Enhancing Community Impact in Deep Distress Areas, Federal Native Areas, and U.S. Territories

The CDFI Fund’s (who is under the Treasury Department) recent proposal to update the New Markets Tax Credit (NMTC) application process signifies a pivotal shift toward more targeted community investments, particularly focusing on areas grappling with profound economic challenges. This draft outlines the proposed changes to the NMTC Application for Community Development Entities (CDEs), emphasizing new requirements that could make projects in certain distressed areas more appealing to investors. We can see the writing on the wall that the upcoming buzz word for CDEs in the industry will be “Deep Distress.”

The CDFI Fund has introduced a new category termed “Deep Distress” to supplement the existing “Severe Distress” criterion in NMTC allocations. Deep Distress areas are defined as census tracts with poverty rates exceeding 40%, or those in non-metropolitan counties with median family incomes not surpassing 40% of statewide median family income, and similar measures for metropolitan areas. This category also includes tracts where unemployment rates are at least 2.5 times the national average.

By requiring CDEs to indicate whether their investments will reach these deeply distressed areas—and potentially committing a certain percentage of their allocation to these zones—the CDFI Fund aims to intensify efforts in regions that need them the most. This strategic focus is not only likely to stimulate economic recovery but also opens new avenues for projects seeking NMTCs to stand out.

In addition to the deep distress areas, the proposed changes also highlight Federal Native Areas and U.S. Territories as critical investment zones. Federal Native Areas encompass Federal Indian Reservations, Off-Reservation Trust Lands, Hawaiian Home Lands, and Alaska Native Village Statistical Areas. Meanwhile, U.S. Territories refer to Island Areas of the United States as defined by the U.S. Census Bureau, including Puerto Rico, the U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa.

These additions underscore a deliberate push to address the unique economic challenges faced by indigenous communities and U.S. Territories, which often experience higher levels of economic hardship and systemic neglect. By directing NMTCs towards these regions, the CDFI Fund is acknowledging the necessity of fostering sustainable economic development and resilience in historically underserved communities.

To align with these new priorities and facilitate the connection between CDEs, investors, and qualifying projects, Impact Marketplace is currently implementing advanced search filters. These filters will allow users to easily identify and explore projects specifically located in Deep Distress areas, Federal Native Areas, and U.S. Territories. This enhancement is designed to streamline the process for CDEs and investors seeking to make impactful investments in accordance with the updated NMTC guidelines.

For CDEs, these proposed changes necessitate a reassessment of investment strategies to align with the updated priorities. CDEs will need to evaluate their capacity to engage with projects in these newly emphasized areas, balancing potential risks against the high-impact outcomes promised by these investments.

Projects seeking NMTC financing located in deep distress areas, Federal Native Areas, or U.S. Territories should take particular note of these shifts. Projects in these regions may now attract more attention from CDEs looking to meet the new requirements, potentially making them more competitive for NMTC allocations. Developers in these areas are encouraged to highlight the alignment of their projects with the new focus areas in their applications and communications with potential CDE partners.

Impact Marketplace invites all Community Development Entities and project developers who are navigating these new guidelines or seeking NMTC allocations to reach out with any questions or for further clarification. Our platform is dedicated to facilitating impactful investments, and we are here to support your efforts in understanding and adapting to these significant changes. Contact us today to explore how your projects can benefit from the enhanced focus on deep distress areas, Federal Native Areas, and U.S. Territories.