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Minority banks shut out of new federal tax credit awards

On August 17, 2015

Loopholes in new federal small business tax credits program leave minority
banks owners like Industrial Bank’s Doyle Mitchell singing the blues.
Credit: Joanne S. Lawton

The Community Development Financial Institutions Fund, an arm of the Treasury Department, issued $3.5 billion in New Markets Tax Credit allocation to 76 banking institutions across the country.

The tax credit program is designed to spur economic development in distressed communities across the U.S. The program provides a tax credit to investors who invest in projects or small businesses in those communities by funneling their investments through the recipients of tax credit allocation.

But none of the new federal funds were awarded to the nation’s minority banks, the institutions with the longest track records of deploying capital in the most underserved communities in our country.

According to the Fund’s own Award Book, only six awards, less than 8 percent, went to minority controlled entities of any kind, and those groups received only $165 million, under 5 percent of the total dollar amount of allocation. 

“The absence of a single minority bank raises much concern,” said Michael Grant, president of the National Bankers Association. “In 2009, the General Accounting Office issued a report detailing the disparity in NMTC awards to minority entities. The numbers have actually gotten worse, not better.” 

A 2009 study by the Government Accountability Office indicated that only about 9 percent of minority entities were successful when applying for NMTCs, while non-minority entities had three times the success rate, winning 27 percent of the time. According to GAO, although the program is highly competitive, minority entities have less than a one in three chance of any other type of entity to receive an award. Minority banks have had even lower success rates than minority entities overall.

“By our estimates, less than 2 percent of the $450 billion in NMTCs issued over the past 12 years has gone to minority banks,” said Doyle Mitchell, CEO of Industrial Bank of Washington, D.C., and immediate past Chairman of the NBA.

“Some of our banks have been deploying capital in the poorest neighborhoods in America for over 100 years, and we think the CDFI Fund should review the program to ensure that applications by minority and other small CDFI banks are evaluated on criteria that reflects their position as regulated institutions operating in distressed areas, which is significantly different from non-regulated or larger institution applicants,’’ said Mitchell.

“If not for the allocations that were awarded to our bank just after Hurricane Katrina, even less would have gone to minority banks,” said Alden McDonald, CEO of Liberty Bank in New Orleans. “In spite of the experience we have gained, our successful NMTC investment track record and continued need in the communities we serve, we have not been able to win an NMTC allocation from the CDFI Fund since 2010.”

Bob James, president of Carver State Bank in Savannah, Georgia, said, “Our bank has applied for NMTC allocations six times and have been rejected each time, in spite of our participation in over $60 million in NMTC projects and 88 year track record deploying capital in the most underserved parts of Georgia. We think something needs to change to give us a fair opportunity to compete.”

“Our banks have tried hiring consultants, attending CDFI Fund training seminars, finding creative ways to gain direct experience in the NMTC Program, and speaking to the CDFI Fund and Secretary of the Treasury, all to no avail,” said Grant. “Consistently, larger banks are awarded allocations which enhances their profitability at the expense of our banks.

Grant said another concern is the relatively new entities created specifically to participate in the NMTC Program that do not have the long track records of service to poor communities like minority banks which would benefit neighborhoods his entity serves.

“The NMTC Program has great potential to be part of a comprehensive economic solution in America’s inner-cities, most of which still have not recovered from the Great Recession,” said Preston Pinkett, CEO of City National Bank and chairman of the NBA.

“But the group’s best equipped to make those investments, minority banks - many of which have been in service for over 100 years- have largely been shut out of the NMTC program. We need our CDFI Fund to do more; we need a real change that will allow us to receive allocations so we can use these resources to improve our communities.”

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