	Background

As of the time of this hearing, the CDFI Fund in the Department of the  Treasury has authorized $21 billion of the $26 billion in tax credit  authority to be awarded between 2001 and 2009 to CDEs that manage  NMTC investments in low-income community development projects. Since we issued the report on which this statement is based, the CDFI  Fund announced on May 27, 2009 an additional 32 NMTC awards to 2008  applicants totaling $1.5 billion under authority granted by the American  Recovery and Reinvestment Act of 2009 (ARRA). According to our  analysis, minority CDEs received three of these awards totaling $135  million. Non-minority CDEs received the other 29 of these awards totaling  about $1.4 billion. Minority Entities Have Received Proportionately Fewer Awards Than Non-Minority Entities

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. The CDFI Fund’s process for making NMTC awards takes place in two  phases. To identify challenges minority and non-minority CDEs face in obtaining  NMTC allocations, we interviewed representatives from minority and non- minority CDEs, and we analyzed CDFI Fund application data. When controlling for factors we could, our analysis also  shows that minority status is associated with a lower probability of  receiving an allocation. It is not clear from our analysis why minority  status is associated with a lower probability of obtaining an allocation or  whether any actions taken or not taken by the Department of the Treasury  or the CDFI Fund contributed to this statistical relationship. According to CDFI Fund officials, the CDFI Fund has conducted outreach  intended to reach all CDEs that may have an interest in applying for  NMTCs and CDFI Fund staff have given presentations to industry  associations, such as the New Markets Tax Credit Coalition; the National  Bankers Association (NBA), an industry organization that represents  minority-owned banks; and at FDIC conferences targeted to minority- owned institutions. The CDFI Fund also provides a  written debriefing to each CDE that does not receive an allocation to assist  the CDE in future application rounds. External stakeholders, including representatives from industry  associations we identified, hold conferences and offer varying degrees of  assistance to CDEs submitting competitive NMTC applications. In  addition, a fourth option would be for Congress to direct the Department  of the Treasury and the CDFI Fund to explore options for providing  technical assistance in applying for and using NMTC allocations to  minority CDEs. Although these options could increase the amount of NMTC authority  awarded to minority CDEs, in part because we could not definitively  identify the reasons why minority CDEs have scored lower on the NMTC  application than non-minority CDEs, the options may not address the  underlying reasons for lower minority CDE success. As I noted earlier, the more detailed  findings and conclusions of our review of minority CDEs’ participation in  the New Markets Tax Credit program can be found in our recently issued  report (GAO-09-536).
Why GAO Did This Study

The Community Development Financial Institutions (CDFI) Fund in the Department of the Treasury has awarded $21 billion of the $26 billion in New Markets Tax Credits (NMTC) authorized to be awarded to Community Development Entities (CDE) between 2001 and 2009. CDEs use the NMTC to make qualified investments in low-income communities. Recent congressional interest has focused on participation by minority CDEs. This testimony is based on a recent GAO report (GAO-09-536). As requested, the report (1) identified the number of minority and non-minority CDEs that applied to the CDFI Fund and received NMTC awards, (2) explained the process by which the CDFI Fund makes awards and summarized application scores, (3) described challenges minority and non-minority CDEs face in applying for and receiving awards and, (4) identified efforts the CDFI Fund and others have taken to assist minority CDEs in applying for awards. GAO analyzed CDFI Fund application data and interviewed officials from minority and non-minority CDEs, the CDFI Fund, and industry groups.

What GAO Found

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. 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. Since GAO issued the report on which this statement is based, the CDFI Fund made 32 NMTC awards totaling $1.5 billion under authority provided in the American Recovery and Reinvestment Act. Minority CDEs received 3 of those awards, totaling $135 million. The CDFI Fund relies primarily on its scoring of applications to determine which CDEs receive awards. As the figure shows, minority CDEs received lower scores than non-minority CDEs in each of the four application sections. Although a CDE's resources and experience in applying are important factors in a CDE's success rate with the NMTC program, when controlling for factors that GAO could measure, minority status is associated with a lower probability of receiving an allocation. It is not clear from GAO's 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. Characteristics associated with minority status of some CDEs for which data are unavailable may affect this relationship. If Congress views increased participation by minority CDEs as a goal for the NMTC program, options, such as providing certain preferences in the application process that may benefit minority CDEs, could be considered. The CDFI Fund provides assistance that is available to all CDEs applying for awards, including a written debriefing to CDEs that do not receive awards detailing some of the weaknesses in the applications. Other stakeholders, including industry associations and consultants, hold conferences and offer services to help CDEs submit competitive applications. Should Congress view additional assistance to minority CDEs as important to increasing minority CDEs' participation in the NMTC program, it could consider requiring the CDFI Fund to provide assistance to minority CDEs.