Two Arkansas CDFIs receive $90 million in U.S. Treasury funding to spur investment in low-income, urban and rural areas
September 13-19, 2021
By Wesley Brown
Arkansas Capital Corp. and Southern Bancorp Corp. learned recently they will together receive $90 million in federal New Market Tax Credits to spur investment and economic growth in low-income urban and rural communities in Arkansas and surrounding states.
On Sept. 1, the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) awarded $5 billion in tax credits to 100 Community Development Entities (CDEs) across the nation for the 2020 round of the federal New Markets Tax Credit Program (NMTC Program).
“These investments will create jobs and spur economic growth in urban and rural communities across the country,” said U.S. Treasury Secretary Janet Yellen. “Many of the communities that will receive these funds have confronted economic challenges over many decades. Challenges which have been made more difficult by a lack of investment. It’s critical that Congress sustain these investments over time by making the New Markets Tax Credit Program permanent.”
The 100 CDEs receiving awards today were selected from a pool of 208 applicants that requested an aggregate total of $15.1 billion in tax credit allocation authority. The award recipients are headquartered in 34 different states and the District of Columbia. One-fifth (20%) of the investments will be made in rural communities. It is estimated that these award recipients will make more than $1 billion in New Markets Tax Credit investments in non-metropolitan counties.
“For over 20 years, the New Markets Tax Credit has facilitated essential investments into low-income communities and businesses helping them to rebuild after years of disinvestment and enabling them to recover from external forces, such as the current pandemic, which have caused disproportionate harm to the businesses and families in these communities,” said CDFI Fund Director Jodie Harris.
The pre-Labor Day announcement by the U.S. Treasury Department brings the total amount awarded through the NMTC Program to $66 billion. Historically, NMTC Program awards have generated $8 of private investment for every $1 invested by the federal government. Through the end of fiscal year 2020, NMTC Program award recipients deployed almost $56 billion in investments in low-income communities and businesses.
U.S. Treasury officials estimate that those investments generated the creation or retention of nearly 871,000 jobs, and the construction or rehabilitation of nearly 231.5 million square feet of commercial real estate.
In Arkansas, the Heartland Renaissance Fund LLC in Little Rock was awarded $40 million under the Treasury Department’s new market tax financing program to continue providing investment capital in economically underserved communities. Formed in 2002 by Arkansas Capital Corp., the Heartland fund is a certified community development entity (CDE) that has been a multiple recipient of more than $330 million in NMTC financing.
Last year, Arkansas Capital Corp.-backed fund was also awarded $35 million in federal tax credit financing as one of 76 CDEs across the U.S. to split nearly $3.5 billion in NMTC financing. ACC was founded over 60 years ago by top Arkansas businessmen such as Winthrop Rockefeller, John Tyson, Horace Cabe, Harvey Couch Jr., Dave Grundfest, Charles Murphy, JA Riggs Jr., and Witt Stephens to help move the state’s agricultural-dependent landscape to an industrial-driven economic system.
Southern Bancorp Bank of Arkadelphia, part of Little Rock-based Southern Bancorp Inc., was also awarded $50 million by the U.S. Treasury to attract private capital investment into rural and underserved communities in Arkansas and Mississippi. Arkansas’ largest community development financial institution (CDFI) also received $50 million last year in the previous round of the federal program.
“We are honored to once again be awarded an allocation of New Markets Tax Credits by the CDFI Fund,” said Southern Bancorp Inc. CEO Darrin Williams. “Southern Bancorp has a proven track record of putting investment capital to work in places that need it most, and this program is a powerful tool through which we can put investment dollars to work supporting job growth and creation in financially underserved areas.”
“We are actively looking for projects in both Arkansas and Mississippi that align with our goals for creating large scale economic opportunity and impact in underserved communities, and we encourage project developers to connect with us if they’re interested in that level of impact as well,” continued Williams.
Under U.S. Treasury NMTC initial application phase, reviewers with strong credentials in community and economic development finance independently evaluate and score the Business Strategy and Community Outcomes sections of each application. Reviewers were selected based on a variety of factors, including their knowledge of community and economic development finance and experience in business or real estate finance, business counseling, secondary market transactions, or financing of community-based nonprofits.
The CDFI Fund also screened each reviewer to identify any potential conflicts of interest with any of the applicants. They were also required to sign a confidentiality agreement stating that they would not disclose any information obtained from the CDFI Fund during the review process.
To be considered highly qualified and eligible for further allocation award consideration in the second phase, an application had to achieve an aggregate score of at least 40 points in each of the two scored application sections, and a total base score of at least 85 points. Thus, for example, an application with a section score of 40 in the Business Strategy application section combined with a score of 38 in the Community Outcomes application section would not be considered highly qualified and therefore, would not receive further consideration.
Of the highly qualified applicants, those that were most highly ranked were considered for an allocation. For each highly qualified application sent to the Allocation Recommendation Panel, panelists reviewed the applicant’s management capacity, capitalization strategy, and information regarding previous NMTC awards sections, which were not scored in Phase 1.
CDEs that receive the tax credit allocation authority under the program are domestic corporations or partnerships that provide loans, investments, or financial counseling in low-income urban and rural communities. The tax credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year period. The CDEs in turn use the capital raised to make investments in low-income communities.
This year, Treasury Department officials said applicants that received awards received high scores in key NMTC metrics, “clearly demonstrating that (their) products will be significantly more flexible than market standards.”
The millions of dollars in new funding from the U.S. Treasury Department continues the boom in Wall Street and government investment into CDFIs in Arkansas. Last month, West Coast banking giant Wells Fargo announced that it awarded a total of $1.25 million in grants from its Open for Business Fund to Arkansas-based CDFIs Communities Unlimited in Fayetteville, and Southern Bancorp to help minority-owned small businesses manage the economic effects of COVID-19.
The funding will help Communities Unlimited access to capital with low-rate loans for small business owners in persistent poverty counties, including so-called “rural banking deserts” in Arkansas, Texas, Oklahoma, Louisiana, Mississippi, Tennessee and Alabama. The funding will also help Southern Bancorp focus on empowering individuals, families, and businesses in economically distressed communities to build income and assets with attention to economic equity and a commitment to financial inclusion.
Wells Fargo’s Open for Business Fund is a roughly $420 million small business recovery effort across the U.S. to help entrepreneurs recover and rebuild. The initiative focuses on three key areas, including increasing access to capital through CDFIs, technical assistance, and long-term recovery and resiliency programs.
Overall, the fund is projected to help CDFIs and nonprofits enable $1 billion in available financing for small business owners, helping them close the gap on rent, utilities and employee pay, while accessing expertise to adapt their business for the future. Through July 31, Wells Fargo officials said the fund will help to preserve a projected 226,000 jobs across the U.S., although officials provided no details to confirm those figures.
In June, Silicon Valley-based Square Inc., known for CashApp and other cashless credit card payment apps and solutions, made an equity investment in fast-growing Southern Bancorp Inc. and other CDFIs as part of its $100 commitment to minority and underserved communities.
According to Southern Bancorp, Square will invest $25 million of its $100 million commitment in CDFIs and minority-owned banks to increase their capacity to make loans to local small business owners. Those funds will also go toward helping minority-owned small businesses grow through finance and providing “unbanked individuals” with access to savings and other financial tools that have historically been limited to those with privilege.
In late October, Bank of America also announced it had decided to direct its early $50 million commitment toward acquiring approximately 4.9% of common equity in 10 CDFIs and minority-owned banks, including Little Rock-based Southern Bancorp. Those investments were part of Bank of America’s $1 billion-plus commitment to racial equality and economic opportunity following the George Floyd protests a year ago.