The White House is rolling out a fresh round of New Market Tax Credits as part of the American Recovery and Reinvestment Act. The program is designed to basically sweeten the pot for investors so they will finance development in low-income areas. In a recent commentary, Treasury Secretary Tim Geithner gave examples of how the tax credits have opened opportunities in communities of color. He highlighted a $65 million credit granted to the Black-owned Carver Federal Savings Bank of Harlem:
“To illustrate the impact of these awards, in 2006 Carver Bank received a similar award for $59 million and, in turn, loaned a portion to a minority non-profit developer. That loan is enabling the developer to remake the Renaissance Ballroom, a long-vacant cultural icon in Harlem. Where a theater once thrived, a new facility is emerging with 113 mixed-income housing units and new space for community programs.”
But the veneer of diversity could be a little too polished. According to the Government Accountability Office, minority-owned Community Development Entities, compared to non-minority counterparts, get a relatively small piece of the pie:
From 2005 through 2008, minority-owned CDEs were successful with about 9 percent of the NMTC applications that they submitted to the CDFI Fund and received about $354 million of the $8.7 billion for which they applied, or about 4 percent. By comparison, non-minority CDEs were successful with about 27 percent of their applications and received $13.2 billion of the $89.7 billion for which they applied, or about 15 percent…. It is not clear from our analysis why this relationship exists or whether any actions taken or not taken by the Department of the Treasury contributed to minority CDEs’ lower probability of success.
In response to the GAO report, House Financial Services Committee Chairman Barney Frank stated, “It is paradoxical that a program designed to help create opportunities does poorly in the area of minority participation.” The GAO said underlying barriers could indirectly put communities of color at a disadvantage:
representatives from minority CDEs we interviewed generally did not identify minority status as an impediment to receiving an allocation. Specifically, they said it can be difficult in the NMTC application to demonstrate the capacity to effectively use the NMTC and the experience in investing in low-income communities necessary to obtain allocations…. Some CDEs may have difficulty demonstrating a track record for both making investments in low-income communities and investing in large projects that would appear to generate significant impacts.
Amid concerns that federal rescue funds being spent in ways that fail to serve, and even work against, the interests of poor communities of color, the New Market Tax Credit could be another area where it pays to demand greater accountability. Business growth is just one facet of community development (often fraught with controversy). But research by the Urban Institute lays out how federal programs, combined with effective guidance by community-based organizations, can foster overall economic empowerment. In a working paper from the Center for Community Development Investments, Ellen Seidman of the New American Foundation said the economic downturn could destabilize the community-driven financial sector, but also mark a turning point:
The industry needs a shared vision of its special role… It must unite business, housing, schools, health care, and household asset-building by coordinating funds from government at all levels, the private sector, and philanthropy to strengthen communities the “market” once ignored and then destroyed. If all community finance entities can work together—banks and loan funds, credit unions and community development corporations, venture funds and microfinance—then, as Arlo Guthrie memorably observed, “friends, they may thinks it’s a movement.”
While Washington doles out more tax credits, those community stakeholders ought to watch closely to see if that capital truly reaches new markets. Image: Carver Savings Bank ad, Bed-Stuy, Brooklyn (Frank H. Jump/ Fading Ad Campaign)