Measuring the impacts of the New Markets Tax Credit program on our communities

As federal programs are facing more increased scrutiny than ever, it is imperative that organizations are able to demonstrate the true positive impact that the New Markets Tax Credit (NMTC) program has on a community.

Allocated Community Development Entities (CDEs) are entrusted with a limited resource and significant expectations for success. Therefore, documenting the impact of a NMTC allocation is a significant component of the decisions made with every funding opportunity. But it can be difficult to acquire an accurate, holistic measurement of the direct and indirect economic impact a project has on the low income community in which it is located as well as the other low income communities it may affect. Often times, a CDE does not have the tools or resources necessary to obtain the actual community impact measurement, thereby risking future award opportunities.

To overcome this challenge, an organization should consider leveraging a third-party community impact assessment provider to analyze these direct and indirect economic impacts. The results can then be used as a tool to demonstrate to financing entities, and other stakeholders, a project’s capacity to serve low income communities and low income persons through the use of New Markets Tax Credit, and other financial resources. This assessment should include a quantifiable measurement of a community’s need by articulating, detailing, and quantifying the specific attributes, benefits, and impacts of the proposed project. The results can provide you with the knowledge necessary to invest, and measure the value of such investments overtime, in projects that will deliver the maximum impact within your targeted communities and remain consistent with your entity’s mission.

When to measure the impact

An assessment of community impact offers insight on the impact of NMTC financing for real estate and non-real estate projects in low income communities. They can, and should, be conducted both pre- and post-development to evaluate and project the returns on and impact of projects on geographic regions, communities, local taxpayers, and the borrowers served.

Pre-development

A pre-development assessment provides CDEs with an early opportunity to forecast future impact from their participation in a project and could be used as a tool to shape the terms of the NMTC deal to create the most value for the community. This allows an organization to allocate their scarce NMTC resource to projects and communities with the greatest need, highest potential value for impact, and closest alignment with both the community’s plans and the CDE’s mission. One key to this assessment is a review of known community preferences related to the project. This layer of analysis directly details the project’s alignment with community plans, neighborhood plans and other documentation that details the focus of the community as well as stakeholder interviews. This element can be used to support the CDE’s outreach when performed as a part of the pre-development analysis process and documented accordingly. A pre-development report serves as the basis for post-development evaluation, including annual reporting; interim evaluation and exit assessments which the CDE may choose to perform on their own or with help.

Post-development

A post-development assessment focuses its conclusions on how the CDE used the NMTC program to create impact through its NMTC investments. It should review aspects such as job creation and retention (where documented), assess the quality of the jobs, job availability to low-income persons, access to minority or disadvantage business enterprises, and increased community development activity. This assessment should measure and compare the expected community impact outcomes to the post-project completion results. These items should part of the pre-assessment process but are projected outcomes. The post-assessment should strive to determine actual outcomes.

While conducting a community impact assessment can be difficult and time consuming, the process can be streamlined by utilizing a third-party that has the tools and resources available. And the results can have a significant impact on a CDE’s ability to attract investment from both the public and private-sector, providing access to additional funds for continued investment in the entity’s targeted low-income communities. Many philanthropic, program-related, or socially driven investors require data demonstrating the impact of an entity’s programs relative to its mission, vision and values. The ability to quantify this through reports which provide data on a multitude of impact layers can provide substantial value to a Community Development Entity.

Within the current economy, it is more important than ever to be able to demonstrate the true value of each project a CDE funds. Impact analysis driven solely by econometric models simply does not support the argument for long term funding. The provision of data grounded in the community and followed through to actual outcomes is the root which validates the funding streams. The answer is very easy for CDEs who have the capacity to complete this analysis in-house. For those who may need to outsource these tasks, the question that looms is much larger. Expense is always an issue, as smaller entities and projects may have difficulty absorbing the cost of full-blown studies. An organization may want to craft its third-party requests to focus on specific areas which best meet its needs for data analysis both pre- and post-funding, to find the best cost/benefit balance, while not foregoing the value of completing impact analysis as a standard part of its ongoing funding practices.