Ron Wyden Leads Senate Finance Committee Hearing About Community Economic Development

4 months ago

The Senate Finance Committee held a hearing entitled, "Tax Tools for Local Economic Development."

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Transcript

00:00:00will come to order. This morning we meet to discuss smart tax policies aimed at

00:00:07building local communities. Right now the U.S. economy is red-hot. Inflation is

00:00:13down, wages are up, and our country's in the middle of a record streak of low

00:00:19unemployment. Manufacturing is booming and you see factories under construction

00:00:26just about everywhere you go. Even in a strong economy we all know that there's

00:00:33a lot more to do to help local communities that struggle to get ahead.

00:00:38The tax code gives this committee a lot of tools to make that happen and I want

00:00:44to just give a brief example from the past. Build America bonds are something

00:00:52that came from this committee and I remember that night in 2009 when I was a

00:01:00pretty junior member of the Finance Committee and I sat sort of closer to

00:01:08the door than closer to here and Chairman Baucus and Senator Grassley

00:01:14called on me to discuss this idea that I had with a big group of members in the

00:01:20Senate, Democrats and Republicans, called Build America Bonds and I didn't know

00:01:26they were going to call on me and then all of a sudden the two of them said

00:01:32let's hear from Ron and hear about these Build America Bonds and so I waxed

00:01:39eloquent or thought I was being eloquent and I said you know I say to the

00:01:46committee we've never done this never really bonded for transportation before

00:01:50I bet we could do seven eight billion dollars worth of bonds in transportation

00:01:56it was a short-term thing and everybody go wow that's sensational seven to eight

00:02:01billion dollars worth of bonds. I think everybody knows what we came in at.

00:02:08One hundred and eighty billion dollars worth of bonds in every nook and cranny of the

00:02:15country and the point is there's an opportunity to be creative out there

00:02:21nobody thought that we could ever do anything like that maybe we get a few

00:02:26billion nothing like a hundred and eighty billion so Congress is facing a

00:02:31big tax deadline at the end of next year and we ought to be trying to

00:02:37find everything creative to try to give local communities a chance to tap the

00:02:43potential of good ideas. Now I think at the top of the list is the new markets tax

00:02:48credit. It was established 25 years ago as a flexible way to get private

00:02:52investment dollars into low-income communities, cities and towns and rural

00:02:56areas. All 50 states have benefited from it. It's helped get thousands of projects

00:03:02off the ground, health care and manufacturing, child care centers and

00:03:05schools, retail developments and housing, lots of affordable units but it's not

00:03:11permanent. It's temporary, it expires at the end of 2025. Now the Congress on a

00:03:17bipartisan basis has extended it several times. I want to make sure this doesn't

00:03:23get lost, doesn't get lost next year in what is certainly going to be a spirited

00:03:30discussion about the future of the tax code. Senator Cardin has been a champion

00:03:35of this cause. He's got a bill that would make it permanent, expand its value to

00:03:39drive even more investment in communities that need the boost. In my

00:03:42view it's a no-brainer. I'm proud to support it and Senator Cardin will be in

00:03:48retirement next year but I look forward to being part of the call to him telling

00:03:52him we got this done because he's put a lot of effort into it. It's a obviously

00:03:59efficient, powerful tool in the tax code. We need to make tough choices about what

00:04:04works and what doesn't. Let's talk for a moment about opportunity zones that were

00:04:10a priority for the Trump administration and some Senate Republicans. It was

00:04:15created as a way to boost struggling communities at a cost of around a

00:04:19billion dollars. Unfortunately the eligibility rules were too loose and the

00:04:25safeguards against waste were too lax. So the program has helped a lot of high

00:04:31wealth individuals opt out of paying taxes on investments they probably would

00:04:35have made with or without opportunity zone incentives. Now there have been some

00:04:40success stories but for every affordable housing development it seems like

00:04:45there's a casino or a crypto mining facility going up. Just one percent of

00:04:50the areas eligible for the opportunity zone dollars have hoovered

00:04:54up nearly a half of the invested money. More than three quarters of the ozone

00:04:59funding has gone to only five percent of eligible areas. So my sense is thus

00:05:05far that's not been a lot of shared prosperity. It had a 1 billion dollar

00:05:11price tag at the beginning. Going forward, get this number, it costs 70 billion

00:05:17dollars to extend. There is scant evidence it's really helping to drive

00:05:25investment in the areas that need it most. Independent studies suggest it's

00:05:29failing at that goal. I suspect we'll have some discussion of that today. A

00:05:33couple of final points. The tax exemption for municipal bonds is a key tool

00:05:37helping local governments finance priorities like infrastructure and

00:05:41utility projects. Private activity bonds are a similar tool that have helped

00:05:45state and local governments get affordable housing, hospitals, schools, and

00:05:49highways built. Senator Brown has led the fight to protect these important tools

00:05:55and I commend him for it. The 2017 Trump tax law diminished the value of these

00:06:00tax exempt bonds unfortunately because it made it harder for state and local

00:06:04governments to reduce their debt. With much of the Trump tax law expiring next

00:06:09at the end of next year, there are fresh concerns that Republicans will want to

00:06:14go after these these key... Excuse me, the family is is calling. The fact is

00:06:27with much of the Trump tax law expiring at the end of next year, there are fresh

00:06:31concerns that Republicans are going to try to go after these key financing

00:06:35tools again to pay for the multi-trillion dollar cost of extending

00:06:40the Trump tax cuts to the very wealthy. I will strongly support... oppose that

00:06:45effort. That would be a huge setback for our infrastructure needs and for local

00:06:49communities across the country. We're going to talk about other areas this

00:06:52morning that includes the rehabilitation tax credit. Senator Cortez Mastod's

00:06:56excellent proposals to make tribal governments fairly benefit from the new

00:07:01market tax credit and Senator Stabenow has a proposal to help cities turn empty

00:07:06commercial spaces into badly needed housing. It's also important to cover how

00:07:11tax incentives can be combined, allowing groups to drive even more dollars into

00:07:15communities that need help. Much to discuss. I want to thank our witnesses

00:07:20and I look forward to questions and answers. Senator Crapo will make his

00:07:24introductory statement. Senator Brown will be here to introduce a witness that

00:07:28he has seen doing very good work in the space. Senator Crapo. Thank you very much

00:07:32Mr. Chairman. I appreciate the opportunity to work with you on this

00:07:35critically important bipartisan topic. Exploring incentives that encourage

00:07:41local economic growth is incredibly important as we begin to consider

00:07:45extending Republicans 2017 tax law, the Tax Cuts and Jobs Act. While the TCJA

00:07:52contained a litany of pro-growth tax policies, one policy that is relevant for

00:07:57today's hearing is the Opportunity Zones program. Opportunity Zones have

00:08:03demonstrated notable success in driving investment into distressed areas. By

00:08:08offering tax incentives for investments in opportunity funds,

00:08:13private capital has flowed into areas that did not receive such levels of

00:08:17investment before the TCJA was enacted. In Idaho, within just the first two years

00:08:24of the Opportunity Zones program, 54% of the state's Opportunity Zones saw

00:08:30investments. According to the Joint Committee on Taxation, by the end of 2022

00:08:35Idaho had received $130 million in Opportunity Zone investment. Without the

00:08:42TCJA, these investments may have remained on the sidelines. Across the country,

00:08:48investments are being made in rural areas and economically distressed

00:08:52communities that need it the most. According to research conducted by two

00:08:57Treasury Department economists and compiled by the Economic Innovation

00:09:01Group, in the first two years of the program, the average Opportunity Zone

00:09:05that received investment was in the 87th percentile of poverty, 81st percentile

00:09:12for average median household income, and the 80th percentile for unemployment.

00:09:17While the Opportunity Zone program has come a long way, there is still more to

00:09:22be done. Senator Scott continues to be a leader on this issue, just as he was when

00:09:28we were writing the TCJA, and he and Senator Booker previously introduced

00:09:32legislation to extend and improve the program, including by requiring reports

00:09:38so Congress can monitor how investments in Opportunity Zones are working. One of

00:09:44our witnesses today, Shea Hawkins, was a member of Senator Scott's staff in 2017.

00:09:50He was instrumental in developing the Opportunity Zones program, and he's

00:09:54here today to share his expertise as president of the Opportunity Funds

00:09:59Association. Mr. Hawkins, I look forward to hearing from you today about how

00:10:04improving and extending the program will ensure that private investment continues

00:10:09to flow to distressed communities. Opportunity Zones, the new

00:10:15markets tax credit, the historic tax credit, the tax-exempt bonds, and the low

00:10:21income housing tax credit all spur local economic development, and we can see

00:10:28tangible results in communities around the country. In Twin Falls, Idaho, two

00:10:33local developers opened one of our state's first Opportunity Zone projects,

00:10:37the Second South Market Food Hall. Located in the 1920s era warehouse, the

00:10:43Second South Market houses local food vendors and is the first of its kind in

00:10:48Idaho. In Mountain Home, Idaho, the Desert Sage Health Center recently opened a new

00:10:5430,000 square foot primary care facility. It will serve a more rural part of my

00:11:00state that was made possible due to the new markets tax credit investment. There

00:11:06are many other examples of projects in Idaho and across the country that

00:11:09demonstrate how these incentives are being put to work. Several members of

00:11:15this committee have been working across the aisle to promote these and other

00:11:18incentives. For example, Senators Daines and Cardin have introduced legislation

00:11:23to permanently extend the new markets tax credit. Senators Cassidy, Cardin,

00:11:29Collins, and Cantwell have introduced legislation to expand the historic tax

00:11:34credit. I look forward to discussing existing policies and new ideas,

00:11:39including how these tax tools are working, how they can be improved, and how

00:11:44Congress can continue to support local economic development in a fiscally

00:11:49responsible way. Thank you to our witnesses today for being here and thank

00:11:54you Mr. Chairman for holding this important hearing. Thank you, Senator

00:11:58Crapo. Now I would like to ask Senator Brown to introduce our first witness,

00:12:03Lashay Loftin. Senator Brown. Thank you, Mr. Chairman. It's my honor to introduce

00:12:08Lashay Loftin from Dayton, Ohio. Mr. Chair, thanks for inviting an outstanding

00:12:13Ohio witness to this hearing. Ms. Loftin has dedicated her career to service

00:12:18working for the city of Dayton for more than 30 years. She currently serves as

00:12:22Dayton's Deputy City Manager. She provides oversight to the city's

00:12:26Departments of Aviation. The city is the home of Wright-Patterson Air Force Base.

00:12:31Finance, Public Works, and Information Technology. She's a member of the

00:12:34National Government Finance Officer Association. She was awarded their

00:12:38Hero Award four years ago in 2020. She has a long list of accomplishments from

00:12:43her time with the city of Dayton, including during the seven years she

00:12:46served as the city's Finance Director. She's helped to develop and manage

00:12:50multi-million dollar operating and capital programs. The city of Dayton

00:12:54during her tenure has consistently received clean state audits. They've

00:12:59increased their credit ratings in a community that's

00:13:04met a lot of economic challenges, so thank you especially for that. She will

00:13:08discuss the federal programs already in place and abroad investments to places

00:13:12like Dayton. There are ways we can improve these tools. I know that Chair

00:13:16Wyden is working on that, so communities of all kinds can have access to the

00:13:19finances they need to improve infrastructure and to invest in

00:13:23neighborhoods. You'll hear in her testimony about the need to restore

00:13:27advanced refunding of tax-exempt bonds. I'm co-sponsoring a bipartisan bill to

00:13:32do that. She'll also discuss the need to end sequestration for Build America

00:13:37bonds. Thank you, Mr. Chairman, your work there. I'm preparing legislation to do

00:13:41that. Both will help our municipalities save money so that they can reinvest in West

00:13:46Dayton, East Dayton, North Dayton, all over that city. She understands the assets we

00:13:50have in the Miami Valley, skilled workers, one of the proudest

00:13:54industrial heritages in the world, schools like UD and Wright State and

00:13:59Central State, and of course the jewel of the Air Force, Wright-Patt, and all the

00:14:03aerospace innovations and talent that has grown up around it. Dayton is really

00:14:07the reason that Ohio is known as the premier aerospace state in the country.

00:14:11Ms. Loftin has spent her career working with us to leverage those assets and

00:14:15create opportunities in Dayton. We need to give leaders like her the tools our

00:14:19communities need to create jobs and opportunities for workers around and

00:14:24around the country, in Ohio and around the country. She earned her bachelor's

00:14:28degree from University of Dayton. She serves on the board of my daughter's and

00:14:32my mother's favorite organization, the YWCA. Thank you so much, Ms. Loftin, for

00:14:37being here today. It's an honor to introduce you. Thank you. Thank you,

00:14:40Senator Brown, and thank you for arranging to have Ms. Loftin here, and

00:14:46we'll look forward to hearing from you in a minute. To introduce our other

00:14:49witnesses, let me just highlight some of their background. Julian Nelmark is the

00:14:54president and CEO of the Midwest Minnesota Community Development

00:14:57Corporation, a mission-based lender and developer headquartered in Detroit Lakes,

00:15:01Minnesota. She's also the president and CEO of the White Earth Investment

00:15:06Initiative, an important effort that helps Native Americans throughout

00:15:10Minnesota. Mr. Michael Novogratic is the managing partner of the Novogratic firm.

00:15:15He's got years of experience in affordable housing and also renewable

00:15:20energy tax incentives, which we have had a great interest in, and very pleased to

00:15:25have Shea Hawkins here. He's a co-founder of the Opportunity Funds Association.

00:15:30Prior to this role, he was the staff director for the Subcommittee on Energy,

00:15:35Natural Resources, and Infrastructure, and the senior tax and economic policy

00:15:39advisor to Senator Tim Scott. I will just say we always welcome alums of the

00:15:44Finance Committee to come as witnesses, so we look forward to hearing from you

00:15:48in a little bit. Mr. Hawkins, let's begin with you, Ms. Loftin. Good morning,

00:15:56Chairman Wyden, Ranking Member Crapo, and distinguished members of the committee.

00:16:00Thank you for holding today's hearing on tax tools for local economic

00:16:04development. My name is LaShea Loftin, and I am the Deputy City Manager for the

00:16:08City of Dayton, Ohio. My remarks today both represent Dayton and the over 24,000

00:16:15members of the Government Finance Officers Association. GFOA is dedicated

00:16:19to the professional management of governmental financial resources,

00:16:23including issues related to tax-exempt bonds. Our system of federalism requires

00:16:29a strong federal, state, and local government partnership to achieve our

00:16:33shared goals. A prime example of that partnership at work is the tax-exempt

00:16:38municipal bond. I am here today to urge Congress to protect this vital tool and

00:16:43adopt specific provisions to further enhance its effectiveness. Providing

00:16:48infrastructure in our communities is a national priority, one shared at all

00:16:52levels of government. Over time, the tax-exempt bonds issued by state and

00:16:57local governments and nonprofit entities have financed over three

00:17:00quarters of our nation's infrastructure. In 2022, the City of Dayton issued over

00:17:0621 million in municipal tax-exempt bonds for capital projects that foster

00:17:11economic and community development in our neighborhoods. Critical street

00:17:15reconstruction and resurfacing projects attracted further investment along our

00:17:20main corridors. Capital improvements in parks and playing fields enhanced the

00:17:24vibrancy of our city, further spurring millions of private and other public

00:17:29investments in housing and economic development. Dayton also financed

00:17:35essential public safety equipment, such as a fire engine and waste collection

00:17:39trucks, which help us provide essential services to our residents and our

00:17:43business community. These types of strategic investments are the catalysts

00:17:47required for Dayton's economic growth and vitality. While it is true the

00:17:52federal tax exemption reduces the cost of issuing municipal bonds, it is the

00:17:56combination of local control and local responsibility that makes municipal

00:18:00bonds work. For over a century, this local tool has worked to our mutual

00:18:05advantage in enhancing livable communities. Congress's efforts to

00:18:09protect the full tax exemption are important and necessary to achieve our

00:18:13mutual goals. The support for tax-exempt municipal bonds is bipartisan, bicameral,

00:18:19and very strong, but additional federal policy could strengthen this tool

00:18:24further. In the next legislative package addressing taxes and public finance, we

00:18:29urge Congress to include the following. First, we ask you to restore advanced

00:18:34refunding to tax-exempt bonds. Doing so frees up billions of dollars that

00:18:38governments and nonprofits can spend on more projects that directly strengthen

00:18:43the precarious state of our community's infrastructure. Between 2007 and 2007,

00:18:50there were over 12,000 tax-exempt advanced refundings nationwide,

00:18:54generating over $18 billion in savings for tax and ratepayers in over the

00:19:0010-year period. In 2018, Dayton issued just over $11 million in debt to finance

00:19:07capital improvements. If tax-exempt advanced refunding were still available

00:19:12to us, we could potentially generate a minimum of over $300,000 in

00:19:16savings on those bonds. While this may not seem like much to some, for our

00:19:21roughly 136,000 residents, it's enough to renovate another park or upgrade the

00:19:28streets and sidewalks leading up to our neighborhood libraries. Restoring

00:19:33advanced refunding for tax-exempt bonds would be an incredible boost to the

00:19:37resources local governments need for continued investment and attracting more

00:19:42capital, especially as we seek ways to improve our local economies. Second, we

00:19:48ask you to increase access to capital for small borrowers. For many thousands

00:19:52of small issuers, government, and nonprofit borrowers, increasing the bank

00:19:56qualified borrowing limit from $10 million to $30 million and having it

00:20:00apply at the borrow level would provide access to low-cost capital. Bank

00:20:04qualified bond issuers save between 25 and 40 basis points on average. On a 15

00:20:10year, 10 million bond at current interest rates, that translates to anywhere

00:20:13between $232,000 and $370,000 savings for small communities. Third, we ask you to

00:20:20restore and expand the use of direct pay bonds with specific attention to

00:20:23protecting the subsidy from sequestration. In prior years, Congress

00:20:27authorized governments to attract, to issue taxable direct subsidy bonds, a

00:20:31good supplement to municipal bonds. However, sequestration ate into those

00:20:36subsidies for Build America bonds, so we ask that any effort to restore direct

00:20:40subsidy bonds include definitive protection from sequestration. I hope my

00:20:45comments emphasize and demonstrate the federal government's crucial role in

00:20:49supporting local decision-making for local capital improvements. Municipal

00:20:53bonds are key tools in this process. Thank you for your attention today, and I

00:20:58appreciate your consideration of these vital initiatives and for convening this

00:21:02very important hearing today. Well said, Ms. Loftin. I know you're going to get

00:21:06some questions in a moment. Ms. Nelmark.

00:21:14Thank you, Mr. Chairman. In addition to leading the Midwest Minnesota Community

00:21:20Development Corporation and White Earth Investment Initiative, I'm also the vice

00:21:24chair of the New Markets Tax Credit Coalition, a national membership

00:21:28organization comprised of New Markets practitioners. The coalition conducts

00:21:33policy research and advocates on behalf of the credit. New Markets is one of the

00:21:38most effective tools we have for community development. It provides lower

00:21:43cost financing for businesses and community facilities in America's most

00:21:47distressed urban and rural communities. And New Markets is a simple concept.

00:21:53Taxpayers receive a 39% tax credit over seven years for qualified investments

00:21:59into community development entities, or CDEs, to finance manufacturing and

00:22:05business expansions, health care and daycare facilities, business incubators,

00:22:09and other important projects. Its flexibility makes it particularly useful

00:22:14in supporting the needs of each business and community as determined by those

00:22:19working on the ground. Since its inception, the New Markets Tax Credit has

00:22:25delivered over $135 billion in financing to over 8,500 businesses and

00:22:32community development projects, and creating over 1.2 million jobs to date

00:22:38at a cost to the federal government of under $20,000 per job. In Minnesota, New

00:22:44Markets has financed 274 projects, totaling $3.4 billion. And this credit

00:22:51isn't just for large businesses. Of the 116 New Markets projects MMCDC has

00:22:56financed to date, over half were below $4 million, and over a third were below

00:23:02$2 million, such as a $1.8 million loan to Wind River Internet in rural Wyoming

00:23:08to help finance equipment and fiber connections to homes and businesses,

00:23:12financing difficult to obtain from banks. The vast majority of New Markets

00:23:17financing goes to the most severely distressed communities, both urban and

00:23:22rural. The coalition urges Congress to pass the bipartisan New Markets Tax

00:23:27Credit Extension Act of 2023, introduced by Senators Cardin and Daines. This would

00:23:33do three things. First, it would make New Markets a permanent part of the tax code,

00:23:38which would boost its efficiency by providing certainty and raising pricing.

00:23:43Second, it would index future allocation levels to inflation. As businesses' costs

00:23:49grow, so do their funding needs. Third, it would provide New Markets investors with

00:23:55relief from the Alternative Minimum Tax, or AMT, like most federal community

00:24:00development tax credits, to increase the pool of investors, which would also

00:24:05increase the dollars flowing to these communities. Together, these changes will

00:24:10increase certainty for CDEs, investors, and communities, lead to better pricing,

00:24:15and increase dollars flowing to distressed communities. Many have been

00:24:20concerned that New Markets does not adequately reach tribal communities. To

00:24:24date, just 3% of New Markets financing supported these communities, although

00:24:30we've seen some recent increase in this trend and more Native-focused allocation.

00:24:35As the CDE focused in Minnesota and the Dakotas, we have funded over $63 million

00:24:40in Native projects, primarily healthcare, education, and cultural centers. These are

00:24:46often more time-consuming to bring to closing, and suffer from significant

00:24:50appraisal valuation gaps. One project on a Minnesota reservation needed additional

00:24:56collateral equity and other funds, as the appraised value for the project was half

00:25:01of the total developed cost. While we've recently seen an uptick in investment in

00:25:06Indian Country, more is needed. The New Markets Coalition supports the Tribal

00:25:11Tax Investment and Reform Act of 2024, bipartisan legislation introduced in the

00:25:17House, to provide $175 million in additional allocation for tribal

00:25:21communities. New Markets has helped hundreds of small farming towns and

00:25:26rural communities across the country with the capital they need for business

00:25:31expansions, healthcare centers, broadband expansions, and other locally

00:25:36prioritized projects. The Rural Jobs Act, introduced by Senators Roger Wicker

00:25:42and Mark Warner, would build on the success of the New Markets tax credit,

00:25:46providing additional resources to some of America's hardest-hit rural areas. It

00:25:51would add $1 billion in New Markets allocation over two years targeted to

00:25:56rural job zones. In summary, while the New Markets tax credit has proven its

00:26:01effectiveness at incentivizing investment in those areas most in need of

00:26:05additional affordable financing, it isn't yet permanent. Making New Markets

00:26:11permanent, along with AMT relief and inflation adjustment, will improve its

00:26:15effectiveness and increase the success of communities and businesses throughout

00:26:19the country. Thank you.

00:26:22Thank you very much.

00:26:39Yes. Thank you, Chairman Wyden, Ranking Member Crapo, and members of the

00:26:43committee for inviting me to speak on the importance of tax incentives in

00:26:46supporting economic development in communities across America, particularly

00:26:50those more distressed. I am the managing partner of Novogratkin Company, a

00:26:54national professional service firm with a focus on community development,

00:26:58affordable rental housing, historic preservation, and renewable and clean

00:27:01energy. My testimony today is informed by my over 40 years working with

00:27:06community development tax incentives, starting with the historic tax credit

00:27:10back in 1984. As you look to address the expiring provisions of the 2017 tax

00:27:16bill and advance legislation to support economic development, I urge you to

00:27:20include the expansion and modernization of existing tax incentives, as well as

00:27:25consider adding additional community development tax tools. The historic tax

00:27:29credit, the New Markets tax credit, the low-income housing tax credit, and the

00:27:33New Kid Under Lock Opportunity Zones are proven public-private partnership

00:27:37community development incentives. These public-private partnerships are founded

00:27:41in taxpayers investing equity capital up front, while tax benefits are claimed

00:27:45and retained over time to the extent they continue to provide the benefits

00:27:49intended. The public-private tax equity model embodies the good government

00:27:54concept of pay for success. The historic tax credit is an excellent example of

00:27:59this model. The historic tax credit is currently a 20 percent tax credit that

00:28:03has spurred the rehabilitation and preservation of over 49,000 historic

00:28:07structures and catalyzed economic development in urban, suburban, and rural

00:28:12small-town communities. The National Park Service and Rutgers University

00:28:16estimate that through the end of 2022, the historic tax credit has leveraged

00:28:20more than $235 billion in private investment and created 3.2 million new

00:28:25jobs. I and many others greatly appreciate the work of Senator Cassidy

00:28:30and others on and off this committee to preserve the historic tax credit back in

00:28:342017. Despite the impressive track record of the historic tax credit, since 2010 it

00:28:40has seen a decline in some of its value due to burdensome treasure regulations,

00:28:46statutory changes, and general tax equity market conditions. To address this, I do

00:28:51commend Senators Cardin, Cassidy, and Cantwell for introducing the Historic

00:28:55Tax Credit Growth and Opportunity Act, which would modernize and enhance the

00:28:59value of the credit to more effectively spur historic preservation and community

00:29:03revitalization. The new market tax credit has provided more than $135 billion in

00:29:08financing to more than 8,500 businesses and more than 1.2 million jobs in

00:29:13distressed areas. Sadly, as you've already heard, this credit is temporary and

00:29:17needs to be extended before the end of next year. I and many, many others

00:29:21believe that new market tax credit has earned a permanent place in the tax

00:29:25code. To that end, I commend Senators Cardin, Daines, Cantwell, Scott, Brown,

00:29:30Casey, Cassidy, Blackbird, and Warner for addressing this need by introducing and

00:29:35sponsoring the New Markets Tax Credit Extension Act. I also applaud Senators

00:29:39Whitaker, Warner, Moran, and Braun for introducing the Rural Jobs Act to

00:29:43further incentivize greater new market tax credit investment in rural areas.

00:29:47Let me also give additional thanks to Senators Cardin and Daines for taking the

00:29:51lead in helping convince the CDFI Fund to deploy authorized new market tax

00:29:55credits by the end of next year. Turning to Opportunity Zones, per the Joint

00:29:59Committee of Taxation, over the five-year period ending December of 2022,

00:30:04Opportunity Zones have incentivized nearly $85 billion of equity investment

00:30:08in distressed communities across America. The OZ incentive encourages equity

00:30:12investment in businesses and low-income communities, and my lived experience,

00:30:15along with a multitude of independent studies, demonstrates that OZs are

00:30:20driving increased investment in OZs, particularly in rental housing.

00:30:24Novogratz collected survey data reports over 180,000 rental homes, of which more

00:30:29than 10% of those properties contained affordable housing units. To this end,

00:30:34I do encourage Congress to adopt mandatory reporting requirements, to

00:30:38collect better data to better evaluate the incentive, to extend the OZ incentive

00:30:42for a couple of years to make up for lost time from the writing of the

00:30:46regulations and the effects of the pandemic, and authorize a new round of

00:30:49OZ designations, and to further enhance and target the incentive.

00:30:54Before I close, as Senator Cardin nears the end of his service, I did want to

00:30:58say on the record, thank you to Senator Cardin for his leadership on the historic

00:31:01tax credit, the new market tax credit, and the proposed neighborhood homes credit.

00:31:06Chairman Wyden, Ranking Member Crapo, and members of the committee, thank you

00:31:09again for inviting me to testify here today on the importance of leveraging the

00:31:13tax code to increase economic development across America, with an emphasis on

00:31:17distressed communities. My written testimony contains much more detail on

00:31:21what I've discussed so far. I look forward to your questions.

00:31:25Thank you, and thank you for stressing on some of these important bills like

00:31:29new markets tax credits, how extensive the bipartisan support for them actually

00:31:34is. Mr. Hawkins, welcome. Welcome back, so to speak.

00:31:40Thank you, Chairman Wyden, Ranking Member Crapo, Senators Hassan and Cortez

00:31:47Masto. This is my second time testifying before the Senate Finance Committee,

00:31:53but my first time testifying alongside a fellow Ohioan. So I look forward,

00:32:01as well as communicating with you all, I look forward to being educated

00:32:06by Mrs. Loftin, Mrs. Nelmark, and my good friend, Mike Novogratic.

00:32:14So, Opportunity Zones are arguably the most successful community development policy in

00:32:21American history. So this afternoon, I'd like to discuss how Opportunity Zones

00:32:27are targeting private investment in areas of the country that have been de-industrialized,

00:32:33and how the policy can be used to build domestic supply chains, encourage reinvestment,

00:32:39renew prosperity in distressed urban, as well as our often overlooked urban areas.

00:32:46And further, I want to discuss and discourage crippling tax increases on businesses and workers

00:32:57that would undermine the historic progress that we made prior to the pandemic in shifting our

00:33:03supply chains from adversaries like China, minimizing minority unemployment,

00:33:10and raising incomes in places like my hometown of Cleveland, Ohio. So analysis from the

00:33:24Economic Innovation Group, using data from recent studies by UC Berkeley, and the U.S. Department

00:33:32of Treasury found that by 2020, just three years into the policy,

00:33:40about half of the designated Opportunity Zones saw investment. So that's about 3,800 communities

00:33:46across every state. Chairman, in your state, your home state of Oregon, 75% of the designated

00:33:56Opportunity Zones across the state saw investment. And so Opportunity Zone investment

00:34:02has triggered a large and immediate increase in local development activity,

00:34:10as Mr. Novogratic, my fellow witness, will attest. And so one of the most

00:34:21clear pieces of evidence here, drawing from the best available evidence, is that communities saw

00:34:32an increase in the value of properties within Opportunity Zone without an attendant increase

00:34:41in rent. So just to reemphasize, an increase in property value without an increase in rent,

00:34:47because Opportunity Zones were expanding the overall housing stock.

00:34:53And so I look forward to going through some additional data, but what can Congress do to

00:35:00help entrepreneurs bring prosperity to these local economies? So one, I want to make sure that we

00:35:07abandon any plans for tax increases. Again, Americans are dealing with highly inflationary

00:35:17circumstances, and increases in taxes on businesses and workers will only exacerbate

00:35:23those problems. I'd like to see Congress make Opportunity Zones more transparent.

00:35:31So there's a bipartisan bill, the Opportunity Zone Improvement Extension and Transparency Act

00:35:42that many members of this committee have co-sponsored that will make Opportunity Zones

00:35:48more transparent. I'd love to further democratize Opportunity Zone investment

00:35:54by allowing new classes of investors to invest, but also enabling a fund-to-fund structure that

00:36:02will allow more targeted impact-oriented investments. And finally, I would love to

00:36:07see Opportunity Zones extended to make up for the fact that we lost a year in COVID,

00:36:16but also had a long implementation process. So again, I look forward to learning from my

00:36:27fellow witnesses on federal programs and look forward to going into a deeper dive on how we

00:36:34can improve this very effective policy. Thank you very much, Mr. Hawkins. Let's go now to

00:36:43questions. Let me start with you, Ms. Lofton. Without tax exempt bonds, many local governments

00:36:50wouldn't be able to borrow money at any reasonable interest rate. And bonds have just been key to

00:36:58maintaining infrastructure and making other essential investments for residents. And I

00:37:04think when you look at successes like Build America Bonds, it got money off the sidelines.

00:37:11There's no question that's what happened in 2009 when we really kind of stunned and awed people

00:37:18with $180 billion worth of investment in Build America Bonds. So my first question to you is,

00:37:25let's put it in a kind of broader sort of context. How can tax exempt bonds best leverage

00:37:31federal grants, funding from the American Rescue Plan, or other resources in order to better invest,

00:37:38make smarter investments in communities? Thank you for that question. One of the things that

00:37:44I believe our city prides itself on is how well we leverage our limited local resources with

00:37:51the federal assistance that we receive. So taking bonds, tax tools like this, and coupling that with

00:37:59our local resources has helped us bring projects to our locality that we would not have been able

00:38:04to do otherwise. These tax tools, the tax exempt municipal bonds, we've been able to leverage with

00:38:12ARPA funding, for example, in a way that there have been significant developments that we have

00:38:19had sitting in our planning books for 10, 12 years. We weren't able to accomplish them because the

00:38:24dollar amounts were so high, but with ARPA funding, with all of the tax incentive tools that we've got,

00:38:31and the ability for us to issue tax exempt bonds together, we've been able to significantly make

00:38:38huge investments in our downtown corridor, but also in some of our distressed neighborhoods.

00:38:43Large projects as simple as a recreation facility that serves our low-income populations,

00:38:50those wouldn't be able to be built without these resources because our resources were too limited,

00:38:55but in partnership with state and federal funding, we've been able to get those types of buildings

00:39:00and build streets and roads that lead to them so that our citizens can even access those amenities.

00:39:05So I do believe that leverage is an important power in the ability to use these bonds and

00:39:11these tools effectively. Well, heaven forbid, Ms. Loftin, you're probably being too logical for

00:39:18much of the federal government, but I think the point of leverage is so key because, you know, not

00:39:24all dollars are created equal in one sense. If you can leverage this in terms of investments,

00:39:30particularly in low-income communities, it is a huge bonanza in terms of actually delivering

00:39:37for people. Let me go to you, Ms. Nelmark, with respect to, again, this tough choices

00:39:45kind of area. Now, evidence that we've seen indicates that the new markets tax credit

00:39:52targets communities that have significant underinvestment. Do you agree with that?

00:39:58Absolutely. That is the majority of new markets goes to far more distressed areas than is required

00:40:05by the law. So based on your experience, compare new markets tax credits to opportunity zones,

00:40:15because what I keep seeing, and, you know, part of the problem was we couldn't get much information

00:40:20on the opportunity zones or wasn't, you know, much transparency in that is that these opportunity,

00:40:29you know, zones seem to be really good for building, you know, marinas and all kinds of

00:40:35things that the 1% seems to use, but not really getting into communities that are in desperate

00:40:44need. Compare, if you would, the new markets tax credit to opportunity zones in terms of the value

00:40:50of the dollar, because we're going to have to make some tough choices around here in terms of where

00:40:55we're going to go. Compare those two, if you wouldn't mind. From my experience, the new markets tax

00:41:01credits have been used far more than the opportunity zones in our area, and we explored

00:41:07some possible transactions with a local company who had invested in opportunity zones. They went

00:41:14a different route in terms of a long-term redevelopment project. My knowledge of opportunity

00:41:21zones is limited as we have not participated directly in those. So you were in effect almost

00:41:29invited to make the choice, and you said for the best possible dollar, particularly for investing

00:41:36in low-income communities, new market tax credits was the best buy. It's more accurate to say that

00:41:46new markets has been an extremely effective tool, and we play a major role in those. With

00:41:52opportunity zones, CDEs aren't actually needed in opportunity zones, and so we don't steer those

00:42:00in any way. Fair enough. Senator Crapo. Thank you, Mr. Chairman. Mr. Hawkins, we've seen success

00:42:07in opportunity zones, as you've testified, all across the country following the enactment of

00:42:12the TCJA, but as you indicated, this authority is set to expire in 2026. I agree with you that we

00:42:20need to extend it. You've heard some criticism here today. You yourself indicated that there are

00:42:25improvements that can be made in the opportunity zone system. What improvements are needed to

00:42:32ensure that capital continues to flow to these distressed areas? Thank you, Ranking Member Crapo.

00:42:41Some key improvements, and one that goes to the previous question is

00:42:50transparency. What we know is that according to joint tax,

00:43:00$84 billion that be in equity has gone into these distressed communities

00:43:05through 2022, so we can extrapolate that out to $100 billion, and with the leverage associated

00:43:14with real estate investing, you're looking at hundreds of billions of dollars of investment,

00:43:20so we know the investment is going in, and we know it's going in dispersed across a number

00:43:25of communities, but what we need to do is empower the Treasury Department to compare the performance

00:43:32of opportunity zones against areas that could have been designated that weren't, and also

00:43:37against the broader economy as a whole across a number of measures. We also need to collect

00:43:43key information from investors on where they're investing, how many jobs they expect to create,

00:43:50what types of investment they're making, whether operating businesses by SIC code or real estate,

00:43:58and then beyond that, where they're investing, so that you all have the tools here on Capitol Hill

00:44:06to further target this investment and make sure that the impact is greatest for the existing

00:44:13residents of these distressed communities, so transparency is one. Obviously, extending this

00:44:18great policy, like I said, we hoped for $50 billion over the entire 10-year life of the

00:44:26policy, and now we're looking at hundreds of billions going in. In just the first two years

00:44:32of this policy, you're looking at $50 billion in investment. It took the New Markets Tax Credit

00:44:38program, which is a great program, 20 years to see the same investment, and so an extension

00:44:45would be the next thing, and then targeted fund-to-funds, a targeted fund-to-funds model

00:44:51would allow for high-impact, targeted investment in hyper-distressed urban areas and in rural areas

00:45:02to be expanded, and so we're very excited about the changes you guys could make.

00:45:11Thank you, and Mr. Novogratic, welcome to the committee.

00:45:16One concern that the committee has heard is that there is difficulty coordinating incentives

00:45:21like the Opportunity Zones, the New Markets Tax Credit, and the Low-Income Housing Tax Credit.

00:45:27These tools incentivize different investments, but they share the same goal of expanding local

00:45:33economic development. My question is, how can Congress cut the unnecessary red tape and streamline

00:45:39these incentives so that they better complement each other? Wouldn't coordinating these incentives

00:45:44drive more investment toward the intended communities and boost the local economic

00:45:48development? Yes, thank you for that question, Ranking Member Crapo, and I definitely would like

00:45:54to do all that we can to try to allow the incentives to work better together without as

00:46:00much transaction or friction costs associated with using the various incentives together.

00:46:06With respect to New Market Tax Credits and Long-Living Tax Credit, that's one area where

00:46:11there can be a reasonable amount of friction, in part by the legislative design. Long-Living

00:46:16Tax Credits are designed for residential rental housing. New Market Tax Credits are everything but

00:46:20residential rental housing. So when you bring New Market Tax Credits in to provide various services

00:46:27for Long-Living Tax Credit development, you actually have to create a separate condo structure

00:46:33to bring each of the supports in. So there are any guidance, if we could get legislative

00:46:39or regulatory guidance to help change that rule, that would be very helpful. I also think there's

00:46:45a number of other areas I wish I had more time to go through. I'd love to submit more comments

00:46:50to the committee in ways to better enable the integration of these various incentives.

00:46:55But I will emphasize one, which is the basis adjustment. There's a basis adjustment requirement

00:47:01that lowers the value of New Market Tax Credits, it lowers the value of the Historic Tax Credit,

00:47:05and lowers the value of using them together. And eliminating basis adjustments would be

00:47:10one big step forward in enhancing the ability and capability of these incentives.

00:47:16Well, thank you. My time's expired. I encourage you to submit further comment on that if you would like to do so.

00:47:23Thank you, Senator Crapo. The man of the hour, Senator Cardin, who has been doing all this work

00:47:29for years and years on New Markets. And I can tell you, Senator Cardin, in your absence, the support

00:47:36is resounding. Senator Novograt- excuse me, Mr. Novogratek went through all the bipartisan,

00:47:42you know, lists. We had Ms. Nelmark talk about dollar-for-dollar market tax credits being so

00:47:48impressive. The time is yours. Well, thank you, Mr. Chairman. I heard they were saying nice things

00:47:53about me. That's why I came down from the Senate Foreign Relations Committee. I'm not getting the

00:47:57same treatment upstairs in that committee. So let me, first let me thank Senator Wyden,

00:48:05Senator Crapo, for this hearing and the work that we've done this year. The priorities that you have

00:48:10placed on economic development and the use of the jurisdiction of our committee to try to increase

00:48:17our opportunities here. So I thank you for that. It's been genuine. You've looked for pathways

00:48:23forward to make progress. We have made progress in this Congress, but we need to make more progress.

00:48:27So I know these subjects have been been covered, but what I find as I look at economic development

00:48:34projects in Maryland, that we don't have one tool that will be adequate in order to move forward a

00:48:43project. So, so many times I go to a community for an economic development project and we're moving

00:48:52forward on it, and I find it's the new market tax credits, it's the historic tax credits, and perhaps

00:48:58also the low-income housing tax credits. They're all combined with some, many cases, some private

00:49:04sector support in order to be able to make the project economically feasible for the community

00:49:09that has in many cases been underserved in the past and has economic challenges and we're trying

00:49:15to provide additional opportunity. The concern is that these tools need to be modernized. These tools

00:49:22are not permanent. If you're an investor and you're trying to go into a community, you're trying to

00:49:27to do a transformational project, you want to know that it's going to, it's going to take some time.

00:49:33You're going to have to go through some regulatory and licensing issues and and local politics. It's

00:49:39not going to happen overnight. If you're going to start on this project, you need to know the tool

00:49:43is going to be there when you need it, and if it's not, if it's expiring in six months or it's expiring

00:49:48at a time, it makes it very challenging to figure out how you can really make that type of commitment.

00:49:54So, yes, we've had bipartisan efforts in this committee and I really want to thank the chairman

00:49:59and other members of this committee that have worked to make the new market tax credits permanent,

00:50:03to improve the historic tax credits, to do things that would make it much more available.

00:50:11And let me add to that the Neighborhood Investment Credit, which deals with trying to keep

00:50:17neighborhoods strong by the realities of the economic values in the neighborhood and the

00:50:23capacity of the residents of that community to support that type of housing, to provide

00:50:29the gap through a tax credit so that we can strengthen communities and invest in communities.

00:50:35So I guess my question, I'll open it up to the panel. We talk about individual, but don't we

00:50:43need a strategy to try to put this together, to make a commitment that say that

00:50:49these tools will be strengthened, made permanent, and become part of a strategy of our nation to really

00:50:55invest in economic development, particularly in communities that have been challenged in the past?

00:51:02Yes, I could respond to that. Thank you, Senator Cardin, for the question and also for your

00:51:08long-term support for new markets tax credits. New markets has been an extremely effective tool

00:51:15for community development and it has been extended eight times over the last 23 years or so.

00:51:25It is much more difficult for CDEs and investors to staff up and plan ahead and communities to

00:51:33plan for it without knowing if that credit is going to be there in the future. And if we had

00:51:42more permanency, better expectations, we would be able to not only plan for it but also the pricing

00:51:50would improve, thereby bringing much more dollars to those local communities that we're really

00:51:55trying to assist. I think it's a very important point. There's a cost to uncertainty. It makes the

00:52:01project more expensive. So when we talk about, well, we can get it done next year because it doesn't

00:52:08expire until September 30th or December 31st and maybe we make the deadline by a week or two,

00:52:14there's an extra cost to that project. In some cases, the project can be lost altogether,

00:52:20but in some cases, it's going to mean it's an extra cost. And these tools, in many cases,

00:52:27haven't been modernized from the point of view of the resources and the size of the credits versus

00:52:34the cost of the projects. And that requires a review or at least an automatic adjuster.

00:52:41And when we don't have that, we pay a cost. The cost may be that economic development will be lost

00:52:49or it might be it's more expensive, and again, putting distressed communities at a disadvantage.

00:52:54Thank you, Mr. Chairman, for this hearing.

00:52:55Thank you, Mr. Cardin. And you should know that in your absence, I pointed out that we've got a lot

00:53:02to do next year, but I look forward to making that call to you and letting you know that finally

00:53:08new market tax credits got made permanent. Thank you for your good work. Senator Cortez-Masdale,

00:53:12then will be followed by Senator Blackburn based on colleagues that are here. And let me also say

00:53:18to staff, let's put the word out that we're getting close to wrapping up unless additional

00:53:25members would like to come. But as of now, Senator Cortez-Masdale and Senator Blackburn.

00:53:29Thank you. Senator.

00:53:30Thank you, Mr. Chairman. Thank you to the ranking member. So appreciate the panelists,

00:53:33your comments this morning. Ms. Nelmark, let me start with you on the new markets tax credit

00:53:38regarding the tribes. Thank you so much for bringing attention to the critical issue of

00:53:44the lack of investment on tribal lands that we have historically seen under the new markets

00:53:49tax credit. I also appreciate you supporting the Tribe Tax and Investment Reform Act.

00:53:54Can you speak to the challenges that come with investing in tribal areas?

00:53:58And why haven't we seen more investment in Indian country despite the overwhelming need?

00:54:05Thank you for that question, Senator. There are a few reasons why. And to start off very simply,

00:54:13it takes more time and more energy, more layered work to make those projects on reservations

00:54:23come to realization. In addition to the significant valuation gap, as I mentioned,

00:54:29as much as 50% of project costs reduction in valuation, there is also a technical or structural

00:54:38issue with investing in tribal areas. Tribes often use tribal organizations, not

00:54:49structured under state law. And as the CDFI fund report titled Best Practices and Challenges in

00:54:57Investing in NMTC in Native Areas states, uncertainty remains regarding the eligibility

00:55:04of tribal corporations as qualified active low-income community businesses, resulting

00:55:10in additional steps such as creating state law entities and lease agreements to navigate the

00:55:16issue. So in essence, because tribal entities are not recognized as a qualified borrower for

00:55:26new markets tax credits, we have a lot more structuring around to get there. It adds time,

00:55:32cost, complexity. And so if Congress would consider amending the definition of the QALIC-B

00:55:41to include a tribally owned corporation, that would be extremely helpful and would advance

00:55:48investments on reservations. Thank you. I appreciate that. And let me jump to Mr.

00:55:53Novogratic. And let's talk about tax exempt bonds as well for our tribal communities.

00:56:02I know that our tribes face challenges in trying to access these tax exempt bonds because

00:56:08the federal tax code limits tribal bonds to those for an essential government function.

00:56:14And this prohibition severely limits the types of projects tribes can build with tax exempt

00:56:19bonds in comparison to our state and local governments. Can you speak to this

00:56:23prohibition and what we need to do to address it for our tribes?

00:56:28Well, I definitely support expanding the ability of tribal governments to access

00:56:33private equity bonds and appreciate your leadership in that area. I also wanted to

00:56:38emphasize as a practicing tax accountant, the qualified business question for new market tax

00:56:43credits is really one that getting some legislative clarity there would be super helpful in terms of

00:56:49simplicity and avoiding transaction costs. And then also wanted to echo my support of your

00:56:56tribal bill to target $165 million of new market tax for allocation to tribal areas.

00:57:05And then also your other bill, Senate 1805, if I could touch upon that,

00:57:11has a technical rule, has a technical provision in it to allow state agencies to redesignate the

00:57:18use of private equity bonds. And that would be super helpful for a variety of purposes,

00:57:24particularly in that housing area. Because if a state right now specifically designates, say,

00:57:29states can carry over bond issuance authority for up to three years, but they have to designate the

00:57:35area they're going to use it. So if a state might designate it for, say, rail,

00:57:39and then they want to, in the subsequent year, don't have a use for high-speed rail,

00:57:42they can't redesignate it for housing, be it mortgage revenue bonds, the residential

00:57:48bonds and the like. So I appreciate you introducing that bill and the benefits it

00:57:54could bring to providing more financing for affordable housing. Thank you. I think we've

00:57:58hit everything that I thought was important. Let me just say one thing, because I appreciate both

00:58:04Ms. Loftin and Mr. Hawkins being here as well. I was a former deputy county manager. Saw the

00:58:10benefits of really the work that we're talking about here, what it brings to our local communities,

00:58:16opportunity zones as well. Listen, I think there are challenges with it,

00:58:19but I also see the potential that it can bring to revitalize a community in need,

00:58:25and that's what the intent is. So I really appreciate the conversation today. Thank you

00:58:29for being here. I want to say to our guests, this is a particularly hectic day in the Senate,

00:58:39and senators are trying, telling Senator Crapo and myself that they're on the way. Mr. Hawkins

00:58:44is smiling because he knows that this is the nature of our committee. We work well together.

00:58:51I'm not going to filibuster just to kind of see if senators will show up, but I do have one

00:58:55question, and that is, Mr. Novogratz, you've been very helpful to us in terms of economic

00:59:02development issues that are locally driven. And it seems to me that housing is absolutely

00:59:11crucial to this because it is how people can reside in areas of prosperity.

00:59:20So we're talking about that today. On Thursday, in less than 48 hours,

00:59:26senators are going to have a chance to support a policy that's going to build hundreds of thousands

00:59:33of units of low-income housing, making it possible for folks to be part of the local dream

00:59:40because they're going to have that housing in areas where there's an opportunity for a better

00:59:47life in the days ahead. Tell us a little bit, because you work so closely with local communities,

00:59:53a little bit about your philosophy in terms of local communities, starting with housing,

00:59:59because, and I'll say this for the record, Democrats really aren't supposed to use the

01:00:06word that they're supply-siders. That might surprise some people. I am a supply-sider

01:00:12on housing and child care. We need more of it. And if we don't have it, we're not going to be

01:00:18able to do what the theme of this discussion is all about. I mean, I'm looking at that table and

01:00:24there's differences of opinion about how to do it. I think we all are looking for tools that will

01:00:30strengthen local communities and not have all the decisions made in Washington, D.C., but have

01:00:36more of them made in small communities. I'm heading home when we wrap up town hall meetings. Every

01:00:42county every year had almost 1,100 of them. And people always say, Ron, you know, D.C. might as

01:00:49well be Mars for all the connection it has with us because we make our decisions locally. So I'm

01:00:58kind of out of breath waiting for my colleagues anyway. I understand that more senators are on

01:01:03their way, but Mr. Novogratic is going to tell us a little bit because he's been doing exciting work

01:01:10in housing and renewable energy, which is part of building that ethic of more shared prosperity. So

01:01:17tell us a little bit about how you're approaching reaching these local communities in innovative and

01:01:23important ways. You know, I think it's important to recognize more broadly how severe the housing

01:01:30crisis is in America, the housing affordability crisis. We have not been building enough units,

01:01:37particularly affordable housing units, over the last 10 to 20 years. I wish I didn't have to

01:01:44say this, but there's over 21 million rental households that are cost burdened, paying more

01:01:50than 30 percent of their income in rent, and it's across all states. There's not a state that doesn't

01:01:55have... Say, I just want to make sure I got that. 21 million people? 21 million households. 21 million

01:02:02households. Okay, please continue. And it's across all states. Every state, at least a third of their

01:02:09renter households are cost burdened. And that's across all income levels. When you go to lower

01:02:18income levels, families with, say, 30 percent or 30,000 or less of income, 80 percent are cost

01:02:24burdened, and 60 percent or more are paying more than 50 percent of their income in rent. So there

01:02:31is a massive housing crisis, and the bill that I understand will be put on the Senate for a vote

01:02:38does include a provision to extend an expired tax provision that expired a couple of years ago

01:02:46that would extend, bring additional funding of the 9 percent tax credit, longer-term tax credit,

01:02:52as well as would also lower the 50 percent finance bytest, a kind of sort of a tax wonky test.

01:02:59But the net result of those two changes would... Our estimate in January of this year

01:03:05is it would provide an additional 200,000 of affordable housing units, which is a drop in

01:03:10the bucket against the 21 million, but you got to start somewhere. Well, well said, Mr. Novogratic.

01:03:16And I was just saying, colleagues, I know this is a really hectic day in the Senate, but we're

01:03:23obviously talking about economic development at the local level and how we drive more of it. And

01:03:29Mr. Novogratic just made the point that housing is a key part of that shared prosperity at the

01:03:35local level. And he mentioned that senators will have a chance to vote on Thursday for hundreds of

01:03:42thousands of housing units that can be part of that shared prosperity. Senator Cassidy.

01:03:47Yes, thank you, sir. Mr. Novogratic, nice to see you.

01:03:53I once heard someone say about historic tax credits that the building that you're doing

01:03:59should be historic, iconic, and catalytic to change in the surrounding neighborhood.

01:04:06And I remember going to, when I was in medical school in New Orleans and walking down to the

01:04:09streetcar, I'd see an abandoned Sears building, which was just an eyesore. And now you go and

01:04:15it's mixed use. It's really wonderful. But to elaborate on that, because we have scarce dollars

01:04:21and we want these programs to be catalytic beyond the only, just kind of the only project, but

01:04:26rather to then have an umbrella, if you will, a penumbra, which goes out into other projects.

01:04:31Can you give a couple of examples of those in Louisiana and hopefully some dollar amounts in

01:04:35terms of what it stimulated as well as in other parts of the nation? Yeah, thank you for that

01:04:41question, Senator Cassidy. And let me, first of all, thank you for all the work you did back in

01:04:472017 to preserve the historic tax credit. There have been over 8,000 developments moving forward

01:04:55using historic tax credits to revitalize buildings and turn an eyesore into a area jam,

01:05:03thanks to your efforts back in 2017. And I and so many others appreciate you doing that.

01:05:12When I think about all the, there's a lot of various developments across the country that

01:05:17have used historic tax credit, over 49,000 since the history of the historic tax credit.

01:05:23You know, one property that I know you're familiar with is the World Trade Center

01:05:27there in New Orleans. And it was the gateway to world trade to the south and into Louisiana

01:05:34and to New Orleans for a number of years. And then it went, over time, it went into

01:05:39disarray. And then with Hurricane Katrina, it was essentially abandoned. And then in the

01:05:45combination of the historic tax credit, along with the new market tax credit,

01:05:49abled that property to be revitalized and now is a very active and desirous hotel and housing and a

01:05:57centerpiece, turning an eyesore into a gem. But I also wanted to note, when I think about the

01:06:03historic tax credit, it has declined in value, as I noted in my introductory testimony and in my

01:06:09written testimony over the last number of years. And there's been a variety of treasure regulations

01:06:15that have reduced the value of the credit and some structural, some tax law changes that have

01:06:21impacted the value. It went from $1 in credit value down to $0.79, $0.80. So it's seen a 21%

01:06:29decrease in value. And I think as Congress thinks about the tax bill next year, looking at ways to

01:06:37enhance the value of the historic tax credit would be super helpful. And I have a number of ideas,

01:06:42which I'd be happy to share. Yes.

01:06:45Let me ask, partly, is that decline in value because overall rates went down under the Tax

01:06:53Cut and Jobs Act? No.

01:06:56It was not because of the decline in the tax rate. It was because there was a court decision

01:07:01that froze the market. And then as a consequence, Treasury issued a safe harbor that became the norm.

01:07:07And that safe harbor that issued by Treasury...

01:07:09Elaborate on that, please. The safe harbor became the norm.

01:07:12That's right. There was a safe harbor in terms of how you'd have to design certain types of

01:07:16historic tax credit developments in order for the IRS to say there's economic substance to

01:07:22the investment. When you say design,

01:07:23you mean the financing factor. That's correct. That is correct.

01:07:25Okay, please continue. And then a few years later,

01:07:30the IRS issued a ruling about how the taxable nature of historic tax credit affects investors.

01:07:36And that put an additional tax burden on investors, which further...

01:07:40And what was that IRS regulation?

01:07:43That was a regulation that is called... It's an interpretation of Code Section 50D.

01:07:49And it's super wonky, but it basically imputed income for using the tax credit to certain

01:07:56investors. And that imputation of income meant that investors wouldn't pay as much for the tax

01:08:01credit because of this imputation of income. I see. So they were both given and taken away

01:08:07at the same time. That's right.

01:08:09And therefore, they decreased the value of the credit.

01:08:11That's right. Okay. And that was new

01:08:13because we've had tax credits at least since Reagan, maybe before.

01:08:17That's correct. So this was a new

01:08:19IRS deliberation on an old product? Can I ask what led to this?

01:08:23That's correct. It was a new IRS interpretation of existing structures that were being used

01:08:29in the market. Now, to be sure, just because I think we all need to know this,

01:08:33I went to one site in New Orleans where it was a bar or restaurant that was used during Jim Crow

01:08:40by African Americans for them to have a social club. And the restrictions on how you could

01:08:47develop were significant. You had to preserve the historic integrity. And the building being so old

01:08:53was not that nice anymore. And so you had to take something which was a little dog-eared

01:08:58with historic significance and enhance the historic significance, et cetera.

01:09:02So there is a higher cost basis for doing so. That is correct. The foundation of the historic

01:09:07tax credit is designed to help offset the cost of retaining the historic integrity of the building.

01:09:13And that's the original genesis of the credit back before 1986.

01:09:17I'm out of time. Thank you. I yield. I thank my colleague. Senator Bennett is next.

01:09:22Mr. Chairman, thank you. Thank you so much for holding this hearing. And I can't tell you how

01:09:28pleased I am that we're going to have the vote that we're going to have this week on the floor.

01:09:31Thank you. Thanks for all your help. No, I know it all. I just appreciate you're

01:09:37sticking with it until the very end. And you mentioned housing and Mr. Novogratic,

01:09:42that's where I'd like to ask a question. Everywhere I go in Colorado, I hear about the

01:09:49lack of workforce housing everywhere and the lack of just affordable housing generally and most

01:09:56broadly understood every single part of our economy. I mean, the people in every part of

01:10:03our economy, none of them can afford housing. I was the superintendent of schools in Denver

01:10:08many years ago. And one of the amazing things about being in that job was that in Denver,

01:10:13unlike Seattle or San Francisco, the teachers that worked in the district could actually live in

01:10:20the district and could live near the kids where they taught, live near the schools

01:10:24where they taught. Today, no teacher can afford to live in Denver 15 years later.

01:10:30No teacher can afford to live in the inner suburbs around Denver. And we're now asking people who are

01:10:38working one of the hardest jobs, the least well-paying jobs in America, the most important

01:10:42jobs in America to now commute, what, an hour, an hour and a half each way for the privilege of

01:10:48being able to do this essential work. So I look at this as, you know, I guess I would say that

01:10:56part of creating a thriving community is making sure that people that are working in a community

01:11:01can actually afford to live there, that people don't have to travel long, long distances. Although

01:11:07we're seeing this in rural parts of the state as well. It's not just in urban parts. It is

01:11:12absolutely everywhere. And we've also seen it all across the country. You know, in Denver,

01:11:20the house price to income ratio in 1980 was 3.2. In 2022, it hit 7.1. So when people say,

01:11:31as they often do, we're never going to be able to afford to live where our parents lived. I was with

01:11:36some people this weekend who were saying that, you know, as parents, they're actually thinking

01:11:39about how to buy houses for their kids because their kids will never be able to afford. And that's

01:11:44what a 7.1 ratio to income looks like compared to 3.2 when it was affordable. Home price to

01:11:50income ratios have reached all-time highs in 78 of the country's 100 largest markets,

01:11:56where more than 295 million Americans live. That's virtually everybody. And we know there's

01:12:01a huge problem with housing supply. I get that. We've got to build more units. But in the last

01:12:07few years, private activity bonds have become a popular tool for financing affordable rental

01:12:13housing. I wonder, with all that wind up, given the affordable housing crisis that we have most

01:12:18broadly understood, again, how can we improve the current private activity bond scheme to facilitate

01:12:25housing construction in this country? And are there other things that you would do if you had

01:12:30a magic wand? Yes. There's a lot of things I would do if I had a magic wand, but focused on

01:12:36private activity bonds for the moment to address that question. I think that lowering the technical

01:12:44finance-by test that you have to meet in order to combine private activity bonds with low-income

01:12:49housing tax credits would be a huge step. Lowering it from 50% to 25% is in the Affordable Housing

01:12:55Credit Improvement Act. And that would more than double the ability of private activity bonds to

01:13:02finance residential rental housing. And then the bill that you'll be voting on on Thursday

01:13:06will lower the test from 50% to 30% for two years. And that would be super additive in terms of

01:13:14adding to the housing supply. A second adjustment or thing that I would point out with respect to

01:13:19private activity bonds is in some rural areas and suburban areas, it's not as financially feasible

01:13:27to use private activity bonds to finance residential rental housing. The Affordable

01:13:31Housing Credit Improvement Act includes a basis boost provision that would help rural areas.

01:13:36There's a provision in there to help tribal areas and even a more general area to help

01:13:41make more of those developments financially feasible outside of rural and tribal areas.

01:13:47And so they said that Congress could enact those provisions. We could see private activity bonds

01:13:52funding dramatically more for rental housing units. Thank you for that. Ms. Nelmark, I have

01:13:5730 seconds left. And if the chairman will let me have it. I wanted to shift actually to tribal

01:14:05lands to get your thoughts about, you know, the history that we have of unfulfilled obligations

01:14:13and the increasing nightmares that tribes are dealing with in terms of the new market tax

01:14:25credit. For example, in my state, tribes in Colorado like the Ute Mountain Ute and the

01:14:31southern Ute tribe want to take advantage of tax programs like the new market tax credit,

01:14:37but too often the structure of the credit itself gets in the way. I can tell by your nodding that

01:14:43you know what I'm talking about. So let me just turn it over to you for the rest of it to see if

01:14:47you can give us some advice about how we can make this work better for tribes. Sure. We've done a

01:14:54number of native deals, new markets native deals. And there are a few issues, one of which is the

01:15:03valuation gap that I discussed earlier with as much as 50% reduction in value off the cost of

01:15:11building. But in terms of what this could do is the structuring of the borrowers in essence in

01:15:21new markets, the qualified low-income community businesses, it's unclear if tribal corporations

01:15:29are eligible to be those qualified borrowers. And so we have to structure around that,

01:15:36which increases the complexity, the cost, the time, everything involved there. So if Congress

01:15:43could amend the definition of a Qualic B to include a tribally owned corporation, that would

01:15:50be tremendously helpful. Good. That sounds like a good place to cut some red tape, Mr. Chairman.

01:15:55Thank you. Thank you. And Senator Bennett almost always adds extra value to something we haven't

01:16:03covered, and that is that he's made the point that housing and particularly what we're trying to do

01:16:09is also pro-worker. Because if we've got workers having to go to their job over here, and then

01:16:17they live over here, and they're going back and forth, it's not going to help their productivity.

01:16:22And I see this with employers all the time. I mean, in timber country and ag country in Oregon,

01:16:28you ask them what they're doing, and they're hiring people to help with houses and trying to

01:16:32find where they're going to be. So importance made as usual, Senator Bennett, Senator Carper.

01:16:36Thanks. To your point, Mr. Chairman, we hear a lot about folks who are looking for a job,

01:16:43wanting to go to work, and they need child care in order to be able to do that. And we also hear

01:16:48the same thing with respect to housing. I apologize for getting here late. We're having a joint

01:16:54hearing, joint investigating hearing on the assassination attempt of the President before

01:16:59the Homeland Security Committee and the Judiciary Committee, and I've been delayed because of that.

01:17:04Not because we're not interested in what you all have to say. This is important stuff, too.

01:17:08The – Mr. Chairman, thanks so much for holding a hearing today, and we thank all of you for

01:17:15joining us and sharing your thoughts and advice. As we know, COVID pandemic led to major shifts

01:17:23in commercial real estate, fewer people working in person, less foot traffic to retail and store

01:17:30fronts. Meanwhile, our nationwide housing shortage continues to squeeze renters and

01:17:35prospective home buyers alike from Delaware all the way over to Oregon. Delaware is no stranger

01:17:41to adapting and evolving with the times. We've converted shuttered car assembly lines into

01:17:47state-of-the-art biopharmaceutical plants. Former brownfields like the Wilmington Riverfront are now

01:17:53thriving tourist destinations. My question deals with pairing tax incentives with IRA

01:18:02and the Bipartisan Infrastructure Bill incentives. Economic development tax incentives like the

01:18:08New Market Tax Credit and the Rehabilitation Tax Credit have been critical to my state and,

01:18:14I know, to other states, starting hundreds of millions of dollars in development across

01:18:20hundreds of projects. Now, thanks to our historic work last Congress, developers can

01:18:25pair these tools with additional grants and incentives enacted in the Inflation

01:18:31Reduction Act and in the Bipartisan Infrastructure Law. As our municipalities and communities use

01:18:38these tools for adaptive reuse, they can do so in a way that is greener, that connects people

01:18:45to modern infrastructure. Question. It's a question of Ms. Loftin, I think, initially.

01:18:51But as a city manager, could you talk with us a little bit about your experience with developers

01:18:57pairing IRA and the Bipartisan Infrastructure Law incentives with credits like New Market and

01:19:03Rehabilitation Tax Credit? Certainly. Thank you. As you were discussing your comments there,

01:19:11I started thinking about at least three or four projects that we were currently involved in now.

01:19:16And so the opportunity to work with developers as a locality is extremely important.

01:19:26When they come and say, hey, we want to build in your city, we want to redevelop in your city,

01:19:31they become very critical partners. They bring capital. But there's also always, inevitably,

01:19:36a gap in these large projects. And in an urban area like Dayton, we have a lot of brownfield

01:19:43sites or old buildings. And in the instance, I'm thinking about an old fairground that is

01:19:50under consideration for redevelopment now. The capital stacks on these projects

01:19:54are incredibly complicated. And they involve New Market tax credits, sometimes historic tax credits,

01:20:03your bill bonds. And the city can then come in and as they are sorting out all of the private

01:20:09investment and the redevelopment for large new commercial districts with housing infused in it,

01:20:15the city usually can come in and say, you know what, we can pull in with your streets and your

01:20:19sidewalks and all the public infrastructure improvements that are really critical to

01:20:24making that project work. And so there is opportunity for us to combine tax exempt debt

01:20:30for public infrastructure with New Market tax credits and historic tax credits to make these

01:20:35large projects work. They take multiple years of planning. And so to the time commitment of

01:20:42knowing that these tax tools are permanent, it helps. Some of these projects have been, they

01:20:48started five, six years ago and now are just coming to fruition. So I do think it is very

01:20:55critical and important that municipalities can participate in some of these developments.

01:21:00Otherwise, there are gaps there that the private sector can't fill. And we play an important

01:21:07partnership there. So I think I'm thankful for those opportunities and for all of those various

01:21:14financing tools that can come to the table by multiple partners who have a vested interest,

01:21:20not just for the economics, but for the development itself.

01:21:24Good. Thank you very, very much for that. Let me follow up with a quick question from Ms.

01:21:28Nelmark. Similar, are there tools or resources that Congress can implement to make it easier

01:21:34to, if you will, stack these incentives together? I would agree the stacking of the credits is

01:21:43rather complex. Some of the ways to assist them, there's a whole long list.

01:21:51I'm not sure where to start. The native issue that I mentioned earlier with the QALIC-B definition

01:21:59would be extremely helpful in that regard. Combining historic credits with new markets credits,

01:22:06combining new markets with most of the credits brings in kind of a spaghetti bowl structure

01:22:12that we have side-by-side leasing structures, and it gets pretty complex.

01:22:17I cannot speak to one specific way to improve those, but some of the underlying elements could

01:22:27be assisted. The USDA business and industry guarantee, for example, if that could go

01:22:33through the new market structure, it would simplify those deals combining with new markets,

01:22:40taking away the more complex side-by-side structure.

01:22:44Thank you for that response. Mr. Chairman, my time has expired. Could I just mention a question

01:22:49for the record, please? Absolutely. It's so ordered, Mr. Recorder.

01:22:54It doesn't look like there's a big waiting line. I want to tell you the hearing that I just came

01:22:58from on the assassination attempt with the Judiciary Committee jointly with the Homeland

01:23:03Security Committee. It was like, I mean, you fill this room to the rafters. It was quite

01:23:08a huge, huge coverage for it. But this is important. This is, in some ways,

01:23:14as important as what's going on in that hearing. But a question first of all to Mr. Novogratic.

01:23:21Has anyone ever mispronounced your name? Novogratic, very well.

01:23:25Novogratic. Okay, we're getting close. Do you have, could I just ask this?

01:23:29Could I just go ahead and ask you? Do you have a recommendation

01:23:33on how to improve the Rehabilitation Tax Credit to better facilitate conversions,

01:23:40which include conversion of unused commercial real estate into new housing stock?

01:23:45Great, thank you for that question, Senator. And I do have suggestions. And I would start with,

01:23:53and it's also a simplification provision that you ask Ms. Nelmark, is eliminating

01:23:58the basis adjustment, both for historic credits, and it also would help if it was eliminated for

01:24:03new market tax credits. But eliminating the basis adjustment would reduce the 50D income issue that

01:24:09I made reference to earlier, and would directly increase the value to investors of investing in

01:24:14historic tax credit developments. I think that Congress should also consider going back to a

01:24:19one-year credit. It's a five-year credit, claim to repayment. It's a five-year credit,

01:24:24going back to a one-year credit. It's a five-year credit, claimed over five years right now,

01:24:29but having it all claimed up front, which is how it used to be back before 2017. And then Congress

01:24:36could also look at increasing the credit percentage. The historic tax credit, the HTC Go

01:24:43bill, would increase the historic tax credit for smaller projects to 30% from 20%. But I would note

01:24:50that back in 1986, when I was practicing working with historic tax credit, it was 25%. So there are

01:24:57a multitude of ways to enhance the value of the historic tax credit that would drive more

01:25:03investment and better and support more rehabilitation of historic properties across America.

01:25:11Thank you for that response, Mr. Chairman. Thank you for giving me a couple of extra minutes.

01:25:15I thank my colleague. I understand that senators are still trying to parachute in. They have

01:25:21enormously hectic schedules today. And let me consult with both the majority and the minority

01:25:30with respect to how soon our respective sides could have additional senators.

01:25:45Senator Carper, did I understand you to say you had an additional question? We have

01:26:05one additional senator who may be on their way.

01:26:10If I may, I don't have anything prepared. But let me just say, if each of you take a minute,

01:26:20and for my colleagues or colleagues who are not here or can't be here, give us like if there's

01:26:24only one thing we take away from this from you to us, what would it be? Go ahead.

01:26:30For Dayton, I would say it would be to restore the advance refunding for tax exempt bonds. That

01:26:36creates for small issuers, it creates an opportunity for additional savings that we

01:26:42can use to reinvest back in our community. Oh, okay. Well, we don't want to do that.

01:26:47Please. Thank you. For new markets tax credits, the permanence bill, including the AMT fix

01:26:55and basis adjustment would be most helpful. All right. Thank you. Please.

01:27:00I feel like you're asking me who's my favorite child.

01:27:03That's a good question. But I don't see what you have to say.

01:27:07I'm not going to go there. With respect to the historic tax credit, I would say we have to

01:27:13enhance the value of the historic tax credit, either through basis adjustment or making it a

01:27:18one-year credit. With the new market tax credit, you know, permanency, along with inflation

01:27:24adjustments, I realize this isn't just one, an offset of the AMT. And for affordable housing,

01:27:29the long-term housing tax credit, I would look to the lowering of the 50% test so

01:27:36productivity bonds can finance, you know, a million plus more housing units. And for

01:27:42opportunity zones, I would say let's get reporting in place so we can actually have data to have a

01:27:49non-anecdotal debate. All right. Same question, Mr. Hawkins.

01:27:53Just keep it brief. Go ahead. Yes, Mr. Gardner, because Mr. Novogratic noted

01:28:00transparency reporting, I'll just note the extension of the opportunity zone policy

01:28:07of it for at least two years, one year to make up for the amount of time that it took for Treasury

01:28:13to implement the policy, and then one year to make up for the COVID year.

01:28:17Thank you all. That was well done. Thank you. Thanks, Mr. Chairman.

01:28:27This is like the marquee at the old movie house. I may be dating myself where the movie says

01:28:34coming soon, and you just hope that it actually gets to you. I'm going to, in all seriousness,

01:28:41will hope our colleagues who say they're coming are going to be here momentarily. But

01:28:46let me do our closer. What is striking to me, and I'll do mine now.

01:28:55Okay. I was hoping that was our colleague. What I'm struck by is there is a diversity of opinion

01:29:04among the four of you that are sitting at this table. But what all of you agree on is you want

01:29:11to get more of the economic development decisions out of Washington, D.C. So we've had some good

01:29:19recommendations today on how to do it. And that's what Thursday is all about with respect to LIHTC.

01:29:27LIHTC will create hundreds of thousands of additional housing opportunities, which we

01:29:34have been told today is pro-family and pro-worker, as Senator Bennett talked about. So I just want

01:29:43everybody to know, as long as I'm chairman of the Senate Finance Committee, we are going to do

01:29:48everything we possibly can to get these economic development decisions out of Washington, D.C.

01:29:55and into our local communities. That's what today's been about. That's what the Thursday vote is all

01:30:00about. So I really appreciate all of you for colleagues. Questions for the record are due one

01:30:05week from today. And Senator Blackburn will be our final senator questioning our witnesses.

01:30:11Yes, getting back here just in time. We've got the Kids Online Safety Act up for a vote, and I had

01:30:19to run to the floor. But I want to thank you all for being here today and for the opportunity to

01:30:25hear from you. I represent Tennessee, and we have had some tremendous success with opportunity zones,

01:30:35with new market credits. We've had some great developments that have done a good job of

01:30:44stacking these credits. We have the Model Mill Project, which is up in Johnson City. We've got

01:30:52a big project down in Memphis. And this has been a success. And I know we talked a little bit about

01:31:02incentive stacking and the importance of that. And Mr. Novogratek, I want to hear from you.

01:31:15When you talk to people that are looking at going into an area and doing a No-Z

01:31:23and stacking these credits, how much of a difference does it make if the project does

01:31:31or does not go forward as to being able to stack those? And then what are you seeing, and Mr.

01:31:39Hawkins, you can weigh in on this also, when they will take advantage of state credits, state and

01:31:49local credits as well as what we are doing? And I had wanted to get to that state and local area

01:31:57credits. We've used those OZs and the work credits with Blue Oval City out in West Tennessee to do.

01:32:07Governor Lee has done a Tennessee College of Applied Technology. We call them TCAPs.

01:32:13But it is jobs training, skilled labor training. But let's touch on the difference that that makes

01:32:22when you look at that combined presentation of local, state, and federal.

01:32:28Great. Thank you for that question. And I'll start with the state tax credit piece.

01:32:34In the area, there's a lot of areas that are good examples of the power of state tax credits.

01:32:40One area is the historic tax credit. The historic tax credit, many states also have a state historic

01:32:45tax credit. And that goes a long way in terms of helping close financing gaps for the renovation

01:32:52of historic properties, combining historics with federal and state historic tax credits.

01:32:57And the long-living tax credit, you know, the state of California has a state long-living

01:33:02tax credit that goes a long way towards filling financing gaps with productivity bonds to build

01:33:07more affordable rental housing. When you think about stacking, when clients come to me,

01:33:12you know, oftentimes they will have financing gaps. They always have financing gaps. They're

01:33:17trying to find ways to close those financing gaps. And I think the Crosstown Conkers in Memphis is a

01:33:23great example of, you know, a former Sears warehouse and catalog order plant that was

01:33:31abandoned or closed in 1993 and then was abandoned for years and years. And now,

01:33:37it's a vertical urban village, and it combined new market tax credits with historic tax credits.

01:33:42And I will say, we've talked earlier in the course of this hearing that there are

01:33:47basic adjustment and other complications that we could simplify to make those tools work better

01:33:51together. But right now, they work well together, and trying to, and getting the new market tax

01:33:56credit made permanent is huge, and increasing the value of the historic tax credit would be a big

01:34:01step forward so they can do even more. So, some of these projects would never happen?

01:34:04Yes, they would absolutely not happen. Without being able to stack and tier

01:34:09these local, state, and federal credits. Mr. Hawkins?

01:34:13So, the state of Tennessee is approaching opportunity zones and opportunity zone investing

01:34:21exactly as Congress envisioned. So, Congress was given, governors, when they were selecting

01:34:28opportunity zones, were given three non-binding criteria to help them in selecting the zones that

01:34:33were available for investment. One, areas that had seen significant economic distress because of

01:34:40displacement due to technology changes or outsourcing. Two, areas where there was

01:34:45a chance for investors to get a decent return. And three, what we're discussing right now,

01:34:53areas where there was a potential for complementary state, local, and federal,

01:35:01in terms of new markets, policies that could really put the opportunity zone policy

01:35:08on steroids, if you will. And so, Tennessee's done a great job. I know in my home state of Ohio,

01:35:14we have a transferable state income tax credit of 10% for all the opportunity zones.

01:35:23We don't have a state income tax in Tennessee.

01:35:27You guys are two steps ahead of us. Yes, we are. Thank you. Thank you, Mr. Chairman.

01:35:36No, no, no, no. We're doing quite well, but I do hope we're able to do another tranche of OZs.

01:35:44I think they've been very effective, and the ability to make these tax cuts permanent,

01:35:50as you were discussing earlier in the committee, I think is something

01:35:54that people would like to see. Thank you all. Thank you, Mr. Chairman.

Ron Wyden Leads Senate Finance Committee Hearing About Community Economic Development

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