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Will It Live Up to Its Potential?


The Penn Avenue neighborhood business corridor.

Small business markets in America’s inner cities and distressed rural areas are essential to our
local economies. According to the U.S. Small Business Administration, there are 22.9 million
small firms in the United States which provide approximately 75 percent of the net new jobs
added to the economy and employ more than half of all private-sector employees. However,

many small businesses in isolated inner-city or rural locations are cut off from mainstream
capital networks.



Compliance Corner
New Markets
Tax Credit Investments:
An Examiner s Perspective


Fourth District Profile
New Markets Tax Credit
Program Expected to
Have a Big Impact on the
Fourth District


In My Opinion
New Federal
Tax Credit Program
Hits the Streets


How the New Markets Tax Credit Works



F R O M PA G E 1

Information and cultural
barriers may prevent investors
and lenders from discovering
and fully appreciating business
opportunities. Therefore, a
new conduit for channeling
equity capital is needed—
patient capital that can be
used to grow a business and
manage risks in less diversified
Many believe the New
Markets Tax Credit Program
provides such a conduit. “New
Markets Tax Credits will probably be the most significant
single program subsidy for
the community development
finance industry (outside of
Low Income Housing Tax
Credits) over the next several
years,” explains Kevin McQueen
of Brody Weiser Burns, a New
Markets consulting firm that
helped the National Trust for
Historic Preservation secure a
$127 million tax credit award.
The objective of the New
Markets program is to stimulate
$15 billion in private equity
investment that will bring new
jobs, services, physical revitalization, and ownership opportunities to low-income communities.


Tax credit

loans, or counseling

development entity
Tax credit




Investments and loans

Purchase loans



© National Community Capital Association 2003.

Many experts believe privatecapital investors have become
more comfortable taking risks
on community development
deals because they derive
not only a social return on
their investment, but also a
tangible financial benefit
(see figure above).
Low-income communities
in the Fourth Federal Reserve
District stand to benefit greatly
from the program. In March
2003, the Treasury Department’s CDFI (Community
Development Financial Institutions) Fund announced that
more than 20 percent of the
total awards had been allocated
to community development
entities (CDEs) in the Fourth
District (see page 9). Ohio alone
received the second-highest
number of tax credits and had
the second-highest number of
CDEs receiving awards. For
2003–04, $3.5 billion in New
Markets Tax Credits has been

allocated nationwide, $1 billion
more than in 2002. The CDFI
Fund will announce its award
decisions in March 2004.
Potential Benefits


he New Markets Tax Credit
Program is not the first time a
federal tax incentive has been
used to encourage economic
development. In 1986, for
instance, the Low Income
Housing Tax Credit was created
to encourage private-market
investment in low-income
housing deals. But many experts
believe the New Markets
program will become another
effective tool in an array of
community development instruments designed to rebuild,
reinvest, and reinvigorate
underserved communities.
“The potential strength of
the NMTC Program is that
it will bring new capital from
new sources into emerging
domestic markets that would
not otherwise have access to
capital,” says Mark Pinsky,
president and chief executive
officer of the National Community Capital Association, the

trade association for CDFIs and
a recipient of $8 million in tax
credits in 2002.
Four key aspects of the New
Markets Tax Credit Program
bolster the case that this
program holds great potential
for low-income communities.
First, the New Markets Tax
Credit uses private-market
forces to attract investors seeking
financial as well as social
returns. The program builds
on the success of the Low
Income Housing Tax Credit by
combining the discipline and
efficiency of the capital markets
with community development
goals. By increasing the capital
base, the tax credit helps CDEs
lend and invest more, attract
additional outside capital, and
bring even more private-sector
engagement to low-income
New Markets Tax Credits
allow community-based lenders
to offer financing at more
favorable rates because the
credits help to write down
interest rates. All three players
in the lending process—lender,
investor, and borrower—get to
share in the credit. “It’s a winwin-win,” says Beth Lipson,

Leveraged Model
$2 million


Business strategy (the
applicant’s track record
of assessing demand and
making investments in
low-income communities)


Capitalization strategy
(an applicant’s record of
obtaining investors in the
past and future ability to
recruit investors)

Equity investor


$10 million in qualified equity investments


Qualified business

Qualified business

© National Community Capital Association 2003.


Management capacity (the
applicant’s ability to deploy
capital and manage risk)


Economic impact of the
program, such as job
creation, business retention,
and business creation on
low-income areas.

Federal Reserve Governor
Ben S. Bernanke believes
this kind of data tracking is
an important component of
effective program delivery:
“Good data—and good data
analysis—are critical in the
work of community organizations,” he told the Federal
Reserve Bank of Cleveland’s
Community Development Policy
Summit in June.2 “Coupled
with social impact data, financial information can provide
assurance to CDFIs and other
socially motivated investors
that their portfolios of community development investments
offer both the financial and
nonfinancial returns that they
require,” he said.
In addition, the program
has built-in flexibility, according
to Tony Brown, director of the
CDFI Fund, which administers

the New Markets Tax Credit
Program within the U.S. Treasury Department. Although the
federal government sets the
parameters for the New Markets
Tax Credits, the program
provides flexibility in how it is
used. The final results, Brown
argues, are up to local players,
such as the CDEs and their
investors.3 LISC’s Poznanski
agrees: “The program provides
the flexibility to be creative in
developing investment structures
tailored to specific financing
needs.” In addition, the CDFI
Fund will enter into allocation
agreements with tax credit
recipients which will dictate
goals for targeting communities
of higher economic distress
and offering flexible or belowmarket-rate products.
Third, the New Markets Tax
Credit Program takes advantage
of an existing and growing
industry of community development lenders. “The [community
development finance] industry
provides potential New Markets
Tax Credit investors with the
expertise and support services
needed to navigate and nourish
these investments, and serves

as a partner in uncovering
opportunities that are strategically aligned with the business
or marketing objectives of
investors,” explains McQueen
of Brody Weiser Burns.
More than 500 nonprofit
CDFIs—which have an
impressive track record of
quantifying their efforts—are
poised to use tax credits to make
loans and to bridge private
markets with low-income
communities. According to the
CDFI Data Project, 512 CDFIs
financed $5.7 billion in lowincome communities, created
more than 43,000 housing units,
funded more than 7,000 businesses, and created or retained
more than 52,000 jobs.4
A fourth benefit of the New
Markets Tax Credit Program
is its ability to establish a
“leveraged” model: In this
arrangement, a lender and
an equity investor enter into
a partnership that provides
the combined amount of equity
investments into the CDE,
leveraging more than a single
investor could provide. This
enables the CDE to provide
even more funds to qualified
businesses in low-income areas.
The leveraged model offers
four main benefits: It is possible to separate credit risk (debt
investors) from recapture risk
(equity investors); it allows
nonprofit investors to participate as debt investors; it may
lower cost of capital for the
CDE; and it could provide
equity for the nonprofit CDFI
as a controlling partner (see
figure above).


special projects manager at
National Community Capital.
“New deals will be generated
through new markets.”
One key generator of new
business deals will be the Local
Initiatives Support Corporation
(LISC), which received
$65 million in tax credits to
invest in low-income communities. “We expect to use much
of the award to help finance
commercial real estate projects,
which, from our perspective,
would include community facilities such as childcare centers
or charter schools,” says Robert
Poznanski, director of LISC’s
New Markets Initiative. “Our
investment authority is geared
toward providing jobs and
services to the distressed communities served by the CDCs
that we support in 36 program
sites nationwide. Our rural
LISC partner CDCs work in an
additional 70 rural communities,” he says.
A second strength is that
the New Markets program
emphasizes performance-based
measures, reinforcing the need
for quantitative information to
demonstrate effectiveness. The
program evaluates four areas:

$8 million


Potential Downsides



espite its bold promises,
the New Markets program
has several possible drawbacks.
First, New Markets Tax Credits
were appropriated at a relatively
small level of funding, compared
to the Low Income Housing
Tax Credits. Under the New
Markets program, investors will
not be able to derive all of their
economic return from tax
credits and tax losses. Instead,
they will have to obtain some
cash return on their investment
in addition to the tax credits.
As a result, investors are more
vulnerable to the economic
risks of their investment.
Furthermore, unlike Low
Income Housing Tax Credits,
New Markets Tax Credits will
be insufficient to drive investments.5 The New Markets
credit is claimed over seven
years, with a net present value
of 30 percent. In contrast, the
Low Income Housing credit’s
present value is generally
70 percent—91 percent in
hard-to-serve areas—with no
basis reduction, although most
other federal subsidies reduce it.
However, even modest subsidies
make a difference for economic
development activities with
limited financing gaps, and the
New Markets Tax Credits can
be freely combined with other
(non-tax) federal subsidies.
A second possible shortcoming of the program relates
to recapture, which has the
potential to scare off investors,
claims Pinsky. According to
the program guidelines, if the
CDE does not use the tax credits
in the way it had intended,

it could trigger “recapture
provisions”: The Treasury
Department may recapture all
tax credits plus nondeductible
interest if all of the proceeds
received for the credit are not
used to make qualified lowincome community investments
during the seven-year period.
In addition, recapture may be
triggered if the CDE that sold
the investment ceases to qualify
as a CDE or if the CDE redeems
the investment.
A third disadvantage comes
from the involvement of forprofit financial institutions,
which some argue will dilute
the influence of the nonprofit
community development finance
field. “First-round recipients
included institutions such as
Goldman Sachs, Wachovia,
Key Bank, and GMAC. Given
these first-round successes, many
more banks, as well as publicsector institutions, are likely
to apply directly for NMTC
allocations in the future, thus
potentially decreasing reliance
on the community development finance industry,” says
In a paper delivered at a
Federal Reserve conference
earlier this year, community
development scholars Julia
Sass Rubin and Gregory M.
Stankiewicz echo this sentiment:
“[T]he downside of not restricting the program to organizations
with a community development
mission… is the greater likelihood that the tax credits will
be used to subsidize activities
that have a limited community
development impact and that
would have occurred even
without the extra subsidy.

In other words, the tax credits
would ‘supplant’ rather than
‘supplement’ the cost of many
investments.” 6 This could mean
that only the most market-rate
deals would be financed and
CDEs would be left with too
little capital to undertake the
high-risk investments required
in underserved urban and rural
Finally, the New Markets Tax
Credit Program emphasizes
location rather than the mobility
of employment markets.
Unlike housing, jobs and businesses are more itinerant. Any
successful and sustainable business or economic development
strategy is organized around
a labor market, which is not
based on census tracts. Indeed,
business development strategies
organized around geography,
rather than labor markets,
“tend to die young,” claims
Pinsky. Some experts believe
that making loans to businesses
is not about place—it is about
employing low-income individuals regardless of where they
live. Many businesses employ
low-income individuals but are
located outside a low-income
census tract. These businesses
would not be eligible for New
Markets Tax Credits.

It is still too early to tell
whether the program’s weaknesses will overwhelm its
strengths. The initial New
Markets Tax Credit deals for
small businesses in low-income
neighborhoods are just starting
to unfold. But the availability

of another tool for community
development that uses privatemarket capital ensures that
organizations will continue
to seek creative solutions to
the problems of distressed

1. See the U.S. Small Business Administration,
2. Federal Reserve Governor Ben S. Bernanke, “Soft Hearts, Hard Data: The Use of Quantitative Analysis
in Community Development,” address at the Federal Reserve Bank of Cleveland, 2003 Community
Development Policy Summit, June 11, 2003, Cleveland, Ohio,
3. Tony Brown, remarks at the Federal Reserve Bank of Cleveland’s 2003 Community Development Policy
Summit, June 11, 2003, Cleveland, Ohio.
4. National Community Capital Association,
5. Benson F Roberts, “How New Markets Tax Credits Will Work,” Local Initiatives Support Corporation,
February 15, 2002,, pp. 4–5.
6. Julia Sass Rubin (Rutgers University) and Gregory M. Stankiewicz (Princeton University), “Evaluating the
Impact of Federal Community Economic Development Policies on Targeted Populations: The Case of the
New Markets Initiatives of 2000,” paper presented at the Federal Reserve System research conference,
“Seeds of Growth,” March 2003, Washington, DC,
CA_Conf_SusCommDev/pdf/rubinjulia.pdf, p. 33.


By Connie Smith, Examiner Specialist, Federal Reserve Bank of Cleveland

According to the Community Reinvestment Act, a qualified investment is “a lawful investment, deposit,
membership share, or grant that has as its primary purpose community development.” A lawful investment
is one that is permitted under state and federal laws and regulations; an investment that otherwise


New Market Tax Credit Investments:
An Examiner’s Perspective

meets the definition of a qualified investment cannot be counted for CRA purposes if it is not lawful.
Additionally, institutions may be required to obtain the permission of its primary regulator before investing
in a particular activity.
Under the act’s definition, community development purposes include activities that revitalize and
stabilize low- and moderate-income geographies, or geographies that have been targeted for revitalization
by federal, state, local, or tribal governments. New Market Tax Credit funds must be invested in low- and
moderate-income census tracts or in tracts with poverty rates over 20 percent. However, poverty rates
take into consideration the number of individuals in a family, whereas median family income does not.
While low- or moderate-income tracts are more likely to have poverty rates over 20 percent, it is possible
to have high poverty in a middle-income census tract. For that reason, New Markets funds may be
invested in areas with high poverty rates that are not necessarily low- or moderate-income communities.
Another purpose of the New Markets program is job creation in low-income communities. Creating,
retaining, or improving jobs for low- or moderate-income individuals is considered a community development activity because it can help to stabilize the community. However, not all activities in low- or moderateincome areas have a stabilizing effect—for example, a project that provides construction jobs for lowand moderate-income individuals and has only an indirect impact would not automatically qualify.
New Markets proceeds also may be used to make loans to or equity investments in businesses; if the
businesses meet CRA size eligibility requirements, the investment may qualify as an activity that promotes
economic development by financing businesses or farms. Funds that meet the community development
definition also may be invested in financial counseling and other social services targeted to low- and
moderate-income individuals.
In deciding whether to invest in any equity investment, institutions must determine whether the
investment is safe and sound, lawful, and meets the institution’s overall strategic objectives for assets and
liabilities. To determine whether an investment meets the CPA’s qualified investment definition, institutions
must confirm the investment’s primary purpose is community development. Equity investments in
New Markets Tax Credit projects may meet this test, but institutions should conduct research and due
diligence to ensure the investment addresses all of the required criteria.

Further guidance on this definition
can be found in “Community
Reinvestment Act: Interagency
Questions and Answers Regarding
Community Reinvestments,”
Federal Financial Institutions
Examination Council, Federal
Register, July 12, 2001, available


4th district


New Markets Tax Credit Program

On March 14, 2003, the CDFI Fund announced that 66 community development
entities (CDEs) would be allocated New Markets Tax Credits in the 2002 round


of the program. Of the 66 grantees, 15 CDEs headquartered in the Fourth Federal
The proposed Gateway Plaza at
Ohio State University, a project that
may become a reality through the
use of New Market Tax Credits by
Campus Partners for Community
Urban Development in Columbus.

Reserve District received tax credit allocations totaling more than $340 million —
22 percent of the awardees and 13.6 percent of the total amount awarded.
Ohio alone received the second-highest number of tax credits
awarded and had the second-highest number of CDEs
to receive awards.

Expected to Have a Big Impact on the Fourth District
In 2000, Congress passed the Community Renewal Tax Relief Act,
creating a New Markets Tax Credit Program to encourage private
investments in low-income communities.1 The program is based on
a competitive application process by which CDEs certified by the
CDFI Fund compete for $2.5 billion in federal tax credit allocations.
Demand for the tax credits was heavy in the first round:
According to the CDFI Fund, 347 CDEs applied for allocations
totaling nearly $26 billion; due to the intensely competitive application process, only 66 received allocations. In the Fourth District—
which includes eastern Kentucky, Ohio, and western Pennsylvania,
and the northern panhandle of West Virginia—CDEs captured
a sizable portion of the awards, which ranged from $500,000 to
$150 million (see page 9).2
Several national organizations that received substantial
allocations are also positioned to provide capital to small
businesses in the Fourth District. These organizations
include the National New Markets Tax Credit

New Markets
Tax Credit Program:
The Basics
According to the CDFI Fund, a division of the U.S. Treasury
Department, the $15 billion New Markets Tax Credit Program has
the potential to stimulate economic and community development
and job creation in the nation s low-income communities by
attracting capital from the private sector.
The program provides tax credits to investors who make
qualified equity investments in privately managed investment
vehicles called community development entities. CDEs are
required to invest the proceeds in low-income communities.
Low-income communities are defined as those census tracts
with poverty rates over 20 percent or median family incomes
that are less than or equal to 80 percent of the area median
family income.
Investors claim a credit that totals 39 percent of the investment over a seven-year period. In each of the first three years,
the investor receives a credit equal to 5 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
6 percent annually. Investors may not redeem their investments
in CDEs prior to the conclusion of the seven-year period.
For more information on the New Markets Tax Credit Program,
please visit the CDFI Fund s Web site at







Association for Theater-Based
Community Development
Diana Ferguson
Vice President of Finance and Administration
Columbus Association for the Performing Arts
Campus Partners for
Community Urban Redevelopment
Doug Aschenbach
Vice President of Real Estate and Treasurer
Cleveland New Markets Investment
Fund LLC (Cleveland Tomorrow)
Stephen Strnisha
Deputy Director, Cleveland Tomorrow
Vice President, Cleveland New Markets
Investment Fund
Community Development
New Markets I LLC
John J. Kastellic
Senior Vice President
Ohio Community Development
Finance Fund
James Klein
Executive Director
Ohio Community Development Finance Fund

The renovated Ohio Theater
in Columbus.

Fund, a subsidiary of the Community Reinvestment Fund of Minneapolis ($162.5 million award),
which operates in Ohio and Pennsylvania;
the National Trust Community Investment
Corporation, a subsidiary of the National Trust
for Historic Preservation of Washington, D.C.
($127 million award), which operates the Main
Street Program throughout Kentucky, Ohio, and
Pennsylvania; ESIC New Markets Partners
Limited Partnership, a subsidiary of Enterprise
Social Investment Corporation of Columbia,
Maryland ($90 million award), which operates
in Ohio; Local Initiatives Support Corporation of
New York City ($65 million award) for programs
in Ohio and Pennsylvania; HEDC New Markets,
Inc., a subsidiary of the National Development
Council of New York City ($30 million award)
to operate in Pennsylvania; and National
Community Capital of Philadelphia ($8 million)
to operate in Pennsylvania.
How Will the Allocations
Be Used in the Fourth District?3


he following examples showcase how nonprofit CDEs are using their tax credit allocations
to revitalize low-income communities.
The Association for Theater-Based Community
Development, a subsidiary of the Columbus
Association for the Performing Arts (CAPA), was
awarded $6 million to provide loans to nonprofit
organizations for the purchase and rehabilitation
of theaters in low-income
communities in Columbus,
Chicago, and New Haven,
Connecticut. “Theaters are
a necessary component to
community revitalization,”
explains Larry Fisher, a
CAPA board member.
“The New Market Tax
Credit allocation will allow
us to attract funds to
develop theaters that will serve as catalysts for
the revitalization of low-income communities,”
he says.

The Columbus-based Ohio Community
Development Finance Fund will use its $15 million
award to provide senior and subordinated debt to
qualifying businesses and nonprofit organizations
throughout Ohio. “We pursue investments that
are both equity and debt to add value to existing
deals with other financial institutions,” explains
James Klein, the fund’s executive director. “We
are looking forward to the New Markets Tax
Credit allocation. It’s something that has great
potential for Ohio.”
Campus Partners for Community Urban
Redevelopment, another Columbus-based CDE,
will use its $35 million award to make a debt
investment to support the development of a large,
mixed-use facility in an economically distressed
neighborhood in partnership with The Ohio State
University. “We are trying to lead the revitalization
efforts around OSU,” says Doug Aschenbach, vice
president of real estate and treasurer of Campus
Partners. “We expect to attract 35 new tenants
in four new buildings in develop 500,000 square
feet over six blocks,” he says.
Community Ventures Corporation (CVC),
headquartered in Lexington, Kentucky, will use
$12 million in New Markets Tax Credits to attract
investors to provide senior debt for commercial
real estate development, community facilities,
and small- and medium-sized businesses. “When
I first learned that CVC was going to receive an
allocation, I was extremely pleased,” exclaims
Kevin Smith, president of Community Ventures
Corporation. “Given the strong competition for
the credits, twelve million dollars will allow CVC
and its investors to have a substantial impact on
lower income communities in Kentucky,” he says.
In Cleveland, Cleveland Tomorrow established
the Cleveland New Markets Investment Fund
LLC, which was awarded $15 million in tax
credit allocations to provide below-market-rate
subordinate loans and equity investments for
development projects in Cuyahoga County’s lowincome communities. Formed in 1982, Cleveland
Tomorrow is a group of more than 30 chief

New Markets Tax Credit Awardees in the Fourth District, 2002

ASB Community Development Corp, Portsmouth

Citizens Business Development Company LLC, Jackson

$ 3,000,000

CNC Develpment Foundation, Inc., Paintsville

$ 2,000,000

Community Trust Community Development Corporation,

$ 7,000,000

Community Ventures Corporation, Inc., Lexington

$ 2,000,000

$ 12,000,000

$ 35,000,000

Central Ohio Loan Services, Inc., Waverly

$ 6,000,000

Cleveland New Markets Investment Fund LLC
(a subsidiary of Cleveland Tomorrow), Cleveland

$ 15,000,000

Community Development New Markets I LLC, Cleveland

$ 50,000,000


North Coast Community Development Corporation, Lorain

$ 9,000,000

Northside Community Development Fund, Pittsburgh

Ohio Community Development Finance Fund, Columbus

$ 15,000,000

Paramount Community Development Fund, LLC, Granville

$ 75,000,000

Association for Theater-Based Community Development,

$ 6,000,000



Community Ventures Corporation
Kevin Smith
President and CEO
Community Ventures Corporation

West Virginia
West Virginia Community Development Loan Fund
(a subsidiary of First State Bank, which covers all of
West Virginia), Barboursville

$ 4,000,000


executive officers from the largest corporations
in northeast Ohio who help coordinate the private
sector’s response to regional issues.
The Cleveland New Markets fund will use the
tax credits to attract investors to focus on three
areas: (1) lending to large-scale neighborhood
developments, such as shopping centers;
(2) lending to business incubators that will
enhance Cleveland’s job-creation strategy; and
(3) assisting the further development of Euclid
Avenue, a distressed retail corridor in Cleveland.
Stephen Strnisha, deputy director of Cleveland
Tomorrow and vice president of the Cleveland
New Markets Investment Fund, explains the tax
credit allocation will “augment our good track
record of being a key funder for catalytic projects
in the city of Cleveland…. New Markets Tax
Credits allow us to capitalize a new fund to show
that a viable urban market stillexists in Cleveland.”
The largest New Markets Tax Credit award in
the Fourth District—$150 million—went to
Community Development New Markets I LLC,
a subsidiary of Key Community Development
Corporation. Key CDC, based in Cleveland,
will use its allocation to support four activities:
(1) a small business loan fund; (2) a business
mezzanine loan fund; (3) loans and equity
investments for commercial real estate projects;
and (4) a brownfield redevelopment revolving
loan fund.


The allocation will allow Key CDC to provide
more capital to small businesses at lower borrowing
costs and to make business loans in tougher credit
situations. Key has a nationwide service area, but
it expects to focus on seven states, including Ohio.
In contrast, the smallest award in the 2002
round ($500,000) went to the Pittsburgh-based
Northside Community Development Fund, which
will increase the number of loans it makes to
small businesses in distressed neighborhoods on
Pittsburgh’s north side. “The leadership of the
Northside Community Development Fund was
thrilled to learn that the organization was among
the 66 awardees,” says Linda LeFever, Northside
CDF’s executive director.
The Northside CDF will use the tax credit
program in conjunction with other local, state,
and federal sources to leverage approximately
$3.5 million for commercial lending over seven
years. According to LeFever, these resources will be
used to finance 96 new and emerging companies,
to create 480 new jobs, and to provide employment
for 185 low-income residents.
Based on the scale, scope, and capacity of
New Markets Tax Credit award recipients in the
Fourth District, low-income communities are
poised to benefit greatly from this new program.
1. The full text of the bill is available at
2. CDFI Fund,
3. For a summary of New Markets Tax Credit award recipients,
see the CDFI Fund, “2002 Allocation Recipients,”

Northside Community
Development Fund
Linda LeFever
Executive Director
Northside Community Development Fund
Brody Weiser Burns
Kevin P. McQueen
Associate Partner
Tony Brown
New Markets Tax Credit Support Line:
Local Initiatives Support
Corporation New Markets Initiative
Robert Poznanski
National Community
Capital Association
Mark Pinsky
President and CEO


Campus Partners for Community Urban Redevelopment,


in my


New Federal Tax Credit
Program Hits the Streets


Kennedy Lawson Smith
National Main Street Center


ne of the biggest federal

The Fourth District will be

community development

among the busiest in the Federal

programs since urban renewal

Reserve System: Nine entities

hit the streets a earlier this

in Ohio received allocations—

year: The New Markets Tax

out of only 66 in the nation

Kennedy Lawson Smith is one of the nation’s foremost

Credit Program officially rolled

receiving allocations— totaling

experts on commercial district revitalization. After completing

out in March when the U.S.

$313 million. It’s clear the

graduate school in architecture, she became the downtown

Department of the Treasury’s

New Markets Tax Credits will

manager in Charlottesville, Virginia, where her efforts to

Community Development

be a significant small business

understand why people did — or didn’t — shop in downtown

Financial Institutions (CDFI)

development driver here in the

Charlottesville led her to a retail-market-analysis methodology

Fund announced the first organ-

next several years.

for older commercial districts. She is the director of the

izations to receive credit alloca-

National Trust for Historic Preservation’s National Main Street

tions. Community development

Credits Program is intended to

Center, where she has expanded the program to a network of

lenders in the Fourth Federal

attract new capital for business

almost 2,000 towns and cities and created a comprehensive

Reserve District received some

development in low-income

set of resources for older and historic commercial districts.

of the largest allocations in

communities. However, the

In 2002, Fast Company magazine named her one of its

the nation. If the communities

program doesn’t give any par-

“Fast 50 Champions of Innovation.”

you work with are involved in

ticular preference to investment

Main Street revitalization, this

in historic commercial districts.

program will almost certainly
affect them.

The New Markets Tax

First, learn more about how

Regardless of how Main

the program works. Information
about the program can be

ipate, please encourage them

found on the CDFI Fund’s

to participate. Ultimately,

Web site,

every dollar of credits used for

You can also download an

downtown-friendly business

overview from the National

development is a dollar of

Main Street Center’s Web site,

credits that won’t be used for, including

sprawl development or the

information to help determine if

Pittsburgh’s southside “Main Street.”

Street districts decide to partic-

demolition of historic buildings.

all or part of a district qualifies.
Next, if your district qualifies,
Therefore, communities must

meet the program’s income

talk with community leaders

stay alert to minimize the risk

criteria, it can use the credits

to determine if they might like

that older Main Street buildings

to attract new businesses or

to participate. The easiest way

will be demolished to make

to support existing ones. But,

to do so is for the district’s

way for new, suburban-style

even if a district doesn’t include

revitalization program to create


any qualifying areas, it still will

a revolving loan fund, apply

be affected because most new

for certification as a nonprofit

people involved in Main Street

business investment is likely

community development entity

Let’s make this massive new

revitalization? Because many

to take place somewhere else

from the CDFI Fund, then

federal program one that will

of the business development

in or near the community

partner with a for-profit com-

have a positive, lasting legacy

decisions made by investors and

where new development might

munity development entity

for America’s Main Streets.

retailers in the next decade will

displace sales from an older

that has received an allocation

be driven by the availability

Main Street district.

of credits. The CDFI Fund’s

Why does all of this matter to

of New Markets Tax Credits.

So, what should you do?

Web site lists all of the organiza-

If a commercial district includes

tions that received first-round

one or more census tracts that

credit allocations.




Daniel Holland, Editor in Chief
Cassandra McConnell, Managing Editor
Deborah Ring, Copyeditor
Michael Galka, Graphic Design

Mark Sniderman

Senior Vice President
and Director of Research

Ruth Clevenger

Vice President
and Community Affairs Officer

Cassandra McConnell

Community Affairs Manager

Maria J. Thompson

Senior Advisor

Emma Petrie

Research Analyst


of interest
Conferences and Workshops
Community Reinvestment Act Roundtables

Reinventing America’s Older Communities

The CRA Roundtables, offered by the Consumer Affairs and Community Affairs
Offices of the Federal Reserve Bank of Cleveland, are interactive seminars designed
to help financial institutions and nonprofit, community-based, and faith-based
organizations understand the requirements of the Community Reinvestment Act.

January 14 – 16, 2004

January 30, 2004

Plan to join us for this two-and-a-half-day conference exploring the opportunities
and obstacles to vibrant urban communities. Speakers from around the country
will explain their solutions to a wide range of obstacles.

Courtyard at the Navy
26 Main Street
Toledo, Ohio
For information, contact Maria J. Thompson at 216/579-2903 or
March 5, 2004

Federal Reserve Bank of Cleveland, Pittsburgh Office
717 Grant Street
Pittsburgh, Pennsylvania
For information, contact Dan Holland at 412/261-7947 or

Financial Education Roundtables
In June, the Community Affairs Office held a series of public meetings throughout
the Federal Reserve’s Fourth District to discuss best practices for financial education
programs. Summaries of the meetings, including analyses of strengths, weaknesses,
opportunities, and threats, are available online at

2004 Community Reinvestment Conference

Senior Advisor

Sponsored by the Federal Reserve Bank of San Francisco, Office of Thrift Supervision,
Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation,
and the American Bankers Association, National Association of Affordable Housing
Lenders, and National Community Capital Association.


Community Affairs Liaison

CR Report: 2003 Environmental Assessment
The Community Affairs Office of the Federal Reserve Bank of Cleveland conducted
an environmental assessment survey in early 2003 to better understand community
reinvestment and economic development conditions in the region and to provide
a road map for community economic development practitioners. Specifically, the
survey addressed trends affecting access to capital and credit in low- and moderateincome communities in the Fourth District. View the report online at CRreport2.pdf.

There’s a Lot to Learn about Money
The Federal Reserve System offers consumer information and educational resources
on the Fed’s role in personal financial education, enforcing consumer protection
laws, and how to file a consumer complaint.
For the latest information on the Cleveland Fed’s Community Affairs events and
publications, visit

Hollywood Renaissance Hotel
Los Angeles, California


Please contact for future updates and information.

March 29 – 31, 2004

Hyatt Regency Philadelphia at Penn’s Landing, Philadelphia cosponsored by the
Federal Reserve Bank of Philadelphia; the Brookings Institution, Washington DC;
The Reinvestment Fund, Philadelphia; and Smart Growth America, Washington, DC.

For information, contact Scott Turner at 415/974-2722 or

Jeff Gatica

Candis Smith

Daniel Holland

Senior Advisor


Visit us on the World Wide Web
We welcome your comments
and suggestions — send them to

The views stated in Community Reinvestment Forum
are those of the individual authors and are not
necessarily those of the Federal Reserve Bank of
Cleveland or of the Board of Governors of the
Federal Reserve System.
Materials may be reprinted provided that the
source is credited. Please send copies of reprinted
materials to Community Affairs, Federal Reserve
Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio


P. O . B O X 6 3 8 7
CLEVELAND, OH 44101-1387



Please contact the following members of the
Community Affairs staff if you have questions or
would like additional copies of this publication.