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Dismantling Structural Racism in Community Development Finance

In an opinion piece for ImpactAlpha, LISC COO Annie Donovan draws on the expertise she honed as head of the CDFI Fund to illustrate the layered ways that BIPOC community development entities are locked out of federal tax credit allocations and other resources. "The disproportionate results reflect the same deeply seated structural barriers that prevent minority-owned enterprises from accessing credit in other parts of the economy," she writes, explaining that Congress, and the rest of us, must help remedy this inequity. 

The excerpt below was originally published by ImpactAlpha:
Dismantling structural racism in community development finance

By most measures, the federal New Markets Tax Credit (NMTC) Program has been a resounding success. Since its creation nearly two decades ago, the program has generated more than $52.5 billion in investments to fuel economic development in low-income communities, supporting more than 830,000 permanent and construction jobs and more than 218 million square feet of commercial real estate. For every $1 of public investment, $8 of private-sector investment is leveraged.

Despite these catalytic investments, there is one area where the program underperforms that should be addressed by Congress: Community Development Entities (CDEs) owned or led by Black, Indigenous, and other People of Color (BIPOC) have consistently fared worse in the fierce competition for access to the credits.

This is not to say that NMTC capital does not reach communities of color. In fact, some $28 billion of the aggregate investment was delivered to majority-minority census tracts, creating 244,000 permanent jobs. However, the program is not serving minority-run community investors, thereby limiting their opportunities to grow and support high-impact projects in the communities they serve.

The Government Accountability Office (GAO) studied this issue in 2009. It found that from 2005 through 2008, minority-owned CDEs were successful in about 9% of the NMTC applications they submitted and received about 4% of the credits for which they applied. By comparison, non-minority CDEs were successful in about 27% of their applications and received about 15% of what they requested.

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