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56–743 2010

JOINT HEARING ON CERTAIN ASPECTS OF THE 

NEW MARKETS TAX CREDIT (NMTC) PROGRAM 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JUNE 18, 2009 

Serial Nos. 111–25, 111–47 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK B. MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

DANNY K. DAVIS, Illinois 

BOB ETHERIDGE, North Carolina 

LINDA T. SA ́ NCHEZ, California 

BRIAN HIGGINS, New York 

JOHN A. YARMUTH, Kentucky 

DAVE CAMP, Michigan 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

GINNY BROWN–WAITE, Florida 

GEOFF DAVIS, Kentucky 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

DEAN HELLER, Nevada 

PETER J. ROSKAM, Illinois 

JANICE MAYS, Chief Counsel and Staff Director 

JON TRAUB, Minority Staff Director 

COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON SELECT REVENUE 

RICHARD E. NEAL, MASSACHUSETTS, Chairman 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

ALLYSON Y. SCHWARTZ, Pennsylvania 

EARL BLUMENAUER, Oregon 

JOSEPH CROWLEY, New York 

KENDRICK B. MEEK, Florida 

BRIAN HIGGINS, New York 

JOHN A. YARMUTH, Kentucky 

PATRICK J. TIBERI, Ohio, Ranking Member 

JOHN LINDER, Georgia 

DEAN HELLER, Nevada 

PETER J. ROSKAM, Illinois 

GEOFF DAVIS, Kentucky 


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COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN McCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. McHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTMAN, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

Jeanne M. Roslanowick, Chief Counsel and Staff Director 

Larry Lavender, Minority Staff Director 

COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON DOMESTIC MONETARY 

POLICY AND TECHNOLOGY 

MELVIN L. WATT, North Carolina, Chairman 

CAROLYN B. MALONEY, New York 

GREGORY W. MEEKS, New York 

WM. LACY CLAY, Missouri 

BRAD SHERMAN, California 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

JOHN ADLER, New Jersey 

SUZANNE KOSMAS, Florida 

RON PAUL, Texas, Ranking Member 

MICHAEL N. CASTLE, Delaware 

FRANK D. LUCAS, Oklahoma 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

BILL POSEY, Florida 

LEONARD LANCE, New Jersey 


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C O N T E N T S 

Page 

Advisory of June 11, 2009 announcing the hearing .............................................. 2 

WITNESSES 

Donna J. Gambrell, Director, Community Development Financial Institutions 

Fund, United States Department of the Treasury ............................................ 6 

Michael Brostek Director, Tax Issues, Strategic Issues Team, United States 

Government Accountability Office ...................................................................... 15 

Ron Phillips, President, Coastal Enterprises, Inc., President, New Markets 

Tax Credits Coalition, Wiscasset, Maine ........................................................... 33 

Blondel A. Pinnock, President, Carver Community Development Corporation, 

Senior Vice President, Carver Federal Savings Bank, New York, New York . 45 

Joseph Haskins, Jr., Chairman, President and Chief Executive Office, Harbor 

Bank of Maryland, Baltimore, Maryland ........................................................... 50 

William Michael Cunningham, Social Investing Advisor, Creative Investment 

Research, Inc. ....................................................................................................... 57 

James R. Klein, Chief Executive Officer, Ohio Community Development Finance Fund, Columbus, Ohio .............................................................................. 72 


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JOINT HEARING ON CERTAIN ASPECTS OF 

THE NEW MARKETS TAX CREDITS (NMTC) 

PROGRAM 

Thursday, June 18, 2009 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON SELECT REVENUE MEASURES, JOINT WITH THE

SUBCOMMITTEE ON DOMESTIC MONETARY POLICY AND

TECHNOLOGY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittees met, pursuant to notice, at 10:00 a.m. in 

Room 1100, Longworth House Office Building; Hon. Richard E. 

Neal, [chairman of the subcommittee on Select Revenue Measures] 

presiding. 

[The Advisory of the hearing follows:] 


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HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Neal Announces Joint Hearing on the 

New Markets Tax Credit Program 

June 11, 2009 

By (202) 225–5522 

House Ways and Means Select Revenue Measures Subcommittee Chairman Richard E. Neal (D–MA) announced today that the Subcommittee on Select Revenue 

Measures will hold a joint hearing with the Subcommittee on Domestic Monetary 

Policy and Technology of the Financial Services Committee on issues involving the 

New Markets Tax Credit program. The hearing will take place on Thursday, 

June 18, 2009, in the main Committee hearing room, 1100 Longworth House 

Office Building, beginning at 10:00 a.m. 

Oral testimony at this hearing will be limited to invited witnesses. However, any 

individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed 

record of the hearing. 

FOCUS OF THE HEARING: 

The hearing will focus on issues relating to the New Markets Tax Credit (NMTC) 

program and a recent GAO report showing that minority-owned or controlled entities are less successful than non-minority owned or controlled entities in the NMTC 

application process. 

BACKGROUND: 

The NMTC program was enacted as part of the Community Renewal Tax Relief 

Act of 2000 (Pub. L. 106–554) to encourage investment in low-income communities 

that traditionally lacked access to capital. The program awards tax credits to organizations, named Community Development Entities (CDEs), that provide capital to 

low-income communities, including loans and investments. Investors who make an 

equity investment in a CDE may claim a tax credit equal to a percentage of their 

investment. CDEs must invest substantially all of that equity investment into qualifying low-income communities. Through 2009, the program has awarded $21 billion 

of the $26 billion authorized in credits. 

The Community Development Financial Institutions (CDFI) Fund, which administers the NMTC program within the Treasury Department, relies on application 

scores to determine which CDEs should receive an award and how much to award 

each allocatee. This application process focuses on four major categories: business 

strategy, community impact, management capacity, and capitalization strategy. The 

GAO found that multiple factors, including the CDEs’ asset size, can influence the 

success rate for NMTC applicants. However, the GAO found that when controlling 

for CDEs’ asset size, minority status was still associated with a lower probability 

of receiving an allocation. 

In announcing the hearing, Chairman Neal stated, ‘‘As we continue to move 

this economy forward, the New Markets Tax Credit program is an invaluable tool to help encourage investments in the communities that need them 

most. Fairness in the application process is vital to its success. I look forward to hearing the recommendations from the CDFI Director and experienced applicants as to how we might implement any changes to improve 

the process.’’ 


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DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Committee Hearings.’’ Select the hearing for 

which you would like to submit, and click on the link entitled, ‘‘Click here to provide 

a submission for the record.’’ Once you have followed the online instructions, complete all informational forms and click ‘‘submit’’ on the final page. ATTACH your 

submission as a Word or WordPerfect document, in compliance with the formatting 

requirements listed below, by close of business Thursday, July 2, 2009. Finally, 

please note that due to the change in House mail policy, the U.S. Capitol Police will 

refuse sealed-package deliveries to all House Office Buildings. For questions, or if 

you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

f 

Chairman NEAL. 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 the interested attendees 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 26 votes. So, if we can, with the cooperation of the witnesses and the members that are here try 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 the Select Revenue Measures Subcommittee and the Domestic Policy Subcommittee of the 


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Financial Services Committee, especially my friends Mr. Watt and 

Mr. Paul. Our hearing today is an examination of the New Markets 

Tax Credit program of which both Mr. Tiberi and I are supporters. 

We have seen first-hand the differences that this program can 

make in our districts and home states; and, as we will hear today, 

88 percent of the investors in this program say they would 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 had 

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 a blighted neighborhood. Pope John Paul said, ‘‘The community 

needs a soul if 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 that 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. Tiberi for his opening statement. 

Mr. TIBERI. Mr. Chairman, I know we are under some severe 

time shortages, so I would just ask that my opening statement be 

submitted for the record. And, thank you for this hearing and your 

leadership, and yield back. 

[The information follows:] 

Chairman NEAL. Thank you. I’d like to call on Mr. Watt for an 

opening statement. 

Mr. WATT. Thank you, Mr. Chairman, and I would be tempted 

to do the same thing, but I am kind of the culprit here who started 

this process. So I wanted to kind of frame what we’re here about. 

Let me first thank Chairman Neal and Chairman Rangel and the 

Ranking Member, both Ranking Members, for being a part of this 

hearing today. 

The purpose of today’s hearing is to examine a recent GAO report entitled, ‘‘New Markets Tax Credit: Minority Entities Are Less 

Successful On Obtaining Awards Than Non-minority Entities.’’ The 

request for the GAO 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 Credits and as a result Chairman Rangel, Chairman Neal, Chairman Barney Frank of 

the Financial Services Committee and I requested the GAO to investigate which firms have been receiving New Markets Tax Credits and whether any barriers exist to minority-owned firms competing fairly to obtain such allocations. 


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What we suspected back in the last term of Congress has now 

been confirmed by the GAO report. The title of the report says it 

all: ‘‘Minority Firms Are Less Successful In Obtaining Awards 

Under the New Markets Tax Credit Program.’’ This has major significance, because the CDFI Fund award roughly $5 billion in New 

Markets Tax Credits annually, but only a handful of minority 

owned firms have received allocations in the eight-year history of 

the program. And so we’re trying to get to an assessment of why 

that is the case. 

I am certainly not here as a critic of the New Markets Tax Credit 

program. To the contrary I recognize the important contributions 

these credits have had on fostering economic develop in traditionally underserved areas throughout the nation. There are several of 

them which I won’t describe in my own congressional district, in 

fact, so I know firsthand the importance of them. But our theoretical assumption, I think, when this program was undertaken 

was that minority banking institutions being based in minority 

communities’ underserved communities would be the logical recipients of at least part of these tax credits and the GAO has gone into 

describing some of the reasons why problems are encountered. 

I won’t go into those either in the interest of time, but I do want 

to emphasize the third finding that the GAO made and that that 

was that even after controlling for the factors that could be influencing this asset size, proposed project characteristics, minority 

status was still associated with a lower probability of receiving an 

allocation and is the only factor that rated a ‘‘significant negative,’’ 

and this simply shouldn’t be the case. 

So we are here today to try to get to the bottom of what’s happening with this and I appreciate again the Chairman convening 

the hearing. And I hope we get a chance to pursue it without 26 

votes on the floor. 

[The prepared statement of Mr. Watt follows:] 

[The prepared statement not available] 

Chairman NEAL. Thank you, Mr. Watt. 

Mr. Paul? 

Mr. PAUL. Thank you, Mr. Chairman. 

I thank you for calling this hearing on the topic of the New Markets Tax Credit program. I have 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 communities. 

Allegations that minority entities 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, Mr. Chairman. 

Chairman NEAL. 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 Institutions 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 Brostek, the director of 


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tax issues on the strategic issues team at GAO who was always 

here to offer constructive comments as well. And, our second panel, 

we will hear from Ron Phillips, the president of Coastal Enterprises from Wiscasset, Maine. 

Let me also welcome Blondel Pinnock, the President of Carver 

Community Development, and the Senior Vice President of Carver 

Federal Savings Bank in New York City. We also want to welcome 

from Baltimore, Maryland, Mr. Joseph Haskins, who serves as 

Chairman, President and CEO of Harbor Bank; and, we welcome 

William Michael Cunningham, a social investing advisor at Creative Investment Research here in Washington. 

And, finally, we welcome before the committee today, James 

Klein, the CEO 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. 

I want to thank you for 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 Gambrell 

for her opening statement. 

Chairman WATT. Mr. Chairman, before you do that could I 

make what I hope will be a constructive suggestion that maybe one 

possibility, since we did just get handed this notice that we’re going 

to have 26 recorded votes on the floor, that we might just take all 

of the witnesses’ testimony, try to get those in, and then do the 

questioning all as one group as opposed to, you know, at least we 

could try to get the testimony in; and, if necessary, then may be 

we could submit our questions to them in writing subsequent to the 

hearing. 

Chairman NEAL. I think that’s a very good idea. Are there any 

objections? 

[No response.] 

Chairman NEAL. Hearing none, I think that we’ll accept a suggestion that’s been offered by Mr. Watt. 

STATEMENT OF DONNA J. GAMBRELL, DIRECTOR, COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND, 

UNITED STATES DEPARTMENT OF THE TREASURY 

Ms. GAMBRELL. Thank you. Good morning Chairman Watt, 

Chairman Neal, Ranking Member Paul and distinguished members 

of the committee on Financial Services and the Committee on Ways 

and Means. 

I am delighted to be here today to testify at this hearing on the 

U.S. Government Accountabilities Office’s recent report that addresses the success rates of minority entities in the New Markets 

Tax Credit Program. As Director of the U.S. Department of the 

Treasury’s Community Development and Financial Institutions 

Fund or CDFI 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 Neal and Ranking Member 

Tiberi for recently introducing H.R. 2628, the New Markets Tax 

Credit Extension Act of 2009 that would extend the New Markets 


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Tax Credit Program through 2003 and allow New Markets Tax 

Credit Investments to be used as an offset against alternative minimum tax liabilities for awards made in 2009. 

Last month, and just 100 days after the President signed into 

law the recovery act I had the privilege of joining Treasury Secretary Tim Geithner, Chairman Frank, Congressman Capuano and 

Governor Deval Patrick in Roxbury, Massachusetts, to announce 

that 32 organizations had been selected to receive $1.5 billion 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 predominantly African-American community and was financed with a $4.8 million investment made possible through the New Markets Tax Credit program. The new community center will significantly increase the number of local residents that Project Hope can serve. This is a great example of the 

type of story and community impact that is often undetected among 

the statistics and data program evaluations, but are the most important aspect of what we are trying to accomplish with programs 

like the New Markets Tax Credit Program. 

Since 2002, the year of our first New Markets Tax Credit Pro- gram round, the CDFI Fund has allocated $21 billion in tax credit 

authority to community development entities or CDEs. Since September of 2008, investors have invested close to $2 billion into 

CDEs, demonstrating the resiliency of the program and even the 

most difficult of economic times. These investments have financed 

a variety of products including charter schools, healthcare facilities, 

performing arts centers, manufacturing companies, alternative energy companies, business incubators, grocery anchored shopping 

centers, substance abuse treatment facilities and facilities for the 

homeless. 

The New Markets Tax Credit Program is highly competitive, and 

any given application ran, only about one in four applicants is 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 CDFI Fund agrees with the GAO’s conclusion 

that within this highly competitive application environment organizations that have identified themselves as minority-owned CDEs 

have not received allocation awards in proportion to their representation in the application pool. 

The CDFI Fund does not believe that this lower rate of success 

for minority CDEs, or for that matter, the success rate of any category of CDE is attributable to biases in the application review or 

selection process. Despite the challenges that are faced by minority 

CDEs in the application process, the CDFI Fund believes that the 

New Markets Tax Credit Program has been extremely successful at 

bringing benefits to communities with large minority populations. 

Since the tracks for New Markets Tax Credit Investments have 

been made minority populations totaling 47 percent almost doubled 

the overall national average of 26 percent. 

Furthermore, over 45 percent of the dollars invested under the 

New Markets Tax Credit Program have been invested in commuVerDate Nov 24 2008 13:13 Jul 29, 2010 Jkt 056743 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\56743.XXX JEFF PsN: 56743

bjneal on DSKFP91QD1PROD with HEARING
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nities 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 back yard. Here in 

Washington, D.C., New Markets Tax Credit Investments have been 

used to finance charter schools with populations that are 100 percent minority. Minority-owned businesses, a community and cultural center in a neighborhood where 93 percent of the residents 

are African-American; and, in that same neighborhood, a shopping 

center anchored by a Giant Super Markets, the first grocery store 

located in that community in over a decade. 

Notwithstanding the great successes we’ve seen benefiting minority communities, we do need to work together to increase participation by minority-owned CDEs in the New Markets Tax Credit Program. To this end the CDFI fund will focus on the following initiatives: one, continued outreach to minority-owned CDEs. The CDFI 

Fund will continue to vigorously pursue outreach and training opportunities that will ensure minority-owned institutions are aware 

of the benefits of the New Markets Tax Credit Program; and, are 

given every opportunity to apply for allocation rounds. 

Two, solicitation of public comments: next month the CDFI 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 

CDEs. And, three, continued dialogue with Congress: the CDFI 

Fund has always been responsive to instructions from Congress regarding the New Markets Tax Credit Program priorities. The CDFI 

Fund very much looks forward to a continued dialogue with Congress on these matters. 

In closing, I hope that through these initiatives, specifically, the 

new outreach efforts, the CDFI Fund will be better able to reach 

a greater audience of potential awardees and also encourage greater collaboration with 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 am confident that it will continue to be so in the future. 

Thank you for inviting me here today and I look forward to answering your questions. 

[The prepared statement of Ms. Gambrell follows:] 

Chairman NEAL. Thank you. 

Testimony By Donna J. Gambrell Director, Community Development 

Financial Institutions Fund, United States Department of the Treasury 

Good morning, Chairman Watt, Chairman Neal, and distinguished Members of 

the Committee on Financial Services, and the Committee on Ways and Means. I am 

delighted to be here today to testify at this hearing on the U.S. Government Accountability Office’s (GAO) recent report that addresses the success rates of minority entities in the New Markets Tax Credit (NMTC) Program. 

My name is Donna J. Gambrell and I am the Director of the U.S. Department 

of the Treasury’s Community Development Financial Institutions (CDFI) Fund. I 

want to assure Congress that since I became Director of the CDFI Fund almost two 

years ago, I have been committed to expanding participation in all of our programs. 

First, I would like to thank Chairman Neal and Ranking Member Tiberi for recently introducing H.R. 2628, ‘‘The New Markets Tax Credit Extension Act of 2009’’ 

that would extend the NMTC Program through 2013, and allow NMTC investments 

to be used as an offset against Alternative Minimum Tax liabilities for awards made 

in 2009. 


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Last month, and just 100 days after the President signed into law the American 

Recovery and Reinvestment Act (Recovery Act), I had the privilege of joining Treasury Secretary Tim Geithner, Chairman Frank, Congressman Capuano, and Governor Deval Patrick in Roxbury, Massachusetts to announce that 32 organizations 

had been selected to receive $1.5 billion in NMTC allocation authority that was 

made available under the Recovery Act. Three of these 32 awardees are minorityowned or controlled entities, bringing to seven the total number of minority-owned 

or controlled entities that received awards under the 2008 allocation round. These 

seven awardees received NMTC awards totaling $489 million. 

The event was held at the headquarters of Project Hope, a multi-service agency 

that provides low-income women with children access to education, jobs, housing, 

and emergency services. This new building was financed with a $4.8 million investment made possible through the NMTC Program. 

Joining the Secretary for this announcement event allowed me to witness firsthand how the NMTC Program has enabled Project Hope to enrich its community 

and improve the lives of the local residents. Their new Community Building is a 

‘‘green’’ building, the first one in Roxbury, and will enable Project Hope to provide 

services to a number of additional women and families. 

At the announcement event, I also had the opportunity to visit with Shaniqua 

Choice, a young woman who will soon graduate from the Match School, a public 

charter school that prepares inner-city Boston students for higher education, including many who have no family history of college attendance. Ninety-six percent of 

the students at the Match Charter School are minorities. The Match School received 

a NMTC investment which it used, in part, to set up a tutoring program with 45 

recent college graduates who were hired to live in dormitories at the high school 

and tutor the students. 

Shaniqua lives in Dorchester in a single-parent home with a mother who, while 

she was growing up, only had a GED. She would get up at 4:30 am every day, traveling an hour and half on the train to make it to school on time. She entered Match 

High School as a freshman in September 2005 performing at a 5th grade math level. 

Now, four years later, she will soon become the first in her family to go to college, 

attending Massachusetts College of Liberal Arts in North Adams in the fall. 

Shaniqua says the tutoring program is essential to the Match School’s success and 

to her success. 

These are the stories and community impacts that are often undetected among 

the statistics and data of program evaluations but are the most important aspect 

of what we are trying to accomplish with programs like the New Markets Tax Credit Program. 

The CDFI Fund 

In 1994, Congress enacted the Riegle Community Development and Regulatory 

Improvement Act (P.L. 103–325) to create the CDFI Fund. Congress found that 

many of the Nation’s distressed urban, rural, and Native American communities 

faced critical social and economic problems arising in part from the lack of economic 

growth, people living in poverty, and the lack of employment and other opportunities. The CDFI Fund’s mission is to expand the capacity of financial institutions to 

provide credit, capital, and financial services to underserved populations and economically distressed communities across the United States. 

The CDFI Fund achieves its mission through five distinct competitive programs: 

• CDFI Program: Provides Financial Assistance awards to institutions that are 

certified as CDFIs, which in turn provide loans, investments, financial services (including financial education) and technical assistance to underserved populations and 

low-income communities; the CDFI Fund also provides Technical Assistance grants 

to certified CDFIs and entities that will become certified as CDFIs within three 

years. 

• Native Initiatives: Provides Financial Assistance awards, Technical Assistance 

grants, and training to Native CDFIs and other Native entities proposing to become 

or create Native CDFIs. 

• Bank Enterprise Award Program: Provides monetary awards to FDIC-insured 

banks to increase their investment in low-income communities and/or in CDFIs. 

• New Markets Tax Credit Program: Provides tax allocation authority to certified 

CDEs, enabling investors to claim tax credits against their Federal income taxes; 

the CDEs, in turn, use the capital raised to make investments in low-income communities. 

• Capital Magnet Fund: Authorized under the Housing and Economic Recovery 

Act of 2008 but not yet funded, the Capital Magnet Fund will provide a source of 


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1The original legislation that authorized the program allowed for $15 billion in tax credit authority for the NMTC program through 2007. Pub. L. No. 106–554, App. G, § 121, 114 Stat. 

2763A–587, 608 (‘‘There is a new markets tax credit limitation for each calendar year. Such limitation is—(A) $1,000,000,000 for 2001, (B) $1,500,000,000 for 2002 and 2003, (C) $2,000,000,000 

for 2004 and 2005, and (D) $3,500,000,000 for 2006 and 2007.’’). However, the Gulf Opportunity 

Zone Act of 2005 authorized an additional $1 billion of NMTC equity for qualified areas affected 

by Hurricane Katrina over a period of 3 years: $300 million in 2005, $300 million in 2006, and 

$400 million in 2007. Pub. L. No. 109–135, § 101, 119 Stat. 2577, 2592. The Tax Relief and 

Health Care Act of 2006 and the Emergency Economic Stabilization Act of 2008 extended the 

amount of NMTC authority available by $3.5 billion for 2008 and 2009, respectively. Pub. L. 

No. 109–432, § 102, 120 Stat. 2922, 2934 (2006); Pub. L. No. 110–343, div. A, § 302, 122 Stat. 

3765, 3866 (2008). The American Recovery and Reinvestment Act of 2009 provided an additional 

$3 billion of NMTC allocation authority to be split equally between the 2008 (retroactively) and 

2009 allocation rounds. Pub. L. No. 111–5, div. A, § 1403(a). 

funding for CDFIs and other non-profits to finance the development, rehabilitation 

and purchase of affordable housing for low-income persons. The Administration has 

requested $80 million for this new initiative in FY 2010. 

Among the beneficiaries of the CDFI Fund’s programs are low-income people and/ 

or economically distressed communities, which include, among others, populations 

that otherwise lack adequate access to capital and financial services. Since its creation in 1994, the CDFI Fund has made more than $949.3 million in awards to 

CDFIs, community development organizations and financial institutions through the 

CDFI Program, the Bank Enterprise Award Program, and the Native American Initiatives CDFI Assistance Program. Since 2002, the year of our first New Markets 

Tax Credit Program round, the CDFI Fund has allocated $21 billion in tax credit 

authority to CDEs, including the $1.5 billion that was awarded in May of 2009 

under the Recovery Act authority. 

New Markets Tax Credit Program Overview 

The NMTC Program was initially authorized through the Community Renewal 

Tax Relief Act of 2000.1 This unique tax credit program facilitates investment in 

low-income communities by permitting taxpayers to receive a credit against Federal 

income taxes for making Qualified Equity Investments (QEIs) in designated Community Development Entities (CDEs). Substantially all of these QEI dollars must 

in turn be used by the CDE to provide investments in businesses and real estate 

developments in low-income communities. 

The credit provided to the investor totals 39 percent of the amount of the investment and is claimed over a seven-year credit allowance period. In each of the first 

three years, the investor receives a credit equal to five percent of the total amount 

paid for the stock or capital interest at the time of purchase. For the final four 

years, the value of the credit is six percent annually. Investors may not redeem 

their investments in CDEs prior to the conclusion of the seven-year period. 

A CDE is a domestic corporation or partnership that serves as an intermediary 

vehicle for the provision of loans, investments, or financial counseling to low-income 

communities. To qualify as a CDE, an entity must: 1) have a mission of serving, 

or providing investment capital for, low-income communities or low-income persons; 

2) maintain accountability to residents of low-income communities through their 

representation on a governing board of or an advisory board to the entity; and 3) 

be certified by the CDFI Fund as a CDE. Applicants may submit CDE certification 

applications throughout the year and are approved by the CDFI Fund on a rolling 

basis. 

The CDFI Fund is responsible for administering the competitive allocation of tax 

credit authority to CDEs, which it does through annual allocation rounds. To date, 

the CDFI Fund has made 386 NMTC allocation awards totaling $21 billion, through 

six different allocation rounds. The CDFI Fund will award an additional $5 billion 

of allocation authority, including $1.5 billion of allocation authority that was made 

available under the Recovery Act, under the 2009 allocation round. The CDFI Fund 

anticipates making these award announcements in October of 2009. 

To date, investors have invested $13.7 billion into CDEs, or over 70 percent of the 

NMTC allocation authority that was awarded to CDEs through 2008. In fact, since 

September of 2008, investors have invested close to $2 billion into CDEs, demonstrating the resiliency of this program in even the most difficult of economic 

times. 

Through FY 2007, the most recent year for which the CDFI Fund has complete 

data, CDEs invested $8.96 billion of NMTC proceeds into 1,981 businesses and real 

estate projects in low-income communities, supporting over $30 billion in total 

project costs. These investments have financed a wide variety of projects, including 

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panies, alternative energy companies, business incubators, grocery-anchored shopping centers, substance abuse treatment facilities, and facilities for the homeless. 

NMTC awardees reported that, through 2007, their investments have helped to develop or rehabilitate 63 million square feet of real estate, create 240,000 temporary 

construction jobs, and create or maintain 45,000 jobs at businesses in low-income 

communities. 

Success of the New Markets Tax Credit Program 

One of the greatest innovations of the NMTC Program is that it combines the features of a competitive grant program with the advantages of private sector investment and decision-making. Most Federal tax credits are simply claimed by taxpayers rather than competitively allocated, and most community development programs of comparable size to the NMTC Program are administered through formulafunding mechanisms. Through competition under the NMTC Program, the CDFI 

Fund selects only the most qualified CDEs, and requires them to meet higher standards and achieve greater results than would otherwise be minimally required under 

Internal Revenue Service program rules. 

For example, while all awardees are required to invest substantially all (generally 

85 percent) of the qualified equity investments they receive in low-income communities, most applicants commit to making investments in areas characterized by ‘‘severe’’ economic distress—and are held to these commitments as part of their award 

agreements with the CDFI Fund. As a result, over 75 percent of NMTC transactions 

financed through 2007 were located in census tracts with a poverty rate of at least 

30 percent, a median family income at or below 60 percent of the applicable area 

median family income, and/or an unemployment rate at least 1.5 times the national 

average. 

Similarly, IRS regulations do not specify that CDEs must offer beneficial rates 

and terms to the borrowers and investees in low-income communities. However, as 

part of the application materials, CDEs generally commit to providing flexible and 

non-traditional product offerings, and are held to these commitments as part of 

their award agreements with the CDFI Fund. Through 2007, over 98 percent of the 

transactions offered preferential rates and terms to the borrowers. The most common features are below market interest rates (83 percent of transactions), lower 

origination fees (59 percent of transactions), and longer than standard periods of interest-only payments (54 percent of transactions). 

CDEs are also committing to increasing their investments in low-income communities. NMTC Program regulations generally require that at least 85 percent of QEI 

proceeds be invested in qualified, low-income community investments. However, as 

part of the application materials, CDEs generally commit to investing significantly 

more of these funds into low-income communities. In fact, all 32 awardees recently 

selected to receive $1.5 billion in Recovery Act awards indicated that they would invest at least 94 percent of their NMTC proceeds into low-income communities, and 

24 of the 32 awardees indicated that at least 97 percent of their QEI dollars would 

be invested into low-income communities. 

These and other program successes were highlighted in a 2007 evaluation of the 

NMTC Program conducted by the GAO. As part of this evaluation, officials from the 

GAO met several times with officials from the IRS and the CDFI Fund. GAO officials collected documents on program status and efforts to monitor NMTC compliance; analyzed transactional data reported by CDEs to the CDFI Fund; analyzed tax 

return data reported by NMTC investors to the IRS; surveyed investors in the 

NTMC program; and compared NMTC investors with a stratified random sample of 

investors that did not make NMTC investments. This extensive research led to several findings pointing to the effectiveness of the NTMC Program, including: 

• An estimated 88 percent of investors said that they would not have made the 

same investment without the NMTC. 

• Of these investors who would not have made the same investment without the 

NMTC, 75 percent of investors also indicated that in the absence of the NMTC, they 

would not have made a similar investment in the same community. 

• Sixty-nine percent (69 percent) of the investors making investments in CDEs 

in 2006 had not previously made investments in those entities. 

• An estimated 64 percent of NMTC investors reported that they increased the 

share of their investment budget for low-income communities because of the credit. 

• Communities receiving NMTC investments tend to be more highly distressed 

than minimally required under program rules. 

These findings, among others, led the GAO to ultimately conclude that ‘‘the results of our survey and statistical analysis are consistent with the NMTC program 


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increasing investment in eligible low-income communities by the investors who participate in the program and with investment coming primarily from funds shifted 

from other uses.’’ 

NMTC Application Review Process 

The successes that we’ve seen to date under the NMTC Program are a result of 

the high demand for credits, coupled with a rigorous application process. In any 

given application round, only about one in four applicants is selected to receive an 

award, and requests for tax credit authority have been between six and nine times 

greater than what is available to award. 

Table 1 

Allocation History since Program Inception (Dollars in Billions) 

Applications Awards 

Round Number Amount Requested Number Amount 

1 (2001/2) 345 $25.8 66 $2.5 

2 (2003/4) 265 $29.6 63 $3.5 

3 (2005) 203 $22.5 41 $2.0 

4 (2006) 239 $27.2 63 $4.1 

5 (2007) 252 $27.4 61 $3.9 

6 (2008) 239 $21.3 102 $5.0 

All Rounds 1,543 $153.8 396 $21.0 

As part of the selection process, all CDEs are required to prepare and submit a 

uniform application form, which includes four key sections (Business Strategy; Community Impact; Management Capacity; Capitalization Strategy). During the first 

phase of the review process, each application is rated and scored independently by 

three different Readers, who are typically external to the CDFI Fund. Readers are 

selected on the basis of their knowledge of community and economic development 

finance and experience in business or real estate finance, business counseling, secondary market transactions, or financing of community-based organizations. 

In order to maintain the integrity of the review process, all potential readers are 

screened for any potential or real conflicts of interest. They are brought to Washington, DC for a two-day orientation and training session. The Readers then work 

remotely, submitting on-line review forms, which include detailed notes and instructions pertaining to how the application must be scored. Each application write-up 

is reviewed by a CDFI Fund staff person to ensure that the reviewer has: (1) provided clear and substantive comments; (2) adhered to the scoring guidelines; and (3) 

provided scores that are consistent with their ratings. 

In scoring each application, reviewers rate each of the four evaluation sections as 

follows: Weak (0–5 points); Limited (6–10 points); Average (11–15 points); Good (16– 

20 points); and Excellent (21–25 points). Applications can be awarded up to ten additional ‘‘priority’’ points for demonstrating a track record of serving disadvantaged 

businesses and communities and/or for committing to make investments in projects 

owned by unrelated parties. Readers are not permitted to discuss their application 

ratings or scores with one another. If one or more of the three Readers provides an 

anomalous score, and it is determined that such an anomaly would affect the outcome of the final awardee pool, then a fourth reviewer will score the application, 

and the anomalous score would likely be dropped. 

Once all of the scores have been finalized, including anomaly score adjustments, 

those applications that meet minimum aggregate scoring thresholds in each of the 

four major review sections (as well as a minimum overall scoring threshold) are eligible to be considered for an allocation. They are reviewed by an internal CDFI 

Fund panel, with the Panel Manager making an award recommendation to the Selecting Official (generally the NMTC Program Manager). If the Selecting Official’s 

award recommendation amount varies significantly from the recommendation of the 

Panel Manager, then the Reviewing Official (generally the Deputy Director for PoliVerDate Nov 24 2008 13:13 Jul 29, 2010 Jkt 056743 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\56743.XXX JEFF PsN: 56743

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cies and Programs) makes the final award determination. Awards are made, in descending order of the final rank score, until the available allocation authority for 

a given round is fully expended. 

In any given allocation round, there are many CDEs that meet the minimum requisite scoring thresholds, but which do not receive an award because the CDFI Fund 

runs out of allocation authority. Each applicant that is not selected to receive an 

NMTC allocation award is provided with a written debriefing document. This document provides to the applicant the strengths and weaknesses that were identified 

by the application reviewers. The debriefing documents are very useful tools for applicants wishing to reapply in future rounds. 

Application Success Rates of Minority-Owned CDEs 

The CDFI Fund agrees with the GAO’s conclusions that, within this highly competitive application environment, organizations that have identified themselves as 

minority-owned CDEs have not received allocation awards in proportion to their 

representation in the application pool. The CDFI Fund does not believe that this 

lower rate of success for minority CDEs, or for that matter the success rate of any 

other category of CDE, is attributable to biases in the application review or selection 

process. Rather, the CDFI Fund believes that it is the relative capacity of each applicant, reviewed under its own merits without regard to its ownership structure, 

which determines the award outcomes. As the GAO noted in its evaluation: 

‘‘The analysis does not exclude the possibility the minority status is associated 

with other characteristics of the CDE, such as management capacity for which we 

do not have independent data, which account for the lower probability. In that case, 

it would not be minority status per se that lowers the probability of success but its 

association with other factors not included in the analysis.’’ (page 38). 

Without discounting the importance of GAO’s findings, it is also worth noting that 

the GAO relied on information self-reported by the applicants at the time of application submission, which may have resulted in an undercounting of awardees that are 

minority-owned CDEs. 

Each applicant CDE is required to ‘‘check a box’’ indicating whether it, or its parent company, is minority-owned or controlled. This check-box appears alongside several other check-boxes that address the ownership structure/purpose of the CDE. It 

is quite likely that, in any given application round, a number of organizations that 

would otherwise qualify as minority-owned CDEs fail to check the box. This failure 

may result from simply overlooking the check-box, or it may occur because an organization did not thoroughly review the definition of a minority-owned entity that is 

provided in the glossary that accompanies the application. 

It could be the case that many non-profit organizations which have significant minority executive control fall within the CDFI Fund’s definition of a minority-owned 

entity, but perhaps have not been checking the box. It does not appear as though 

the GAO attempted to adjust for this potential under-reporting by reaching out to 

a sample of non-minority CDEs to determine whether they may have failed to identify themselves as minority CDEs. This type of analysis would have probably had 

an impact on their findings, and perhaps led them to determine that a larger number of minority-owned or controlled CDEs have received allocation awards than were 

initially self-identified. 

Again, this observation is being raised simply to add a little more context to the 

GAO’s findings. It should not be construed in any way as a criticism of GAO’s analysis, which we believe was thorough and accurate with respect to information that 

was self-reported by the CDEs. 

Investments in Minority Communities 

Despite the application challenges that are faced by minority-owned CDEs, the 

CDFI Fund believes that the NMTC Program has been extremely successful at 

bringing benefits to communities with large minority populations. As noted in the 

GAO report, a 2008 study that was jointly sponsored by the CDFI Fund and the 

Federal Reserve Board of San Francisco found that census tracts that receive NMTC 

investments have, on average, non-white populations totaling 47 percent—compared 

with an average of 26 percent for all census tracts nationwide. Further analysis by 

the CDFI Fund has revealed that, through 2007, over $4.1 billion (or over 45 percent of the $8.96 billion invested by CDEs through 2007) was invested in census 

tracts where non-white populations exceeded 50 percent of the total population. In 

2007, the most recent year for which the CDFI Fund has transaction-level data, 

over 51 percent of the dollars invested by CDEs were invested in census tracts with 

majority non-white populations. 

My point here is that many non-minority CDEs are extremely successful at working with minority communities. One such example is Stonehenge Community DevelVerDate Nov 24 2008 13:13 Jul 29, 2010 Jkt 056743 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\56743.XXX JEFF PsN: 56743

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opment LLC, which has received three NMTC awards totaling $287.5 million. 

Stonehenge has formed strategic alliances with groups such as the National Urban 

League, the National Association of Black Hotel Owners, and the National Minority 

Development Council to target minority-owned businesses and other high-impact 

projects in minority communities. Stonehenge has used its NMTC allocation to finance an African-American owned car dealership in Lake Charles, Louisiana that 

suffered severe damage in the wake of Hurricane Rita; a social service center in San 

Antonio Texas; a health center in Kansas City Missouri; and an African-American 

led social service agency in New Jersey. All of these projects serve severely distressed communities with majority minority populations. 

One project that really interested me, due to its historical significance, is the 

International Civil Rights Center and Museum in downtown Greensboro, North 

Carolina, which is in Congressman Watt’s district. Stonehenge helped finance this 

$23 million dollar project, which included the conversion of the 1929 Woolworth 

store that was the site of the historic 1960 sit-in that helped launch the national 

civil rights movement. Stonehenge’s role in the construction of this museum is significant, as there was a shortfall between what was raised through fundraising and 

the actual cost of the project. NMTCs were identified as the only source of funding 

that could keep the project on schedule while retaining the confidence of the investors and other supporters. 

Stonehenge is of course just one of many CDEs that have significantly contributed 

to the economic wellbeing of distressed minority communities. The Massachusetts 

Housing Investment Corporation, a certified CDFI that has received four awards totaling $435 million, made a NMTC investment in the Holyoke Health Center in 

Chicopee, Massachusetts, in Congressman Neal’s district. Holyoke Health Center 

serves over 16,000 patients annually, the majority of whom are Hispanic. More than 

80 percent of the health center’s patients live at or below the Federal Poverty Level 

and all of the health center’s patients live below 200 percent of the Federal Poverty 

Level. The NMTC financing helped the lender to finance the health center at below 

market rates, saving the borrower $88,000 in interest expense annually. This savings allows the health center to devote more of its cash flow to direct care of its 

patients. 

Rockland Trust CDE, a community bank headquartered in Rockland, Massachusetts, has received two NMTC awards totaling $75 million, and has made several 

investments benefiting minority populations in Congressman Frank’s district. Most 

notable amongst these were a loan to support a minority-owned beauty supply business headquartered in Brockton, Massachusetts; a loan to support a minority-owned 

medical practice in Taunton, Massachusetts; and a real estate loan that supports 

a Latino health clinic in Brockton, Massachusetts. 

In Columbus, Ohio, ESIC New Markets Partners, partnered with the Columbus 

Housing Partnership to construct and rehabilitate up to 700 affordable housing 

units. The entire project used $9.5 million in NMTCs and has leveraged $19 million 

in project related costs. The homes are targeted for households earning less than 

80 percent of the area median income and are located in communities throughout 

Columbus. 

I point out these specific projects not only for the Members of this Committee, but 

to demonstrate that NMTC projects and high-impact community benefits are occurring all over the country, even in our own backyards. For example, here in Washington, DC, NMTC investments have been used to finance charter schools with populations that are 100 percent minority; minority-owned businesses; a community 

and cultural center in a neighborhood where 93 percent of the residents are AfricanAmerican; and, in that same neighborhood, a shopping center anchored by a Giant 

supermarket. 

The construction of this grocery store is notable because for almost ten years, residents of this neighborhood had been without a supermarket. Those who did not 

have cars would either have to carpool to the closest supermarket with friends, find 

a bus, or rely on the neighborhood convenience stores for food. This project has had 

several positive community impacts, including the addition of 375 construction and 

175 permanent jobs. Finally, the new supermarket is one of Washington, DC’s largest Giants, providing residents with ready access to affordable fresh food. 

Next Steps 

I would now like to turn to the ways we can work together to increase participation by minority-owned CDEs in the NMTC Program. The CDFI Fund is committed 

to ensuring that the pool of CDE awardees represents a diversity of institutional 

types, and that minority CDEs are assured fair access to these scarce resources. To 

this end, the CDFI Fund will focus on the following initiatives: 


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1. Continued outreach to minority-owned CDEs. The CDFI Fund has been 

actively seeking to promote participation by minority-owned CDEs since the program’s inception. Most notably, we have conducted multiple outreach sessions with 

the National Banker’s Association (NBA), a trade association of minority-owned financial institutions, and with the Federal Deposit Insurance Corporation’s Minority 

Depository Institution Program, and participated at the Native American Finance 

Officers Association conference. 

Upon release of the 2009 NMTC application materials, we reached out to the 

NBA, the Minority Business Roundtable, and the National Black Chamber of Commerce and offered to set up conference calls with their members. Just last month, 

the CDFI Fund presented information about the NMTC Program at a national conference sponsored by the Department of Commerce’s Minority Business Development Agency. The CDFI Fund intends to continue to vigorously pursue these outreach and training opportunities, to ensure that minority institutions are aware of 

the benefits of the NMTC Program, and are given every opportunity to apply for 

allocation awards. 

2. Solicitation of public comments. Another component that is connected to 

our outreach efforts is incorporating public feedback into our work. Later this summer, the CDFI Fund will be soliciting comments pertaining to the NMTC allocation 

application and related implementation matters. As part of this solicitation of public 

comments, the CDFI Fund will ask for comments specifically pertaining to how it 

can expand the participation of minority-owned and controlled CDEs in the NMTC 

allocation process. 

3. Continued dialogue with Congress. The CDFI Fund has always been responsive to instructions from Congress regarding the NMTC program priorities. The 

authorizing statute indicated that a preference was to be given to organizations with 

a track record of working in disadvantaged communities, and a preference as well 

to organizations that would invest in ‘‘unrelated entities’’—entities that they would 

not control through ownership. Congress later instructed the CDFI Fund to ensure 

that a proportionate amount of investments are made in rural communities. In response to direction from Congress on these three issues, the CDFI Fund included 

specific protocols within its application process to ensure that Congressional intent 

was being satisfied. The CDFI Fund very much looks forward to continued dialogue 

with Congress to improve the effectiveness of the NMTC Program. 

Conclusion 

The CDFI Fund is committed to giving support to communities and financial institutions. We have a wide variety of programs that reach America’s most underserved and underinvested communities. Our mission is not only to ensure that we 

serve these communities, but that we also maintain the integrity and competitiveness of these programs. I hope that through our current and new outreach efforts 

we will be better able to reach a greater audience of potential awardees and also 

encourage greater collaboration with organizations and federal agencies that serve 

minority populations. The NMTC Program has been a tremendous success in lowincome and minority communities throughout the country, and I am confident that 

it will continue to be so in the future. 

Never before in the history of the CDFI Fund have we been in such a strong position to be able to support and serve minority communities. Thank you for inviting 

me here today. 

f 

Mr. BROSTEK, will you proceed? 

STATEMENT OF MICHAEL BROSTEK, DIRECTOR, TAX ISSUES, 

STRATEGIC ISSUES TEAM, UNITED STATES GOVERNMENT 

ACCOUNTABILITY OFFICE 

Mr. BROSTEK. Mr. Chairman, Ranking Members and other 

Subcommittee Members. Thank you for inviting me today to discuss our work done at your request on minority community development entities’ participation in the New Markets Tax Credit. 

During the period we reviewed, allocation rounds from 2005 to 

2008, Minority CDEs were successful with about nine percent of 

their applications and received about four percent of the allocation 

dollars they applied for. Non-minority CDEs were at least three 


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times as successful with their applications and in obtaining allocation dollars. 

Each New Markets Tax Credit application is scored by three external reviewers based on business strategy, community impact, 

management capacity and capitalization strategy. Each of these 

sections includes several subcategories. Minority CDEs generally 

receive lower application scores overall and in each of the four application sections. Overall, minority CDEs scored about 11 points 

lower than non-minority CDEs on applications. 

On average from 2005 to 2008, minority CDE 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 that meet the threshold pass on to be considered by CDFI Fund staff for award of credit allocations. CDFI’s 

staff generally award allocation amounts in the order of CDEs’ 

final ranking scores. When recommending allocation amounts, staff 

are to consider the amount of equity investment the CDE 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 CDEs that exceed the allocation threshold do not receive 

allocations because the amount of allocation authority is insufficient to fund everyone. Minority CDEs’ receipt of only four percent 

of the allocation dollars they applied for is a function both of the 

number of minority CDEs that failed to make the application 

threshold and 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 non-minority 

CDE representatives, we identified characteristics like CDE size 

that are likely to affect applicant’s success. To test whether minority CDEs’ relative lack of success in applying for and receiving 

credit applications was due to their minority status or these other 

characteristics, we performed statistical analysis to control for 

those characteristics other than minority status that might be affecting outcomes. 

We found that when controlling characteristics like asset size, 

proposed project characteristics and CDE type, minority status still 

was associated with a lower probability of success. Our analysis 

does not show why minority CDE status is associated with lower 

probability of receiving allocations or whether any actions taken or 

not taken by Treasury or the CDFI Fund contributed to this statistical relationship. 

Factors we could not control for or measure, such as applicant’s 

loan loss reserves and operating costs, may affect CDEs’ success. 

We previously had found minority owned banks, many of which are 

minority CDEs, have higher loan loss reserves and operating costs 

than non-minority-owned banks, and this might contribute to their 

lack of success. Some believe that minority CDEs are better positioned to serve the communities in which they are located than 

other CDEs would be. If so, minority CDEs may have advantages 

that are not being fully utilized in the New Markets Program. 


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The legislative history of the credit does not indicate whether 

Congress intended for minority CDEs to participate at any particular level in the program. GAO is not making any recommendations for action. However, if Congress intends for minority CDE 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 CDEs, exploring the potential for creating 

a pool of New Markets Tax Credit allocation authority to be dedicated specifically for community banks to compete for it, offering 

priority points to minority CDEs in the application process and requiring Treasury and the CDFI Fund to explore options to provide 

technical assistance and training to minority CDE applicants. This 

concludes my statement. 

I’d be happy to answer questions. 

[The prepared statement of Mr. Brostek follows:] 


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f 

Chairman NEAL. Thank you very much, Mr. Brostek. 

What we would like to do now is to have the other witnesses join 

us, if we could, and have an opportunity to hear from them as well. 

The Chair will recognize Mr. Phillips for his testimony. 


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STATEMENT OF RON PHILLIPS, PRESIDENT, COASTAL ENTERPRISES, INC.; PRESIDENT, NEW MARKETS TAX CREDIT COALITION 

Mr. PHILLIPS. Thank you, Representative Neal, Representative 

Tiberi, Representative Watt and members of the subcommittee on 

Select Revenue Measures. 

My name is Ron Phillips. I am the current chair of the New Markets Tax Credit Coalition, 150-member, Washington, D.C. based 

group that advocated for the passage of the New Markets Tax 

Credit Program in the late 1990s and I have the honor of having 

been right at the get-go of this program. So I’m very glad to be here 

and express our point of view. 

Since our passage of the legislation in 2000, 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 advocacy, even in the stimulus bill, we got an additional $5 billion. So we’ve got a lot of capital to access out there 

and very excited about it. 

I am here today to respond to the GAO report on the lack of an 

already-owned and controlled participation 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 in D.C. 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 right off that we’re very excited 

about getting to the heart of the matter, reaching out through various minority trade groups, including the National Banker’s Association, Latino Organizations, Native American Groups such as 

Oweesta and others. Even the American Banking Association, 

which attended our conference, is looking for ways to engage their 

members. So we are in a good spot here. The reason 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, but that the more participation in it 

the better. 

Now, I am also President of Coastal Enterprises. It’s a 501(c)(3) 

non-profit organization based in Wiscasset, Maine; and, our primary Markets is Maine and rural communities, but we also work 

throughout New England and other parts of the United States. We 

have had five rounds of allocation valued at $481 million, and have 

to-date invested half those funds in primarily rural New England. 

Half of these funds are already invested in 30 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 timberland of Katahdin Forest 

management in the Millinocket region, a Gulf of Maine research facility supporting the 400-year-old fishing industry, the River Valley 

Markets in Northhampton, Massachusetts, an up and running new 

facility supplying area residents with naturally and locally grown 

foods of some 50 farmers and healthcare clinics such as the Plymouth Community Health Center, New Hampshire, connected to the 

Speare Memorial Hospital. These funds are creating and sustaining 


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some 7,800 jobs, over two million acres of sustainably managed 

forestland and spurring private capital, a ratio of $3 for every $1 

of allocation investment in low-income communities. 

CDFI’s story is, however, only the tip of the iceberg, as stories 

from our field abound all across the U.S. in both rural and urban 

areas. As our recent report, ‘‘50 Projects, 50 States,’’ and I hope we 

can get you a copy of that, notes they could be charter schools in 

Los Angeles, educating young kids and minorities, a LEEDs standards community service center constructed on vacant ground fill in 

Chicago, an ethanol plant in Minnesota owned by a group of farmers. The list is of exciting and inspiring projects is endless. 

And even the story more convincing as one gets into the power 

of the New Markets Tax Credit to bringing together the best of 

community social 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 is because of the flexibility of 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 distressed communities including 

many minority communities. Each year of the program so far the 

competitive processes require those winning allocations to agree to 

target their investments to area of higher distress than minimally 

required by the Program’s statute. 

Now, coming to a close here I wanted to contribute my main 

points here to this session this morning. One item in the GAO report that was of great concern to us and we should emphasize is 

that according to the CDFI Fund data the census tracks that have 

received New Market investments have on average non-white populations of 47 percent. So I want to note that the benefit of this 

program has been flowing much more largely to minorities we 

could presume than would meet the eye. On the other hand, that 

does not make up the difference in terms of the emphasis one 

should bring to supporting minority-owned and controlled CDEs. So 

that is still a challenge ahead. 

The credit has made a significant contribution to improving 

many communities across the country, and that success should not 

be confused with the attributes of the CDEs that compete for and 

are awarded credits. A second point I want to make is that according to our analysis from the coalition, there are actually 17 CDEs 

that have achieved an allocation of over $1 billion, far more than 

what the GAO report said. So we have made some progress in that 

regard. 

In conclusion what I want to offer are two recommendations. The 

central recommendation of the New Markets Coalition is that Congress establish a technical assistance program and capacity building program aimed at helping minority CDEs better prepare themselves participate in the New Markets Tax Credit Program. We believe that the best way to build a more diverse set of new markets 

allocatees 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 CDE or business sector. And the second recommendation we want to make is that H.R. 2628 be supported in 

terms of the extension that is critically important going forward to 


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ensure that the tax credit becomes in the future a permanent credit. And, also, attached to the tax credit is the AMT relief, which 

will allow us to open up more investment, and particularly among 

independent and community banks at the regional level, a sorely 

needed new capital flow for this program. 

Thank you very much. And I’m sorry I went over my time. 

[The prepared statement of Mr. Phillips follows:] 


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f 

Chairman NEAL. Thank you, Mr. Phillips. 

Ms. Pinnock. 


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STATEMENT OF BLONDEL A. PINNOCK, PRESIDENT, CARVER 

COMMUNITY DEVELOPMENT CORPORATION, SENIOR VICE 

PRESIDENT, CARVER FEDERAL SAVINGS BANK 

Ms. PINNOCK. Thank you. 

Good morning Chairman Watt, Chairman Neal and other distinguished committee members. 

My name is Blondel Pinnock and I am the President of Carver 

Community Development Corporation, a minority, for-profit, community development entity. I also serve as the senior vice president 

for Carver Federal Savings Bank, the largest minority-owned thrift 

in the United States, headquartered in Central Harlem in the 15th 

Congressional District, with nine branches throughout New York 

City. Deborah C. Wright, Chairman and CEO, extends her regards. 

Carver is very supportive of the CDFI Fund and the New Markets Tax Credit Program. LMI communities need our investment. 

We are delighted to participate in the program and Carver has 

been successful. Carver’s experience in applying for New Markets 

Tax Credits coincide with the findings of the April 2009 GAO report. Carver’s CDE applied consecutively for New Markets Tax 

Credits from 2005 through 2008. 

We have been successful, however, in receiving two allocations from the CDFI Fund: round 4 allocation in 2006 for $59 million, 

and the most recent Recovery Act allocation in 2009 for $65 million. Our $59 million allocation has allowed Carver’s CDE to invest 

in 10 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, 

free-standing healthcare facility in Central Harlem known as 

Citicare. The loan also helped preserve one of Harlem’s architectural landmarks, the Jazzmobile Building. Carver provided six million in below-Markets financing for a project that serviced over 

20,000 patients in the last fiscal year and is located in a census 

track that had over a 19 percent unemployment rate, and where 

nearly 50 percent of the residents lived below the poverty line. 

Another project financed through our New Markets Tax Credit allocation was a $5.3 million below Markets-rate, pre-development 

loan to Abyssinian Development Corporation, a strong, committed 

community development corporation in Harlem. The loan was used 

for the renovation and redevelopment of their legendary Renaissance Ballroom. The building had been vacant, boarded up and a 

community eyesore for over 30 years. Abyssinian, with the aid of 

Carver’s New Markets Tax Credit loan will be able to bring this 

historic building back into service offering community, cultural 

space, and up to 150 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 19 million in our allocation to finance a six-story commercial and office 

facility, known as Harlem Gateway. Given Carver’s asset size of 


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800 million and a loan limit of 10 million, Carver would never have 

been able to put a $19 million 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 100 construction jobs and 

over 90 permanent jobs in addition to providing vital community 

and retail services in an LMI census track. 

Carver agrees with the recommendations outlined in the GAO report for positioning minority CDEs to maximize New Markets Tax 

Credits; however, we would also suggest one giving preference to 

or targeting institutions who are either headquartered or have significant facilities in distressed communities, or who served as communities in an operating or programmatic basis—in other words, 

CDFIs and CDEs that are on the front line of LMI communities 

every single day—as the report recommends, providing more meaningful technical assistance in the preparation and completion of the 

application, specifically in the area of data collection and impact 

analysis required for the CDFI funds. 

Three, provide treatment to major financial institutions with favorable treatment that partner with minority CDEs and/or community banks to assist with application readiness and encourage mutually beneficial collaboration. Minority CDEs like Carver are well 

suited to identify and finance New Markets Tax Credit projects 

that enhance and address local, underserved communities, and 

would otherwise fly under the radar of larger commercial banks 

and financial institutions. 

Thank you very much for allowing me the opportunity to testify 

and I would gladly answer any questions you may have. 

[The prepared statement of Ms. Pinnock follows:] 

Testimony By Blondel A. Pinnock 

President, Carver Community Development Corporation, 

Senior Vice President, Carver Federal Savings Bank, New York, New York 

Good Morning. My name is Blondel Pinnock, and I am President of Carver Community Development Corporation (‘‘Carver CDE’’) & a Senior Vice President of 

Carver Federal Savings Bank (‘‘Carver’’), a leading community development financial institution which recently celebrated its 60th anniversary. Deborah Wright, 

Chairman and Chief Executive Officer of Carver extends her regards. 

We are very appreciative and supportive of the CDFI Fund and the New Markets 

Tax Credit (NMTC) program. Low and moderate income communities need investment and we are very happy to participate in the NMTC program and have been 

successful. 

Carver is the only African-and-Caribbean American managed thrift in the state 

of New York and, with assets of $812 million, we are the largest in America. Nevertheless, Carver is a very small institution in the context of money-center financial 

institutions. 

Summary of GAO Report 

Carver’s experience with applying for New Markets Tax Credits coincides exactly 

with the 2005–2008 period studied and the Bank’s success rate is 33%. The success 

rate of all minority CDEs relative to all applicants was 9% according to the report. 

- Applied in 2005 for the first time—awarded $59 million in 2006 

- Applied in 2007 for the second time – no award received in 2007 

- Applied in 2008 for the third time – no award received in 2008 

- 2008 application reconsidered in 2009 based on ARR Act – awarded $65 million 

in 2009 

Our $59 million NMTC allocation in 2006 allowed Carver, through its CDE affiliate (Carver CDE) the ability to expand and offer financing products and services 

that the bank, as a regulated financial institution, might not be able to offer directly. The NMTC award enabled Carver CDE to invest with community and develVerDate Nov 24 2008 13:13 Jul 29, 2010 Jkt 056743 PO 00000 Frm 00050 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\56743.XXX JEFF PsN: 56743

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opment partners in economic projects with attractive terms including below market 

interest rates. These projects provide economic revitalization to the communities 

that Carver serves and attracts additional capital to these underserved communities. 

One of Carver CDE’s NMTC loans was used to consolidate, expand and upgrade 

an existing health care clinic and at the same time preserve one of Harlem’s architectural landmarks. Jazzmobile, a non-profit founded in 1964 as a pioneer organization committed to the preservation of Jazz musical genre, was housed in a historic 

building in Harlem. Jazzmobile was at risk of losing its historic headquarters building. Citicare, a health care provider that has been serving residents of New York 

since 1982, approached Jazzmobile about acquiring the property and converting it 

to a community health facility. With the help of Carver CDE’s NMTC financing, 

Citicare was able to purchase and preserve the historic structure and develop it as 

the first state of the art privately owned health facility in central Harlem. In addition, Citicare is allowing Jazzmobile to maintain occupancy of the building until 

they find a new and affordable home. 

Through this project, Carver Bank and the NMTC Program have helped provide 

quality affordable medical services to a historically underserved, low-income community. Citicare handled more than 20,000 patient visits last fiscal year in a census 

tract that has an unemployment rate of over 19% and in which nearly half (49%) 

of all residents live below the poverty line. 

The total cost of the Citicare renovation project was just under $8 million and 

Carver provided $6 million in the form of a NMTC loan. The debt was structured 

as interest only loan with a below-market interest rate of 5%. 

Citicare Before and After Photos 

Abyssinian Renaissance Ballroom—Before and After Photos 

Carver CDE also provided a $5.3 million pre-development loan to Abyssinian Development Corporation for the pre-development related to the renovation of the legendary Renaissance Ballroom in Harlem which has been boarded up and vacant for 

over 30 years. Carver’s NMTC loan will enable Abyssinian Development Corporation 

to bring the historic building back into service offering community and cultural 

space as well as up to 150 affordable condominium units. The project expects to create hundreds of construction and permanent jobs providing economic viability for a 

distressed area. 

Carver provided $19 million of its 2006 NMTC allocation to finance a loan to Harlem Gateway Ventures, a New York based real estate developer who is developing 

a six story commercial facility in Harlem that will provide quality retail for the community and office space for two providers of vital community services and a third 

floor showroom for a national furniture retailer. The office spaces, which are in 

short supply in Harlem, will be occupied by Independence Care Systems, a non-profit home care patient services provider and the Association for Help for Retarded 

Children, a non-profit that serves more than 10,000 individuals with mental retardation and other developmental disabilities and their families. Utilizing NMTC allowed Carver to offer the developer a rate concession and other benefits that made 

the project possible and created as many as 100 construction jobs and 90 permanent 

jobs. The project is located in a low-income census tract that will benefit greatly 

from the services and job creation. 

In addition, Carver has provided a $2 million loan to the Community Partnership 

Development Corporation to capitalize a revolving loan fund that provides no-interest pre-development loans and equity stakes to small minority-and-women owned 

housing builders and developers in New York City. The loans will promote the business growth of builders, including small, minority-owned contractors who need asVerDate Nov 24 2008 13:13 Jul 29, 2010 Jkt 056743 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\56743.XXX JEFF PsN: 56743

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sistance with equity contributions and predevelopment costs. It is expected that the 

loans will contribute to the development of more than 800 homes or 1,000 new affordable and workforce housing units in New York City neighborhoods. These 

projects are expected to leverage millions of dollars in public and private sector resources and also create hundreds of construction jobs. 

In just three years, Carver CDE has placed all of its initial $59 million NMTC 

allocation and financed 10 businesses, all of which are located in highly distressed 

census tracts within Carver’s service area. While the average deal size of all ten 

projects financed with our 2006 allocation was $6 million, the impact to the community has been measurable and lasting. Smaller deals in this size range are no less 

impactful to our neighborhoods by way of jobs, resources and services provided. 

According to the GAO report, officials from minority CDEs identified the 

following as challenges that CDEs may face in applying for NMTC allocations: 

- Lack sufficient pipeline to justify NMTC capital applied for 

- No track record for both investing in LMI communities and in large 

projects that would generate significant impacts 

- No capacity to complete high impact projects 

- Complexity of NTMC transactions translates to higher transaction costs 

which is favorable to larger CDEs (minority CDEs tend to be smaller in 

size) 

- High application costs (consulting fees, staff time, etc.) are a deterrent 

Carver CDE responds to these challenges in the following way: 

- High application costs: costs are much higher than estimated in report; from 

our experience and in speaking to fellow community banks, costs for outside consultants can run as high as $200,000. 

• We also would like to point out that whether outside consultants are engaged 

or not, there is a very significant cost of staff time; for minority CDEs which as the 

report notes, tend to be small in size completing an application often means significant disruption to the Lending or Loan Operations departments to compile the necessary data for an effective application. 

• The time commitment is largely related to gathering the historical data on existing loan portfolios as well as demographic information regarding the applicant’s 

assessment area. 

- Lack of sufficient pipeline: 

• Comments from reviewers of our 2008 NMTC application stated that ‘‘The applicant is lacking in detail regarding specifics of pipeline deals’’ I think this gets 

back to the issue of size and staff time. There is significant time involved in 

sourcing deals and beginning the due diligence process. For a small staff, this 

means that everyone is involved or as we say at Carver ‘‘all hands on deck’’. We 

believe that there is a clear advantage to larger CDEs with staff dedicated to completing the NMTC application. 

• Diversification of pipeline has also been an issue for Carver. We are limited 

to debt deals because that is our traditional track record; equity deals are preferred 

by many non-profit participants, however, they require a specific skill set and focus; 

further the financial risks are too great for a bank the size of Carver or smaller 

to absorb, we simply could not afford the loss of an equity investment. 

- No capacity to complete high impact projects: At $812 million in assets, 

Carver is the largest minority CDE and community bank in the country and our 

deal size as a percentage of assets is capped at $10 million. This speaks to the limitations of smaller community banks as deal size is proportional to impact as qualified by the CDFI, e.g. number of housing units, number of jobs, amount of community space, etc. These financial metrics do not always correlate to impact on a neighborhood by neighborhood bases whereas a new grocery store, charter school or development of a blighted vacant lot can have a meaningful and visible impact. 

The reported noted that multiple factors appear to be associated with a CDE receiving an allocation: 

- larger CDEs, as measured by asset size, appear to be more likely to receive NMTC awards while smaller CDEs are less likely to receive awards 

- We agree with this assessment whole heartedly and can attest to the fact that 

for a small/minority CDE to complete an application as stated earlier takes up every 

available resource with our without a consultant. Invariably a small team stretched 

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- after controlling for characteristics such as CDE type, asset size, and 

proposed projects, minority status is associated with a lower probability of 

receiving an allocation 

There is a direct correlation between size and minority status; minority CDEs are 

smaller in terms of asset size, number of employees, etc. As a result, their ability 

to access larger high impact projects is limited by many factors including equity capital, track record and the resources to develop a diversified pipeline. Their ability 

to access the capital markets and invest in their own CDEs is limited by their size 

and capitalization levels. However, this does not mean smaller deals have any less 

impact as stated earlier and can be noted from deals highlighted from our 2006 

NMTC allocation. 

Other key findings from the report: 

- according to industry association representatives, minority-owned 

banks have traditionally had a more difficult time accessing capital markets than their non-minority peers 

- Carver has had more success in accessing the capital markets given our publicly 

traded status. Yet raising more capital is always harder than it is for our larger 

competitors. 

- It was inconclusive whether it is the tendency of minority CDEs to be 

smaller that lowers their success rate or their minority status. 

- Again, minority CDEs are by nature smaller so it is not their minority status 

that lowers their success rate. This is obvious in our opinion given there are no 

large minority CDEs to use as a basis for comparison. Minority CDEs are smaller 

as measured by asset size than their counterparts. This means they are starting 

from behind in all the categories reviewed on the NMTC application both quantitative and qualitative. 

- legislative history for NMTC does not address whether Congress intended for minority CDEs to benefit directly from the NMTC program 

- Agree that the intention was for low-and-moderate individuals and communities 

to benefit directly from the NMTC program so one would presume that the institutions in these communities who know these communities best would certainly have 

been given greater tools to succeed. 

- However, if Congress intends for minority CDEs participation in the 

NMTC program to exceed the current levels and Congress believes that minority CDEs have unique characteristics that position them to target the 

NMTC to its most effective use, Congress may want to consider legislative 

changes to the program should the New Markets Tax Credit be extended 

beyond 2009. Potential changes that could be considered include, but 

would not be limited to the following: 

• similar to provisions for certain federal grant programs, requiring 

that a certain port of the overall amount of allocation authority be designated for minority CDEs 

• pool of NMTC capital dedicated specifically for community banks (minority banks in most cases) 

• offer priority points to minority CDES that apply for NMTC allocations 

Carver agrees with these recommendations but offers the following suggested solutions to make the CDFI capital programs more accessible to minority CDEs and 

community banks: 

1. Make small CDFI banks a priority for CDFI Fund financing 

This goal could be achieved by targeting institutions that are predominantly 

headquartered or have significant facilities in distressed communities or who serve 

this population in an operating and programmatic basis, rather than a project to 

project basis. There is ample precedent for such a practice. Most CDFI NOFA’s now 

have built in preferences (in the form of extra credit points). Recent examples include targeting geographic areas of higher distress, such as FEMA Disaster Areas, 

after Hurricane Katrina. 

Today the lion’s share of dollars granted in the New Markets Tax Credit Program, 

for example, is awarded to large real estate developers, money center banks/investment banks and large national non-profits. In some cases the same recipients have 

been awarded significant ($100 million) allocations annually for five or more years. 

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Smaller community banks and non-profits generally do not have the infrastructure to collect the extensive data and analysis required for CDFI applications and 

follow up monitoring. This results in lower scores and missed financial and revenue 

generating opportunities. Remedies include: 

— providing funding/grants for hands on assistance during the ‘‘ramp-up’’ period 

prior to application process (i.e., grant to become CARS rated (CDFI assessment and 

rating system operated by the Opportunity Finance Fund recognized by the CDFI, 

foundations and other investors); provide technical support and financial assistance 

for compliance reporting and data mining). 

— providing favorable treatment to major financial institutions that partner with 

community banks to improve application readiness, thereby leveling the playing 

field. 

— providing better training for readers; more hands on training 

f 

Chairman NEAL. Thank you Ms. Pinnock. 

Mr. Haskins, the bells that you heard mean that we have about 

15 minutes, probably closer to 13 minutes, but we’ll try it from 

there. Thank you, Mr. Haskins. 

STATEMENT OF JOSEPH HASKINS, JR., CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, HARBOR BANK OF 

MARYLAND 

Mr. HASKINS. Thank you, Chairman Neal. I will try to speak 

quickly. 

Good morning Chairman Watt, Chairman Neal, again, and members of this distinguished committee. I am delighted to say to you 

that I am the chairman, president and CEO of Harbor Bankshares 

Corporation, which is a bank holding company in Maryland that 

currently oversees a $300 million commercial bank. 

Although the scope of the GAO is very broad, I have decided to 

focus my attention almost exclusively as it relates to Harbor Bank 

and Harbor Bankshares Corporation. However, I do have a couple 

of recommendations that I will share at the end of my comments. 

I do want to be on record to state that I believe that the New Markets Tax Credits Program under the CDFI Fund is a very 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 $140 million in loans to the communities that 

we focus on, which is the low income community. The specific item 

that I’d like to lift here for your information is the fact that our 

first award, which was in round 2 of $50 million in New Markets 

Tax Credits, $25 million of that was allocated to one project. And 

one might say, why so much to one project? 

This one project represented 88 acres of an urban community, a 

city that is among one of the highest in crime as you’ve heard in 

reports, highest in unemployment, highest in drug addiction, and 

so forth and so on; and, while the city is high in regards to these 

numbers, this community that we focus on doubles those statistics, 

deplorable, not to say the least. This effort of 88 acres was designed 

to focus on creating a new science and biotech park, building out 


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two million square feet of science and technology park space and 

to create 2,000 new and renovated homes for this low income community. 

Our $25 million in this project resulted in $5 million going to a 

not-for-profit that focused on establishing drug rehabilitation programs, job training programs, and educational housing programs. 

So when we look at the impact we were significant. The other part 

of this is that we initiated the first building of that science park, 

a 300,000 square-foot building that employed in excess of 200 residents of that community through its various different phases of development. But moving quickly I want you to know that we think 

that our efforts have also been successful in being a stimulus as 

well as being an identifier of future opportunities, because we were 

the stimulant in a second science park on the West side tied to the 

University of Maryland, two very great and outstanding institutions. 

I want to quickly tell you that while we were successful in the 

second round we applied it every single round, and of the eight different allocation periods, we received two allocations; and, that last 

allocation came at the end of this ’08 award, which is a part of the 

stimulus package. Our concern here is that we have a proven track 

record of being able to put our money out. We have evidenced that 

by having our money on the street in 14 months, what is interesting, that of the allocation I received already, the $50 million 

that I received under the 2009 period I already have applications 

in excess of three times that amount, all for very relevant products 

and services. 

I know that my colleagues have already spoke to some of the recommendations that they see as possible. I agree with some of the 

observations made by the GAO. What I would say to you is if you 

focus on lenders who have history in the communities that they’ve 

served and add that as a part of the criteria, I think we go a long 

ways in helping to up the number of minority applicants in this 

process. And, ladies and gentlemen, or gentlemen as I see sitting 

before you, I am available to have you witness firsthand the developments of our money and the outcomes; and, I’m available to answer any questions that you might have. 

Thank you very much for the opportunity. 

[The prepared statement of Mr. Haskins follows:] 


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Chairman NEAL. Thank you, Mr. Haskins. 

Mr. Cunningham. 

STATEMENT OF WILLIAM MICHAEL CUNNINGHAM, SOCIAL INVESTING ADVISOR, CREATIVE INVESTMENT RESEARCH, INC. 

Mr. CUNNINGHAM. Thank you, Chairman Neal, Chairman 

Watt, Ranking Member Tiberi. 

I really appreciate you inviting me here. I am going to make this 

very quick. Before I get started, I would like to introduce a member 

of my staff, Marie Cunningham Brown. She is also my mother. She 

worked for 30 years on Capitol Hill. In her last posting she was an 

assistant to Congressman Claude Pepper. If I say anything intelligent, you have her 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 1.14 miles away from where we sit today 

was waiting for shelter at a homeless shelter close to here, and she 

died, basically because the economic resources weren’t available to 

help her out. These are the kinds of people that the New Markets 

Tax Credits Program was designed to assist. 

In our 2008 application we created a financial instrument designed to help and address the problem of homelessness. That application was not funded. So that’s part of the problem that we 

have with the program. We just think that, again, the 

misallocation of economic resources based on racial prejudice is 

wrong. It kills people, markets, firms and economies, and we pointed this out in numerous comments to the Securities and Exchange 

Commission and to other bodies. Now, with respect to kind of what 

our problem is with the program, we’ve applied in virtually every 

round of the New Markets Tax Credits Program. 

I actually gave a speech in 1994 in San Francisco, California, 

where I called for the creation of New Market type vehicles to get 

venture capital into underserved communities. So we take great 

pride and credit in being one of the intellectual forefathers of this 

program. You know, but we just have not had a lot of success in 

accessing those resources for a number of reasons. Now, we concur 

with the statistical findings of the GAO report that’s included in 

Appendix A in our testimony, a statistical analysis that was conducted by two interns that worked for us. 

I do want to point out our 2004 New Markets Tax Credit Application in particular because we partnered with the City of Minneapolis to apply for $120 million in New Markets Tax Credits. We 

had a letter of commitment from Piper Jaffray, letter of commitment and a partnership with a city, and we were not funded. So, 

obviously, from our perspective there is a problem with this program. In our last application we partnered with an African-American individual with a net worth of $150 million, who basically supported our application to create a $50 million pool of New Markets 

Tax Credits that we were going to allocate to minority-owned 

banks. 

In the review of our application, the reviewer said ‘‘We’re not 

sure that minority-owned banks either want or can use New Markets Tax Credits.’’ They turned around and then they gave two miVerDate Nov 24 2008 13:13 Jul 29, 2010 Jkt 056743 PO 00000 Frm 00061 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\56743.XXX JEFF PsN: 56743

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nority-owned banks New Markets Tax Credits when we applied to 

do exactly the same thing a year earlier. Again, from our perspective there is a problem with this program. Now, what we suggest 

you do is we suggest you look at the transaction record for the New 

Markets Tax Credits allocations. When I say the transaction 

record, what I mean is we suggest you look at the commissions 

paid to investment banks, consultants, lawyers and accountants. 

Basically, we want to outline. We want to put some sunlight on 

this allocation process and determine who is benefiting up front 

from these New Markets Tax Credits allocations. According to the 

data that we have, because the spreads are so large and because 

this is one of the most generous Federal Government programs in 

the Federal Government community development inventory, the 

fees that we’ve seen go to some of the investment banks can get 

as high as 10 percent of the allocation. So 10 percent of the allocation goes to an investment bank before a dollar goes to the community to repay that investment bank for bringing investors into the 

pool. We think that’s unfair. 

We think that’s unfortunate. In Appendix C of our testimony we 

have outlined further suggestions for enhancing this program. Basically, we suggest that you increase the New Markets Tax Credits 

for equity investments in low income businesses located in some of 

the more distressed areas of the country. That’s the core of our recommendation. 

Again, I understand the time pressure you are under. I appreciate you inviting me here to testify today. I am available to answer any questions that you have. 

Thank you. 

[The prepared statement of Mr. Cunningham follows:] 


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Chairman NEAL. Thank you, Mr. Cunningham. 

We have two minutes on the floor. Mr. Klein, if you want to give 

this a quick go, we’ll accept your testimony in part verbally and 

part written testimony, if we could. 

Mr. KLEIN. I will go as fast as I can. 

Chairman NEAL. You’re on. 

STATEMENT OF JAMES R. KLEIN, CHIEF EXECUTIVE OFFICER, 

OHIO COMMUNITY DEVELOPMENT FINANCE FUND 

Mr. KLEIN. Thank you for the opportunity to testify specifically. 

Thank you to Congressman Tiberi for your invitation. 

Finance Fund is a statewide non-profit in Ohio that provides 

services to low-income communities around the state. We work exclusively in these low-income urban and world communities, doing 

a number of different kinds of projects, affordable housing, 

childcare, learning facilities, small business community facilities 

and so forth. 

We work with for-profit and non-profit clients around the state. 

We’ve been doing this for 22 years. We’ve got 15,000 units of affordable housing, 9,000 jobs, 8 million square feet of revitalized, 

commercial space. New Markets Tax Credits fits pretty much dead 

center into our mission and product mix. We provide a lot of products and services to small businesses, minority businesses, and we 

use a non-leveraged model. A non-leveraged model is a model 

which is not as complex as the primary used model in this product 

in this program which is the leveraged model. 

The non-leveraged model allows us to do blind pools, which are 

investment commitments that are made without actually identifying a specific project. Now, we’ve gotten four allocations out of 

this program; 30 projects have resulted. We’ve got deals as small 

as 86,000, our largest investment has been five million. 

Let me talk very briefly about the report. In my perspective the 

outcomes of this report are somewhat predictable. We are talking 

about highly distressed communities here. 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. We have businesses 

that operate in a market that is limited, depressed asset values, 

and so forth. 

It is my opinion that the complexity of the finance model becomes a systemic barrier to minority and small CDE participation 

in this program because of its complexity and its cost. 

[The prepared statement of Mr. Klein follows:] 

Chairman NEAL. I apologize. The clock has run to zero on the 

House floor. I am going to recognize a suggestion from my friend 

Mr. Watt. 


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Mr. WATT. Thank you, Mr. Chairman. 

I reluctantly move that we not try to come back and hold these 

witnesses here. It will be two hours before we get through the votes 

and I think it would be more productive for us to just submit our 

questions in writing to the panelists. It would be probably more 


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productive for them and for us, so I move that we follow the rules. 

I mean, they would have to answer written questions any way, that 

we do all of the questioning by written question. 

Chairman NEAL. 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 followup questions; and, if there are no further comments, then the hearing is adjourned. 

Thank you. 

[Whereupon, at 10:55 a.m., the subcommittees were adjourned.] 

Æ 


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