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New Markets Tax Credit Coalition
January 4, 2006
John Dugan, Comptroller
Re: Docket Number 05-17
Dear Mr. Dugan:
I am writing on behalf of the New Markets Tax Credit Coalition in response to the request for comments on proposed revisions to the Interagency Questions and Answers document related to the implementation of the Community Reinvestment Act (CRA). In particular, I am writing to ask that the draft document be amended to clarify that an investment made in a Community Development Entities (CDEs) by financial institution in conjunction with the New Markets Tax Credit does qualify as a CRA investment.
The New Markets Tax Credit (NMTC) was enacted in December 2000 as part of the Community Renewal Tax Relief Act (PL 106-554) and is administered by the Department of Treasury through the Community Development Financial Institutions (CDFI) Fund. The Credit offers a seven-year, 39% federal tax credit for Qualified Equity Investments (QEIs) made in investment vehicles known as Community Development Entities (CDEs). According to a 2005 survey of CDEs conducted by the Coalition, regulated financial institutions are the principal investors in CDEs and to date more than $2 billion in new private investments have been made in CDEs working in low-income communities with the help of the Credit.
By definition, a CDE is a domestic corporation or partnership with the primary mission of serving or providing investments capital for low income communities or persons. CDEs are also required to maintain accountability to the low income communities being served by ensuring the representatives of the community sit on the CDE advisory or governing board. By law, Specialized Small Business Investment Companies (SSBICs) and Community Development Financial Institutions (CDFIs) are deemed to meet the basic requirements of a CDE.
While the existing interagency CRA document is silent on the New Markets Tax Credit and investments in CDEs, the Office of the Comptroller of the Currency (OCC) sent a letter to then Director of the Community Development Financial Institutions (CDFI) Fund, Tony Brown in December, 2003 stating that an investment made by a financial institution in a CDE in connection with the Credit would be favorably considered under the CRA. The letter also concluded that a loan made by a financial institution in a CDE would qualify under the CRA. This OCC letter has been the principal guidance to financial institutions on the Credit and CRA.
One of the proposed revisions to the CRA Question and Answer document would revise the existing answer that provides examples of qualified investments (existing §§ __.12(s) & 563e.12 (r )-4) to include bank investments in Rural Business Investment Companies (RBICs). While the Coalition supports adding RBICs to the list of qualified investments which already includes Community Development Financial Institutions (CDFIs) and Community Development Corporations (CDCs) we recommend that Community Development Entities (CDEs) be added to the list as well. I understand the answer is designed to give examples and not provide a complete list of qualified investments we are concerned by the notable absence of CDEs on the list especially in light of the OCC letter.
I appreciate your attention to this matter.
Robert A Rapoza
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