold on to cash until the economic climate was more stable,” Ross noted. “They had to make investments to provide the critical services their communities need, but often traditional funding sources were unavailable, with so much subsidy being targeted toward pandemic relief.”
With uncertainty around so many aspects of business during the height of the pandemic, Ross noted that the addition of the NMTC subsidy created more financial stability, and often was the only thing that allowed projects to come to fruition.
North Florida Medical Centers, Inc. Expansion to Increase Capacity
Nestled in the quaint north Florida community dubbed one of the “Best Little Towns in Florida” by VISIT Florida, the city of Madison is home to one of North Florida Medical Centers, Inc.’s 10 locations. The only nonprofit community health center providing a full range of comprehensive medical, dental and enabling services within the 10-county service area within the Florida Panhandle and Big Bend, the Madison location saw approximately 1,800 patients in 2022.
The patient mix at the Madison location is 36 percent Medicaid, 33 percent Medicare, 21 percent commercial and 10 percent uninsured, so the ability to expand its capabilities is important to this community.
“Regions is excited to be part of the team investing in North Florida Medical Centers, Inc.’s development of a new 11,400-square foot facility that will provide medical, dental and behavioral health services, increasing their capacity to serve Madison County and surrounding areas,” said Ross.
North Florida Medical Centers, Inc. is leveraging federal grants, internal resources and new markets tax credit investments to finance the construction of the new facility.
“We are fortunate to collaborate with Regions with our Madison Medical Construction,” said Lane Lunn, CEO of North Florida Medical Centers, Inc. “By utilizing Regions New Markets Tax Credit investments, NFMC will be equipped to serve more patients with quality medical care. The larger new facility will enable us to serve more patients with a variety of services.”
By utilizing Regions New Markets Tax Credit investments, NFMC will be equipped to serve more patients with quality medical care.
Lane Lunn, CEO of North Florida Medical Centers, Inc.
Cultivate Food Rescue’s New Indiana Facility Fights Food Insecurity
NMTC investments are helping create jobs and tackle food insecurity in South Bend, Indiana.
“Cultivate Food Rescue is an innovative nonprofit dedicated to preserving and distributing perishable food that would otherwise be bound for landfills to the most vulnerable citizens who face food insecurity,” noted Heidi Leonard, Regions Government and Institutional banker in Indiana. “The NMTC product is a great way for nonprofits to offset their overall interest cost with an equity investment and helps our bankers in these communities do more good.”
Regions is part of the financial team that helped Cultivate secure the capital to construct a new 21,000-square foot facility that can store and supply up to 20 million pounds of food a year and serve 16 million meals a year.
“A $10+ million capital campaign is ambitious,” said Jim Conklin, executive director at Cultivate Foods. “As we observe the trends in food waste and hunger in our three-county area, however, we are confident in our plans. Diversifying sources of funds is integral in a campaign of this size. New Markets Tax Credits were an important part of this investment.”