2008 New Markets Tax Credit Symposium: Measuring Community Benefits in NMTC Transactions

July 2008

W W W . S O C I A L C O M P A C T . O R G

Capturing Community Strengths and Opportunities in Urban Markets

Social Compact: A DC based nonprofit1990: Recognizing successful partnershipsSocial Compact Awards acknowledge that the public and private sectors must work together creatively to achieve successful neighborhood development

1999: DrillDown concept piloted in ChicagoSocial Compact tests new tools geared to surface hidden strengths and opportunities in underserved urban communities

19902008

1999

Accurate and actionable market analytics should be used to attract private sector investment and inform public sector decisions with the guidance of

community partners.

Why Social Compact Tools?

Response to three emerging themes in community economic development:

1. Inner cities have investment potentialProblem: Deficiency-based profiles undervalue and cloud the investment potential of inner cities (Michael Porter).

Solution: Develop an asset-based approach

Response to three emerging themes in community economic development:

2. The information-gap as a key barrier to development.Problem: There is a lack of reliable and specialized market intelligence about emerging urban neighborhoods (Robert Weissbourd). Census and census-derived estimates undervalue inner city neighborhoods.

Solution: Close the information gap

Why Social Compact Tools?

Response to three emerging themes in community economic development:

3. Development begins with the neighborhood Problem: City-level information obscures neighborhoods market characteristics

Solution: Neighborhood level indicators capture local intuitions

Why Social Compact Tools?

Examples of Information Led Development

DrillDown Market Profiles: Uncovering the Hidden Potential

Reconstruction of Data to Positive InformationDeficiency-based Analysis

Poverty and Unemployment

Profiles of Over-Crowding

Aging Housing StockLow Home Ownership rates

High Levels of Crime/Frequent Media

Focus

Asset-based Analysis

Higher Market Density

Spending Power

Prime Housing Stock

Positive Presentation of Crime

ALTERING NEIGHBORHOOD LENSES

A Tale of Two Neighborhoods: Better Data & New Indicators

What the census and traditional analytics don’t tell you:• 38% increase from Census 2000 population count• 7% increase from Census 2000 average household income• $23 million in informal aggregate income missed by traditional market estimates• Income density of $298,000 per acre• Rising home values and falling crime

Population 17,303 Population 23,901Avg HH Inc $42,246 Avg HH Inc $45,268

Avg HH Inc (HMDA) $43,179Neighborhood Income $309 Million Neighborhood Income $443 Million

Informal Economy Income $23 MillionHomeownership (Unit) 54.1% Homeownership (Bldg) 83.4%Median Home Value $95,800 Median Home Sale Price $80,393

years

Source: U.S. Census Bureau, 2000 Source: Cincinatti DrillDown, 2007

Community A Community B

Experienced significant decline in reported incidents of property and violent crime in recent

Perceived as high crime area

Surveys: Underbanked populations in Los Angeles What services does a neighborhood need?

Roughly half of neighborhood residents in both Vernon Central and Boyle Heights report that they do not currently have a bank account, representing a sizeable untapped market fo r potential new bank customers.

Of those respondents who do not currently have a bank account, just over half of Vernon Central residents and over 40% of Boyle Heights residents, report that they are unaware of basic check-ing accounts with low fees and low minimum balance requirements. In addition a large proportion of respondents in both neighborhoods ci te that they are unaware of alternate forms of identifica-tion that can be used to open a bank account, a notable issue given that a significant number of respondents ci ted not having a social security number as a barrier to opening an account.

These findings indicate that existing banks are either not aggressively marketing these accounts, or their advertising campaigns are possibly unable to reach these markets.

The lack of physical banks in Vernon Central has a direct impact on bank u tilization rates. Of the three sites, Vernon Central has the highest number of people cashing checks “very often” or “often” at supermarkets (30.8%).

Households currently without checking accountsTotal

Households*No current

checking acctPotential

Client HHsVernon Central 32,193 52.9% 17,030Boyle Heights 25,216 41.5% 10,465*based on 2008 Los Angeles DrillDown

Respondents lacking checking accounts% lacking account

% aware of basic accounts

% aware of alternate IDs

Vernon Central 52.9% 57.6% 68.1%Boyle Heights 41.5% 50.9% 82.5%

Households using check cashing services

Total HouseholdsBanks per 10K

Households% cash checks

received% cash checks at

supermarketVernon Central 32,193 0.3 31.2% 30.8%Boyle Heights 25,216 3.2 27.2% 8.1%

This map depicting banks and full service gro-cers (not including smaller grocers, conven-ience stores and o ther food markets) may explain Vernon Central residents’ use of gro-cers for check cashing services: full service grocers alone outnumber traditional banks in the neighborhood.

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DrillDown Study Area

City of Los Angeles

Los Angeles Co.

0 1 20.5 Miles

Seventy-one percent of all survey respondents (and over 60% in both Boyle Heights and Vernon Cen-tral) do not use the internet. These findings signal important ramifications for financial service providers who intend to use online banking as an outreach strategy to currently underbanked markets.

Respondents in both Boyle Heights and Vernon Central cited not needing a bank account as the most important reasons for not having one, and not having sufficien t funds as the second most important rea-son. Accordingly, residents in Vernon Central cited lower fees to open an account and in Boyle Heights, lower fees to maintain an account, as the most important motivating factor. A notable number of resi-dents in Vernon Central also said more convenient bank locations would encourage them to open ac-counts, while in Boyle Heights, the use of alternate forms of identification was important.

While the majority of respondents claim they have never participated in a financial workshop, nor are they interested, roughly 30% of respondents from both Boyle Heights and Vernon Central indicated that they had never participated in a financial workshop but are interested in doing so. In addition, numerous respondents expressed interest in sev-eral financial products. The tables below ranked these products from those in which respondents’ expressed the most interest to less interest.

Health insurance 44.7%Savings account 35.7%Checking account 31.4%Bill payments 31.2%Money transfers to other countries 28.4%Tax preparation 28.3%Personal loans/alternatives to payday loans 25.4%Money orders 21.9%Business insurance 19.4%Small business loans 17.3%Mortgages 16.5%Prepaid cards 12.5%Debt counseling 3.8%

Vernon CentralRespondents' Interest in Other Financial Products

Savings account 53.8%Checking account 46.7%Health insurance 43.5%Tax preparation 33.6%Money transfers to other countries 33.3%Bill payments 25.2%Mortgages 24.7%Personal loans/alternatives to payday loans 21.4%Money orders 21.1%Small business loans 18.1%Business insurance 15.0%Prepaid cards 13.2%Debt counseling 9.0%

Boyle HeightsRespondents' Interest in Other Financial Products

Respondents use of the internet

1 to 5 hours 6 to 10 hours 11 to 15 hours 16+ hoursVernon Central 63.6% 47.3% 37.5% 34.8% 3.0%Boyle Heights 60.9% 23.4% 23.2% 29.1% 26.3%

of respondents who use internetDon’t use internet

most important motivating factor to open account

0.0%

5.0%

10.0%

15.0%

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25.0%

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Lower fees to open 28.7% 13.6%Lower fees to maintain 4.3% 34.5%Other IDs 12.2% 15.5%Easy access to money post-deposi t 6.1% 8.5%More convenient ATM locations 8.7% 1.9%More convenient bank locations 13.0% 1.9%Personnel that speak my language 10.4% 15.9%

Vernon Centra l Boyle Heights

What is Missing in the retail mix? Grocery store access in the City of Baltimore What it means for a city to be underserved?

Baltimore City DrillDown

$217 million

The DrillDown analysis reveals sizable unmet demand with respect to full service grocers.

An estimated $217 million in grocery leakage could support an additional 600,000 square feet of grocery retail space in Baltimore City.

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Grocery Leakage

Freeway System (State)($98,491,625) - ($6,069,166)($6,069,165) - $23,686,443$23,686,443 - $50,952,344$50,952,344 - $73,511,926

$73,511,926 - $115,250,712

The grocery leakage in Baltimore amounts to more than $217 million, or 1 out of every 4 dollars.

Baltimore City DrillDown

1.78 sq ft

Residents of Baltimore County are served with 2.76 square feet of grocery per person. In contrast, the City of Baltimore is significantly underserved with only 1.78 square feet per person.

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Square Foot per Person

Square Foot Per Person0.00 - 1.501.51 - 2.002.01 - 3.003.01 - 4.004.01 - 18.04

BaltimoreMSA

Baltimore City DrillDown

87% underserved570,000 people or 87% of Baltimore City’s population, have access to less than 3 square feet of grocery retail space and are underserved.

Furthermore, around 160,000 people in Baltimore (or 24 % of the total population) have access to even less than half this amount (1.5 square feet per person).

Measuring the impact of financial services for individuals

in LMIs

Foreclosure: Impact Tool and Mapping

July, 2008

W W W . S O C I A L C O M P A C T . O R G

Carolina Valencia cvalencia@socialcompact.org

NEW MARKETS TAX CREDIT MEASURING COMMUNITY BENEFIT

NH&RA Summer InstituteNH&RA Summer InstituteKermit S. Billups, Managing Director Kermit S. Billups, Managing Director

July 23, 2008July 23, 2008

Discussion Outline

Alliance for Economic Development (AFED)

Presentation to U.S. Department of Treasury

Community Impact Study

Alliance for Economic Development

NMTC industry advocacy group consisting of private capital providers

Advantage CapitalCapmarkKey BankNational CityUS BankWachovia

Goal: Support use of private capital, efficiency and fiscal compliance in NMTC industry

Capmark Round-One Allocation Analysis Excerpt from 11/30/06 Presentation to Department of Treasury

Program Goal: Improve flow of capital into low-income areas Capmark financing activities in low-income communitiesincreased from 23.8% (’99 - ’03) to 30.1% (’04 - ’05)

• Capmark is not a CRA lenderRound-one allocation: 100% deployed into CDFI Fund special areas (only 60% required)

Substantially all test: 100%

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Capmark Round-One Allocation Analysis Excerpt from 11/30/06 Presentation to Department of Treasury

Focus on short-term products and mezzanine debt

$75 million of allocation leveraged $360 million of investment (approximately 5:1)

Recycled $20 million of allocation to date (11/2006)

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Capmark Round-One Allocation Analysis Excerpt from 11/30/06 Presentation to Department of Treasury

Initial direct impact of $75 million allocation• 365 construction/renovation jobs• 4,618 permanent jobs created retained• $39 million per year of federal and social security taxes• $4 million per year of state and local taxes

Capmark investments are 2-3 years in duration

Assuming capital is recycled, the economic impact will be 2-3 times initial projections

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Capmark Round-One Allocation Analysis Excerpt from 11/30/06 Presentation to Department of Treasury

One direct job created per $16,240 of NMTC allocation• Additionally, one construction job per $205,000 of

allocationOne direct job created per $6,330 of actual tax credits utilized• Assuming $29.250 million of actual credits (39% of $75

million) HUD standard for “good program” - $22,000 subsidy cost per job

• (Source: Nixon Peabody LLP)

Recycling will create 2-3 times initial job benefits

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Capmark Round-One Allocation Analysis Excerpt from 11/30/06 Presentation to Department of Treasury

Direct tax impact:• $39 million increase in federal and social security taxes • $4 million net state and local tax increase

Each tax dollar contributed creates $1.3 in additional federal tax revenue and 13.5 cents of additional state/local revenue

Recycling will create 2-3 times initial tax benefits

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AFED Economic Impact Study

Conducted economic impact study using 280 NMTC investments completed by members

• One of the first studies to apply consistent modeling across multiple CDEs

• Study analyzed $3.9 billion of investment in low income communities

$1.4 billion of NMTC allocation funding$2.5 billion of non-NMTC funding

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AFED Economic Impact Study

One direct job created per $45,605 of NMTC allocationOne direct job created per $17,786 of actual tax credits utilized• Tax credit represents $0.39 per dollar of allocation

HUD standard for “good program” - $22,000 per job

• (Source: Nixon Peabody LLP)

Recycling will create 2-3 times initial job benefits

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AFED Economic Impact Study

Annual direct personal income tax impact:• Federal: $238 million increase • State: $68 million increase

Each tax dollar contributed creates annually $0.42 in additional federal personal income tax revenue and $0.12 of additional state tax revenue

Recycling will create 2-3 times initial tax benefits

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Alliance for Economic Development

Study Conclusions:

• NMTC program is working to stimulate job creation and increase tax revenue

• Tax credit payback in 2.4 years without assuming recycling of credits into multiple deals

• Federal government should receive tax revenue far in excess of program costs

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