Testimony on the New Markets Tax Credit Program Before the US Congress

Hearing Of The Select Revenue Measures Subcommittee Of The House Ways And Means Committee - The New Markets Tax Credit Program. Date: June 18, 2009. Location: Washington, DC. Chaired By: Rep. Richard Neal

Rep. Richard Neal: Mr. Cunningham?

MR. CUNNINGHAM: Thank you, Chairman Neal, Chairman Watt, Ranking Member Tiberi. I really appreciate your inviting me here.

I'm going to make this very quick. Before I get started, I'd like to introduce a member of my staff, Marie Cunningham Brown. She's also my mother. She worked for 30 years on Capitol Hill. In her last posting, she was an assistant to Congressman Claude Pepper. If I say anything intelligent, you have her to thank. If I say anything stupid, and I will, you can blame me.

Now, one of the things I want to point out is that the misallocation of economic resources kills people. Not two days ago, a homeless woman not 1.14 miles away from where we sit today was waiting for shelter at a homeless shelter close to -- close to here and she died, basically because the economic resources weren't available to help her out. These are the kinds of people that the New Market Tax Credit program was designed to assist.

In our 2008 application, we created a financial instrument designed to help and address the problem of homelessness. That application was not funded. So that's part of the problem that we have with the -- with the program. We just think that, again, the misallocation of economic resources based on racial prejudice is wrong. It kills people, markets, firms and economies. And we pointed this out in numerous comments to the Securities and Exchange Commission and to other bodies.

Now, with respect to kind of what our problem is with the program, we've applied in virtually every round of the New Market Tax Credit program. I actually gave a speech in 1994 in San Francisco, California, where I called for the creation of new market-type vehicles to get venture capital into under-served communities. So we take great pride and credit in being one of the intellectual forefathers of this program, you know, but we just have not had a lot of success in accessing those resources for a number of reasons.

Now, we concur with the statistical findings of the GAO report. That's included in Appendix A in our testimony -- a statistical analysis that was conducted by two interns that work for us.

You know, I do want to point our 2004 New Market Tax Credit application in particular, because we partnered with the city of Minneapolis to apply for $120 million in New Market Tax Credits. We had a letter of commitment from Piper Jaffray -- letter of commitment and a partnership with a city, and we were not funded. So, obviously, from our perspective, there is a problem with this program.

In our last application, we partnered with an African American individual with a net worth of $150 million, who basically supported our application to create a $50 million pool of New Market Tax Credits that we were going to allocate to minority-owned banks.

In the review of our application, the reviewer said, "We're not sure that minority-owned banks either want or can use New Market Tax Credits." They turned around and then they gave two minority-owned banks New Market Tax Credits when we had applied to do exactly the same thing a year earlier. Again, from our perspective, there is a problem with this program.

Now, what we suggest you do is we suggest you look at the transaction record for New Market Tax Credit allocation. When I say "the transaction record," what I mean is we suggest you look at the commissions paid to investment banks, consultants, lawyers and accountants. Basically, we want to outline -- we want to put some sunlight on this allocation process and determine who is benefiting up front from these New Market Tax Credit allocations.

According to the data that we have, if you -- because the spreads are so large and because this is one of the most generous federal government programs in the federal government community development inventory, the fees that we've seen go to some of the investment banks can get as high as 10 percent of the allocation. So 10 percent of the allocation goes to an investment bank before a dollar goes to the community to repay that investment bank for bringing investors into the -- into the pool. We think that's unfair. We think that's unfortunate.

In Appendix C of our testimony, we've outlined further suggestions for enhancing this program. Basically, we suggest that you increase the New Market Tax Credit for equity investment in low- income businesses located in some of the more distressed areas of the country. That's the core of our recommendation.

Again, I understand the time pressure you're under. I appreciate your inviting me here to testify today. I'm available to answer any questions that you have.Thank you.

REP. NEAL: Thank you, Mr. Cunningham. We have two minutes on the floor, Mr. Klein, if you want to give this a quick go, accept your testimony part verbally and part written testimony, if we could.