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GAO Finds Inequality between Minority and Non-Minority Applicants for the New Markets Tax Credit
Minorities receive fewer approvals and lower cash awards through the Department of Treasury's New Markets Tax Credit (NMTC), according to a recent Government Accountability Office (GAO) report. From 2005-2008, non-minority Community Development Entities (CDEs) were successful with 26.8 percent of their applications, with 14.7 percent awarded the dollar amount requested, whereas application from minority-owned groups were successful with just 9.1 percent and with those successful applications, 4.1 percent of the dollar amount requested was awarded.
Administered under the Department of Treasury's Community Development Financial Institutions (CDFI), the NMTC provides a tax credit for investing in a CDE, which reinvests funds in low-income communities. The GAO obtained documentation on the NMTC application process and data from 2005-2008 and interviewed CDFI Fund officials. To identify challenges faced by the NMTC, GAO officials interviewed a sample of 13 minority-owned or controlled CDEs and 12 similarly-sized non-minority-owned CDEs that applied for NMTC awards from 2005-2008. The study controlled other factors that could affect minority application including resources and experience. Even after controlling those variables, however, the GAO found evidence of inequality. The report concludes that if Congress wants to increase minority participation in the program, it should consider incorporating preferences in the application process that may benefit minority CDEs to offset the systematic disadvantage experienced by those applicants. In response to the findings, Donna Gambrell, director of the U.S. Department of the Treasury's CDFI Fund, testified in a joint committee hearing that after the signing of the American Recovery and Reinvestment Act, three of 32 awardees in NMTC allocations were minority-owned or controlled entities, bringing the number of minority-owned or controlled entities that received awards under the 2008 allocation round to seven. The 32 awardees that received the $1.5 billion in Recovery Act awards indicated that they would invest at least 94 percent of their NMTC proceeds into low-income communities. The full GAO report, New Markets Tax Credit: Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities, is available at http://www.gao.gov/new.items/d09536.pdf. Ms. Gambrell's Testimony before the House Ways and Means Select Revenue Measures Subcommittee and the Subcommittee on Domestic Monetary Policy and Technology of the Financial Services Committee is available at http://waysandmeans.house.gov/hearings.asp?formmode=view&id=7855