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Upcoming $15 billion tax credits target American Indians

WASHINGTON, D.C. ? The federal government is targeting Native American communities for a slice of a brand new $15 billion economic and community development boost through tax credits.

The Treasury Department's Community Development Financial Institutions Fund is expected to solicit company certifications for the New Markets Tax Credit program and applications for the credits themselves any time now. It specified Native Americans as a target for the program in the initial guidance it published.

Although the CDFI Fund, which is managing the new tax credit, has set no allocation for Native areas, the overall effort is intended to spur investment in businesses in low-income rural and inner-city areas by cutting big national investors a tax break to do so. The tax break could be as large as 30 percent of the investment.

The money would be channeled to Indian country businesses by intermediaries that qualify for federal 'CDE' status (community development entity). The fund has authority to designate up to $1 billion in tax credits this calendar year, $1.5 billion for calendar 2002 and 2003; $2 billion for 2004 and 2005, and $3.5 billion for 2006 and 2007. Although the program has yet to allocate any tax credits for this year, it can roll over its issuing authority into next year.

The NMTC was created by the Community Renewal Tax Relief Act of 2000 to attract equity capital to growing businesses in inner cities and distressed rural areas. This kind of equity capital, where investors actually take out equity positions, can relieve short-term cash flow problems, increase a small business' creditworthiness, and enable it to get better rates when it borrows money, according to the government.

Just about any business located in a low-income area will be eligible to get equity investments or loans under the program, the CDFI Fund said.

The kinds of firms likely to be interested in getting this credit are institutions like banks and thrifts, insurance companies, investment banks, finance companies, and venture capital firms, the government reports.

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The kinds of firms likely to be the intermediaries (CDEs) are community development banks and corporations, venture funds, small business investment companies, New Markets Venture Capital companies, and for-profit Community Development Financial Institutions, which will automatically qualify for CDE status.

Some Indian country CDFIs include the Lakota Fund, Kyle, S.D., Hopi Credit Association, Keams Canyon, Ariz., Native American National Bank, Denver, and Four Bands Community Loan Fund, Eagle Butte, S.D.

The newly chartered Native American National Bank appears eager to take on CDE accreditation. It is a for-profit, unlike many other Indian CDFIs, and it has written a comment letter to the CDFI Fund making recommendations on various aspects of the proposed rules for NMTC.

CEO John Beirise's letter touts NANB as 'uniquely qualified and focused on community development and economic empowerment for Native American and Alaska Native communities? the Bank will have the resources and the commitment to target American Indian and Alaskan Native businesses and entities, and to develop the technical expertise to address the special legal issues arising from doing business with these customers.'

Beirise asks that NANB not be penalized for being a de novo (new) enterprise when the CDFI Fund allocates credits. 'NANB is unique in that its primary purpose is to bring financial services to Indian country which, as acknowledged by the 1994 statutory creation of the CDFI Fund, is an area traditionally underserved by financial lenders. The NANB, and Indian country for that matter, should not be penalized or disqualified based on the fact that Bank has yet to commence making QLIIs (qualified low-income community investments).'

The CEO said he believes the fund should look instead to 'the ability of the Applicant to find viable opportunities in Low Income Communities such as Indian Country which has nearly always been overlooked by traditional investors.'

Beirise also recommends combining awards made under the CDFI Fund's Bank Enterprise program with the NMTC program, citing the example of the combining of Low Income Housing Tax Credits and Historic Preservation Tax Credits on certain community development projects.