let me call this hearing of the select revenue measures committee to order and i hope everybody will quickly take their seats i want to inform our witnesses as well as  interested today that it looks as though we're going to be called to the floor in short order for what will be a very long day as currently suggested up to twenty six votes so we want to if we can with the cooperation of the witnesses and the members that  are here within the confines of that statement to move things along let me welcome to the committee our colleagues who are joining us for this joint hearing today between select revenue measures subcommittee and domestic policy subcommittee members of the financial services committee my friend mr watt and mr paul you are hearing today is an examination of the new markets tax credit program of which both mr de berry and i are supporters we have seen firsthand the differences that this program can make in our districts and home states and as we will hear today eighty eight percent of the investors in this program say they would not even if not have invested in a low income community without the credit the risk of investing in a distressed community is often too high for many investors as a former mayor i know how difficult it can be to pull together financing from every corner imaginable in order to get new investment in a neighborhood that perhaps some have given up on and sometimes that new investment is simply to get a new grocery store a restaurant or a retailer to locate in the heart of the blighted neighborhood pope john paul said the community needs a soul of it is to become a true home for human beings i have seen many of these neighborhoods missing their souls investments in jobs businesses and people can really turn these communities around and i have witnessed that as well i believe the new markets tax credit is an efficient way to target investment into the neediest communities around the country of course we also need to ensure community organizations many which are smaller or minority owned have a fair shot at competing for these tax credits and today we will hear from a number of experts on the subject who will share their experiences and recommendations for improvement let me at this time recognize mr barry for his opening statement mr chairman now we are under severe time shortages so i will just ask that my opening statement be submitted for the record and thank you for this hearing and your leadership in your back thank you i'd like to call on mr watt for an opening statement thank you mr chairman and i'd be tempted to do the same thing but i'm kind of the culprit here who started this  being a part of this hearing today the purpose of today's hearing is to examine a recent g a o report entitled new markets tax credit minority entities are less successful in obtaining awards than non minority and the request for the g a o report originated actually in a hearing in the financial services oversight and investigation subcommittee that i chaired in the last term of congress on preserving and expanding minority banks during that hearing we learned that minority owned banks were having difficulty obtaining new markets tax credit credits and whether any barriers exist to minority owned firms competing fairly to obtain such allocations what we suspected back in the last term of congress has now been history of the program and so we're trying to get to an assessment of why that is the case i'm certainly not here as a critic of the new markets tax credit program to the contrary i recognize them point to the contributions these credits have had on fostering economic development in traditionally under served areas throughout the nation several of them which i won't describe in my own congressional district in fact so i know firsthand the importance of them but out theoretical assumption i think when this program was undertak was that minority banking institutions being based in minority communities under served communities would be the logical recipients least thought of these tax credits  and the g a o has gone into describing some of the reasons why problems are encountered i won't go into those either and in the interest of time but  want to emphasize the third finding that i made and that that was that even after controlling for the factors that could be influencing th e assets proposed project characteristics minority status was still associated with a lower probability of receiving an allocation and is the only factor that markets tax credit program i've been a consistent proponent of tax credits in a wide variety of areas tax credits have a successful track record as with the new markets tax credit which helps to revitalize low income areas in both rural and urban that minority and of these are discriminated against are disturbing but the solution is not to establish quotas that favor some community development entities over others instead given the popularity of this program perhaps the size and or scope of the program should be expanded for me there is no such thing as too many tax credits  thank you very much mr paul let me now introduce our witnesses first i want to welcome donna gambrell the director of the community development financial institution fund the agency that operates the new markets tax credit program for the treasury department i also want to welcome back to the committee michael brust the director of tax issues on the strategic issues team and who is always here to offer constructive comments as well and our second panel we will hear from ron phillips the president of coastal enterprises  castle maine let me also welcome londell penick the president of carver community development and the senior vice president of car carver federal savings bank in new york city we also want to welcome from baltimore maryland mr joseph o of the ohio community development finance fund in columbus ohio we are very fortunate to have a panel of experts from around the country to share their experiences with the new markets program we look forward to their testimony today  to thank you for your participation and without objection any other members wishing to insert statements as part of the record may do so all written statements written by the witnesses will be inserted into the record as well let me recognize director campbell for her opening statement before you do that could i make a constructive what i hope will be a constructive suggestion that may be one possibility so if we did just get handed this notice that we're going to have twenty six recorded votes on the floor committee on ways and means i'm delighted to be here today to testify at this hearing on the u s government accountability office is recent report that addresses the success rates of minority entities in the new markets tax credit program and director of the u department of the treasury of community development financial institutions fund or c d s i fund i want to assure congress that since i became director almost two years ago i have been committed to expanding participation in all of our programs first i'd like to thank chairman ill and ranking member teaberry for recently introducing h r twenty six twenty eight the new markets tax credit extension act of not two thousand and nine that would extend the new markets tax credit program through two thousand thirteen and allows new markets tax credit investments to be used as an offset against alternative minimum tax liabilities forewards made in two thousand and nine last month and just one hundred days after the president signed into law the recovery act i had the privilege of joining treasury secretary tim geithner chairman frank congressman come copy on zero and governor deval patrick in roxbury massachusetts to announce that thirty two organizations had been selected to receive one point five billion dollars in new markets tax credit allocation authority that was made available under the recovery act the event was held at the new headquarters of project hope a multi service agency that provides low income women with children access to education jobs housing and emergency services the building is located in a predominately african american community and was financed with a four point eight million dollar investment ma possible through the new markets tax credit program the new community center will significantly increase the number of local residents of project hope concert this is a great example of the type of story and community of impact that is often undetected among the st and data program evaluation but are the most important aspect of what we're trying to accomplish with programs like the new markets tax credit program since two thousand and two the year of our first new markets tax credit program around the  allocated twenty one billion dollars in tax credit authority to community development into these four c d s since september of two thousand and eight and the stars have invested close to two billion dollars into c d s demonstrating the resiliency of program and even the most difficult of economic times these investments have financed a variety of projects including charter schools health care facilities performing arts center manufacturing companies alternative energy companies business incubator grocery anchored shopping centers substance abuse treatment still the facilities and facilities for the homeless the new markets tax credit program is highly competitive in any given application around only about one in four applicants a selected to receive an award and requests for tax credit authority have been between six and nine times greater than what's available to award the city of iceland agrees with the g a o conclusion that within this highly competitive application environment organizations that have identified themselves as minority own c d s have not received allocation awards in proportion to their representation in the application pool  not believe that this lower rate of success for minority c e o s or for that matter the success rate of any category of c e is attributable to biases in the application review or selection process despite the  chalo that are faced by minority cities in the application process the c d f i phone believes that the new markets tax credit program has been extremely successful in bringing benefits to communities with large minority populations since the track for new markets tax credit investments have been made have minority populations totaling forty seven percent almost double the overall national average of twenty six percent furthermore over forty five percent of the dollars invested under the new markets tax credit program have been invested in communities where the majority of the population is comprised of minorities new markets tax credit projects are benefiting minority communities all over the country even in our own backyard here in washington d c new markets tax credit investments have been used to finance charter schools with populations that are one hundred percent minority minority owned businesses a community and cultural center in a neighborhood where ninety three percent of the residents are african american and in that same neighborhood a shopping center anchored by a giant supermarket the first grocery store located in that community and over a decade notwithstanding the great successes we've seen benefiting minority communities we do need to work together to increase continue to vigorously pursue outreach and training opportunities that will ensure minority own institutions are aware of the benefits of the new markets tax credit program and are given every opportunity to apply for allocation around solicitation of public comments next month the c d f five fund will be soliciting comments pertaining to the new markets tax credit application procedures and will request comments on how it can expand the participation of minority owned and controlled and three continued dialogue with congress the c d f pipeline has always been responsive to instructions from congress regarding the new markets tax credit program priorities cd a python very much look forward to continued dialogue with congress on these matters in closing i hope that through these initiatives the new outreach efforts the c d f life on will be better able to reach a greater audience of potential awards and also encourage greater collaboration with organized organizations and federal agencies that serve minority populations the new markets tax credit program has been a tremendous success and low income and minority communities throughout the country and i'm confident that it will continue to be so in the today to discuss our work done at your request on minority community development entities participation in new markets tax credit during the period we reviewed allocation rounds from two thousand and five to two thousand and eight minority c were successful with about nine percent of their applications and received about four percent of the allocation dollars they applied for non minority c d s were at least three times as successful with their applications and in obtaining allocation  each new markets tax credit application is scored by three external reviewers based on business strategy community impact management capacity and kappos ation strategy each of these sections include several subcategories minority c d s generally received lower application scores overall and in each of the four applications sections overall minority cd scored about eleven points lower than n minority c d s on applications on average from two thousand and five to two thousand and eight minority c d e application scores did not meet the minimum threshold for advancing past the application round in order to be eligible for allocations after applications are scored those meet the threshold passed on to be considered by c d s five thousand staff for award of credit allocation c d f ice staff generally award allocation amounts in the order of the c e o s final ranking scores when recommending allocation amounts staff are to consider the amount of equity investment the c d e can expect to raise within two years the amount of investment in low income communities that can be deployed within three years the quality of the financial products being offered and the projected impact on low income communities or low income persons some c d s that exceed the allocation threshold do not receive allocations because the amount of allocation authority is insufficient to fund everyone minority c d e f receipt of only four percent of the allocation dollars they applied for is a function vols of the number of minority c d s that failed to make the application threshold that those exceeding the threshold tended to have lower scores than other applicants and thus tended not to be funded based on interviews we had with minority and e representatives we identified characteristics like c e size that are likely to affect applicants success to test whether minority c e o s relative lack of success in applying for and receiving credit allocations was due to their minority status or these other characteristics we perform statistical analyses to control for those characteristics other than minority status that might be affecting outcomes we found that when controlling for characteristics like asset sized proposed project characteristics and c t e type minority status still was associated with a lower probability of success our analysis does not show why minority c t status is associated with lower probability of receiving allocations or whether any actions taken or not taken by treasury or the c f i find contributed to the statistical relationship factors we could not control for or measure such as applicants loan loss reserves and operating costs may affect c d e success we previously had found that minority owned banks many of which are minority c d s have higher loan loss reserves in operating cost the non minority owned banks and this might contribute to their lack of success some believe that minority c e o s are better position to serve the communities in which they are located than others would be if so minority c d s may have advantages that are not being fully utilized in the new markets program the legislative history of the credit does not indicate whether congress intended for minority c d s to participate at any particular level in the program g a o is not making any recommendations for action however if congress intends for minority c d e applicants to succeed at a greater rate than what we have found it may want to consider legislative changes if the program is extended for future years such changes could include requiring that a certain portion of the overall amount of allocation authority be designated for minority c d s exploring the potential for creating a pool of new market tax credit allocation authority to be debt dedicated specifically for community banks to compete for offering priority points to my already c d s in the application process and requiring treasury in the  us if we could have an opportunity to hear from them as well member washington d c based group that advocated for the passage of the new markets tax credit program in the late one nine hundred ninety s and i have the honor of having been right at this program so i'm very glad to be here and express our point of view since the passage of the legislation in two thousand our coalition has advocated successfully to extend this program in the initial seven years and increase the amount of credits that could be raised as a result of our abacus even in the stimulus bill we got additional five billion dollars so we've got a lot of capital to access out there i'm very excited about it i'm here today to respond to the on the lack of an already owned and controlled part to participate in the program i want to say right off that this report is being taken very seriously by our coalition we discussed it earlier this week at our annual policy conference here and at our board meeting many of our members and board members are also representatives of minority communities so we are in good company to sort through how to increase participation what's more i want to point out very excited about getting to the heart of the matter reaching out to various minority  is this credit program which we sincerely love to be made permanent by the way has such tremendous potential to redirect capital to worthy investments in this country that the more partitions participate in it the better half of these funds are already invested in projects mainly as i said in maine and rural new england western massachusetts and upstate new york we have invested in community facilities such as an historic paper mill and timber land of  forest management in the millinocket region a gulf of maine research facility supporting the four hundred year old fishing industry the river valley market in north hampton massachusetts and up and running new facility supplying residents with naturally and locally grown foods for some of some fifty farmers and health care clinics such as the plymouth community health center in new hampshire connected to a moral hospital these funds are creating and sustaining some seven thousand eight hundred jobs over two million acres sustainably managed forest land and spring private capital ratio three dollars for every one dollar of allocation investment in low income communities story is however only the tip of the iceberg of stories from our field abound all across the u s and both were all in urban areas as our recent report fifty projects fifty states and i hope we can get you a copy of that notes they could be charter schools in los angeles educating young kids in minorities lead standards community service center construction on vac goals and the best of private capital and investment to help make the dreams of millions of people on the margins of our society come true because of the flexibility the new markets program that we can achieve these multiple objectives the program has been successful beyond anyone's expectations in attracting investment capital to address distressed communities including many minority communities each year of the program so far the competitive process has required those winning allegations to agree to target their investments to area of higher distress than minimally required by the program statute now coming to a close here i want to contribute my main points here to this session this morning  seven percent so i want to note that the benefit of this program has been flowing much more largely to one already we could presume would meet on the other hand that does not make up the difference in terms of how one should the emphasis once you bring to support the minority owned and controlled so that is still a challenge ahead of the credit has made a significant contribution to improving many communities across the country and that succession not be confused with the at attributes of the c d s that compete for and awarded credits a second point i want to make is that according to our analysis from the coalition there actually markets coalition is that congress establish a technical assistance program a capacity building program aimed at helping minorities better prepare themselves participate in the new markets program we believe that the best way to build a more diverse set of new markets  is to provide assistance to organizations to build the capacity of those that have not been successful in applying for the credits rather than through any sort of set aside or priorities for any particular class of c d e or business sector and the second recommendation we want to make is r two sixty eight be supported in terms of the extension that is very critically important going forward to ensure that the tax credit becomes in the future a permanent credit and also attached to the tax credit is the  thank you good morning chairman watt chairman neal now the distinguished committee members my name is blond alpenstock and i'm the president of carver community development corporation a minority for profit community development entity also serve as a senior vice president for corporate federal savings bank the largest minority owned thrift in the united states headquartered in central harlem and a fifteen condition congressional district with nine branches throughout new york city never see right chairman and c e o extends her regards carver is very supportive of the c d f i find and the new market tax credit program and in my communities need our investment we are delighted to participate in the program and carver has been successful carvers experience in applying for new market tax credits coincide with the findings of the april two thousand and nine g a o report cover c d e applied consecutively for new markets tax credit from two thousand five through two thousand and eight we have been successful however in receiving two allocations from the c d f five fund around four alex haitian in two thousand and six for fifty nine million and the most recent recovery act allocation in two thousand and nine for sixty five million are fifty nine million allocation has allowed carver c d e to invest in ten projects within low income and distressed communities throughout new york city and to develop partnerships in economic projects with more flexible terms that the bank would otherwise not be able to offer for example one of our new markets tax credit loans was to finance the renovation of the first state of the art privately owned freestanding health care facility in central harlem known as city care the loan also her preserve one of harlem's architectural landmarks the jazz immobile building carver provided six million and below market financing for a project that serviced over twenty thousand patients in the last  year and is located in a census track the had over an one thousand percent unemployment rate and where nearly fifty percent of the residents live below the poverty line another project financed through our new markets tax credit allocation was a five point three million dollars below market rate pre development loan to abyssinian development corporation a strong committed community development corp in harlem the was used for the renovation and redevelopment of their legendary renaissance ballroom the building had been vacant boarded up in a community the work for over thirty years abyssinian with the aid of carvers newmark a tax credit loan will be able to bring this historic building back into service offering community cultural space and up to one hundred fifty units of affordable for sale housing the project will create hundreds of construction and permanent jobs providing economic viability and much needed services for a highly distressed area through our new markets tax credits we've been able to partner with a large money centered bank who has invested one thousand million in our allocation to finance a six storey commercial an office the syllabi known as harlem gateway given cards asset size of eight hundred million and our loan limit of ten million carver would never have been able to put an one thousand million dollar loan on our balance sheet but with our partners at j p morgan chase we helped in providing the financing for a project that created as many as one hundred construction jobs and over ninety permanent jobs in addition to providing vital community and retail services in an l n my senses tracked current agrees with the recommendations outlined in the g a o report for positioning minority c d s to maximize new market tax credit however we would also suggest one giving preference to our targeting institutions who either headquartered or have significant facility in distressed communities or who serve these communities in an operating or program basis and other words c d s five and c d s that are on the frontline of ellen my communities every single day as report recommends providing more meaningful technical assistance in the preparation and completion of the application specifically in the areas of data collection and impact analysis required for the c d f i find three provide treatment to major financial institutions that partner with favorable treatment that partner with minority c d s and or community banks to assist with application readiness and encourage me truly beneficial collaboration minority c d e f like carver are well suited to identify and finance new markets tax credit projects that enhance haskins the bells that you heard i mean that we have about fifteen minutes probably closer to thirteen minutes but we'll try it from there thank you mr ask and thank you chairman i will try to speak quickly corporation which is a bank holding company in maryland that currently oversees a three hundred million dollars commercial bank although the scope of the g a o is very broad i have decided to focus my attention almost exclusively as it relates to harbor bank and harbor bank shares corp however i do have a couple recommendations that i important and vital tool for stimulating economic growth and development especially as it relates to the minority or low income communities the four points that i would like to make are as follows first that harbor bank has a long and distinguished record of success servicing low income people and communities when we look back at the past five years the period of this analysis we find that we have deployed over a hundred forty million in loans to the communities that focus on which is the low income community the specific programs job training programs and educational housing programs when we look at we were significant the other part of this is that we initiated the building this very quick before i get started i'd like to introduce a member of my staff marie cunningham brown she's also my mother she worked for thirty years on capitol hill in her last posting she was an assistant to congressman claude pepper if i say anything intelligent you have he to thank if i say anything stupid and i will you can blame me now one of the things i want to point out is that the misallocation of economic resources kills people not two days ago a homeless woman not one point one four miles away from where we sit today was waiting for shelter at a homeless shelter close to washington close to here and she died basically because the economic resources weren't available to to help her out these are the kinds of people that the new market tax credit program was designed to assist in our two thousand and eight application we created a financial instrument designed to help address the problem of homelessness that application was not funded so that's part of the problem that we have with the with the program we just think that again the misallocation of economic resources based on racial prejudice is wrong it kills people markets for arms and economy and we pointed this out actually gave a speech in one thousand nine hundred four in san francisco california where i called for the creation of new market type vehicles to get venture capital into under served communities so we take great pride and credit in four new market tax credit application in particular because we partnered with the city of minneapolis to apply for one hundred twenty million dollars a new market tax credit we had a letter of commitment from piper jaffrey letter of commitment and a partnership with a city and we were not funded so obviously from our perspective there is a problem with the program in our last application we partnered with an african american individual with a net worth of one hundred fifty million dollars who basically supported our application to create a fifty million dollars pool of new market tax credits that we were going to allocate to minority owned banks in the review of our application  reviewer said we're not sure that minority owned banks either what or can use new market tax credit they turned around and then they gave two minority owned banks in the market such with when we applied to do exactly the same thing a year earl again from our perspective there is a problem with what we suggest you do is we suggest you look at the transaction records for new market catch credit allocation when i say the transaction record what i mean is we suggest you look at the commissions paid to invest in banks consultants lawyers and account basically you want to outline we want to put some sun sunlight on this allocation process and determine who is benefiting upfront from these highly distressed communities highly distressed communities have specific kinds of characteristics they have limited assets they have limited capacity to do these kinds of complex deals that go through many public programs  get through the vote and i think it would be more productive to just submit our questions in writing to the panel lest it be probably more productive for them and  so i move that we follow the rules i mean they would have to answer written questions anyway that we do all of the question and by written questions let me thank the panelists and apologize for the floor schedule today this was not to be the case as of yesterday but i do want to let you know that there will be some follow up questions and if there are no further comments then the hearing