THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release May 23, 2000
Details of the New Markets / Renewal Communities Agreement
May 23, 2000
NEW MARKETS INITIATIVES:This proposals have been constructed with the assistance of the many Members of Congress that are listed as cosponsors below and with substantial input from the Congressional Black Caucus led by Rep. Clyburn and the Congressional Hispanic Caucus led by Rep. Roybal-Allard.
New Markets Tax Credit. The deal includes the President's New Markets Tax Credit to spur $15 billion in new private equity investment for business growth in our nation's inner cities and isolated rural communities.
- Investors in eligible funds would receive a tax credit worth in present value terms more than 30 percent of the amount invested. Investors would take a 5 percent credit for the first 3 years of investment, and 6 percent for the next 4 years.
- Eligible funds would include a wide range of entities, including community development banks and other community development financial institutions, venture funds, for-profit subsidiaries of community development corporations, America's Private Investment Companies and New Markets Venture Capital Firms.
- The New Markets Tax Credit would be widely available on a competitive basis to funds serving low- and moderate-income communities around the country, those with census tracts with poverty rates of at least 20 percent or median family income which does not exceed 80 percent of area income.
- The proposal costs $1 billion over 5 years and $4.5 billion over 10 years.
- The President's proposal had been introduced by Representatives Rangel and Senators Robb and Rockefeller. Important House leadership has also come from Reps. Becerra, Jefferson, Kanjorski, Matsui, Waters, Velasquez, and Rep. Norton, with 38 co-sponsors. In the Senate, the bill has 13 co-sponsors.
America's Private Investment Companies (APICs): This HUD/SBA legislative proposal will create investment funds with minimum private capital of $25 million (which is eligible for the New Markets Tax Credit), that could then borrow twice that amount at government-guaranteed rates and spur $1.5 billion in private investment.
- APICs would be structurally similar to the existing SBA Small Business Investment Company (SBIC) program, and the Investment Funds of the Overseas Private Investment Corporation, but would generally be much larger.
- APICs would fund larger businesses, such as new back office operations, plant expansions, and conversions of old facilities into modern industrial "incubators" for smaller businesses. Currently, there are few, if any, sources of long-term risk capital for these landmark investments in most poorer communities.
- The agreement authorizes HUD to guarantee up to $1B in low-cost loans that will match $500 million in private investors' contribution, to make a total of $1.5 billion available to invest in low- and moderate-income communities.
- House sponsors include Representatives LaFalce, Kanjorski, Leach, Vento, Lazio, Waters, and Jefferson.
New Markets Venture Capital Firms (NMVC): This SBA legislative proposal would create a new class of venture capital funds that target a lower rate of return (e.g., 10%) and provide more hands-on management assistance to their small business portfolio investments.
- NMVCs would target smaller firms with growth prospects that do not currently have sufficient equity base.
- NMVCs must have $5 million minimum in private equity, plus $1.5 million in cash or in-kind commitments raised from private sources to provide operating and management assistance. For investment capital, the SBA would provide up to $1.50 in low-cost loans for each $1 that private investors contribute. The SBA would also match privately raised operating assistance one-to-one.
- The agreement authorizes SBA to guarantee up to $150 million in loans to match $100 million in private equity, for a total of $250 million in investment capital for these communities. In addition, the agreement authorizes SBA to make $30 million in grants to match private commitments for operating assistance to the NMVC's portfolio companies.
- Lead advocates in the House include Reps. Velasquez and Talent. Senate sponsors include Sens. Kerry, Wellstone, Bingaman, Levin, and Cleland.
Empowerment Zones. The agreement authorizes the designation of 9 new Empowerment Zones, bringing the total number to 40 EZs, and extends the duration of the EZ designation in all 40 EZs to 2009.
- In all EZs, the following incentives are available:
- Wage credit equal to 20 percent on the first $15,000 of qualified wages per employee;
- Authority to issue tax-exempt bonds to promote business development;
- Incentives for EZ business investment by permitting EZ businesses to deduct an additional $35,000 in capital expenditures;
- Zero-rate on capital gains rolled over to another EZ business investment, and a 60 percent exclusion of capital gains derived from small business stock.
- The agreement includes $200 million in discretionary investment for existing "Round 2" Empowerment Zones.
- The EZ provision also includes an extension through 2009 of the Empowerment Zone incentives for the District of Columbia.
- The EZ provisions cost $2 billion over 5 years and $4 billion over 10 years.
- The President's proposal had been introduced by Representative Rangel. Other key leaders include Reps. Clyburn, Jefferson, and Lobiondo in the House and Sens. Daschle, Dorgan, Torricelli in the Senate. Key leadership for the discretionary funding has come from Reps. DeLauro and Meek (FL), and Senator Robb.
Creation of Renewal Communities: These newly created Renewal Communities will be available in 40 competitively-selected communities that meet certain criteria showing economic distress in the community.
- "Renewal Communities" will have the following incentives:
- Zero rate on capital gains derived from businesses located in the renewal communities;
- Wage credit equal to 15 percent on the first $10,000 of qualified wages per employee;
- Incentives for RC business investment by permitting RC businesses to deduct an additional $35,000 in capital expenditures;
- Commercial revitalization tax deduction to promote commercial development;
- Sponsors of the House Renewal Communities include Rep. Watts, Talent, and Davis (IL).
EXPANSION OF THE LOW INCOME HOUSING TAX CREDIT:
Low Income Housing Tax Credit. The deal includes the President's proposal to expand the low income housing tax credit by 40 percent, from $1.25 per capita to $1.75 per capita, and to index the credit for inflation thereafter.
- The tax credit, which is administered by the states, currently helps to build 90,000 affordable housing units each year, but demand for the credits outstrips supply by three to one, and more than 5 million low income Americans live in inadequate housing.
- The proposal would help create an additional 180,000 units of affordable housing over the next five years for low-income families.
- The proposal costs $1 billion over 5 years and $6 billion over 10 years.
- The President's proposal had been introduced by Representatives Rangel and Johnson, with 372 co-sponsors in the House, including most members of the Ways & Means Committee. Senator Mack introduced the Senate version, with 78 co-sponsors.
ALLOWING FAITH-BASED ORGANIZATIONS TO QUALIFY FOR SUBSTANCE ABUSE FUNDS:
The provisions included in this agreement will allow faith-based organizations to qualify for substance abuse prevention and treatments funds on the same basis as other non-profit organizations.
- Both the President and Vice President believe that faith-based and community-based organizations can play an important and constructive role in addressing some of our nation's most pressing problems, including preventing and treating substance abuse. At the same time, the Administration has been clear that the ‘charitable choice provisions' included in this agreement and in other legislation the President has signed can and must be construed and implemented consistent with the constitutional line between church and state.
- The provisions are substantially similar to the charitable choice provisions included in the welfare reform law signed by the President in 1996 and in the substance abuse bill that passed the Senate on a bipartisan basis last fall.