Private Investment and Public Redevelopment: The Case of New Markets Tax Credits

Abstract

The U.S. federal government has increasingly relied on tax incentives to leverage private investment to spur economic redevelopment in poor communities. One such popular program is the New Markets Tax Credits (NMTC), established by the U.S. Congress in 2000. Community development entities transfer NMTC tax credits to private investors in exchange for equity and capital investments in qualifying projects in low-income census tracts. Despite its popularity among private financiers and although nearly $40 billion has been allocated for NMTC, little scholarly attention has been paid to the program. We aim to close this information gap by describing the historical context under which NMTC emerged; detailing the practical elements and process of NMTC; and identifying critical, unanswered questions about this evolving relationship between the U.S. federal government and private investors. We use NMTC as a lens to consider the impact of the private sector's surging role in public redevelopment efforts in low-income communities, and offer some suggestions for governing NMTC and similar partnerships moving forward.