At-large Council Member David Grosso introduced the “Community Impact Investment Tax Credit Act” last week in Washington, D.C. If passed, it would create a one-year pilot tax credit program for investments made into Community Development Financial Institutions (CDFIs) for the purpose of financing affordable housing projects.
Individuals, corporations and foundations would be eligible to receive a 33 percent district tax credit for every dollar invested. Under the pilot program, there would be $1 million in credits for $3 million in cumulative investments available, and no single CDFI would be allowed to receive more than 25 percent of the cumulative investments, or $750,000 — not a lot by itself, but CDFIs are known for their ability to leverage capital from other sources.
“Here in the District of Columbia, rents have risen by almost 30 percent over the past 10 years,” Grosso said in a statement. “While the city has made historic investments into the Housing Production Trust Fund, meeting the actual affordable housing demand would require an investment of around $5 billion according to the D.C. Fiscal Policy Institute, a figure that is untenable to achieve while still investing in other needs and priorities.”
Grosso and his council co-sponsors hope that a community investment tax credit can eventually help to meet some of that remaining $5 billion of affordable housing investment needs.
The proposed program is similar to other community development tax credit programs, which have shown some success attracting capital.
Since 1997, California’s CDFI Tax Credit Program has helped attract more than $335 million in investments from banks, insurance companies and individuals to CDFIs throughout the state.
While uptake was slow when the program was first created, today it is chronically oversubscribed. In the last application round, CDFIs submitted 116 applications to the state, requesting tax credits of $36.7 million on $183.3 million of investments. The annual limit is $10 million of credits to support $50 million in investments.
California’s program also specifies the form of eligible investments, which typically take the the form of a five-year, zero-interest loan to the CDFI. The tax credit essentially serves as the interest on the loan, which must be paid back or refinanced at the end of the five years. The minimum investment size is $50,000. Grosso didn’t specify about the form of investment for D.C. — only that it must involve a cash advance to the CDFI that will help to finance an affordable housing project in the District.
Massachusetts created its Community Investment Tax Credit Program (CITC) in 2012. It takes a slightly different approach, providing a 50 percent tax credit for donations, not investments, made to state-approved community development corporations. Notably, the donations have to be unrestricted — not just for housing or workforce development or some other specific programming.
Over the first two operating years of the CITC program, 2014 and 2015, community development corporations raised $12.85 million out of a potential $18 million.
The numbers are in part an indication of the fundraising learning curve. The CITC program replaced what was a state funding source of unrestricted funds, and challenged organizations to go out and establish relationships with new donors. According to an evaluation released last December, organizations raised $4.71 million from 1,013 donations through the CITC program in 2014; in 2015, organizations raised $8.14 million from 1,523 donations.
The program also made it a point to help organizations find new donors or increase annual contributions from current donors. Based on self-reported data, the participating organizations attracted 1,316 new donors, according to the evaluation. Of the repeat donors who were already supporting the various community development organizations in the program, nearly three-quarters of them doubled (or more than doubled) their donations in 2014, relative to the prior year.
Last week, Massachusetts state legislators were gushing to each other about the positive impact of the CITC program.
Another bill in the D.C. City Council last week also focused on affordable housing, proposing a task force to examine the feasibility of converting unused office space in the District into residential units.
Oscar is editor of Next City. Before that, he was a contributing writer and Equitable Cities Fellow for Next City. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.