There’s no doubt that food banks have been getting bigger in recent years, with every quarter bringing news of more food banks opening new, larger warehouses.
Partly behind the surge in growth has been a powerful federally-funded financing tool called the New Markets Tax Credit program. Although the program is set to expire at the end of this year, its success, combined with broad bipartisan support for it, signals that the tax credits may continue to play an important role in helping food banks expand their footprints.
The program steers capital toward low-income communities by providing a tax incentive to private investors. In recent years, social services providers have increasingly benefitted from the program. Projects related to shelters and community food increased by 556% between the later years of the program (2018 to 2023) and its early years (2003 to 2010). By comparison, projects related to manufacturing increased by only 88% during that time, according to a report from the New Markets Tax Credit Coalition.
For food banks, the New Markets Tax Credit program has been “nothing short of transformational,” according to Trevor Nelson, Manager of Strategic Financing Services at Cherry Bekaert, a tax advisory firm. Compared to other forms of funding like philanthropy, government grants or capital campaigns that can take years to develop, the tax credits provide an “immediate, large-scale capital infusion,” he said.
Such financing can let food banks break ground on new facilities “years ahead of schedule,” Nelson noted, while alleviating pressure on donors and government programs. “NMTC financing is a game-changer,” he added, “enabling food banks to focus on their mission without being bottlenecked by traditional capital constraints.”
Rural Development Partners, an Iowa-based firm that facilitates the funding, agrees that the credits lead to bigger impact at greater speed. It announced in June that it was one of five entities providing a total of $55.5 million in New Market Tax Credit funding to help Food Bank of the Rockies build a new distribution center. “Without NMTC financing, the expansion would be significantly delayed or scaled back,” the firm said in a press release.
While the tax credits are powerful, the process of getting them can be complicated. Operation Food Search recently took advantage of the credits to close an $11 million deal for the renovation and expansion of its headquarters in Overland, Mo. “It’s a very in-depth, technical process,” cautioned Julie Mann, CPA, Chief Financial Officer.
She added, “I worked in public accounting for many years before I came here, and had many clients who went through mergers and all kinds of business deals. This was by far the most complicated deal I’ve ever had the opportunity to work on.”
Mann advised food banks to hire a third-party expert to facilitate such deals. Part of the process involves finding a community development entity – a firm that has been approved by the federal government to evaluate proposals to see if they qualify for the tax credits. Then an investor must be found to invest in the project. “Our third party counsel was able to help us find that CDE and find the right investor,” Mann said. “It was very helpful to have people who were experienced in this.”
Operation Food Search had initially earmarked about $8 million for its renovation, but soon got estimates from its contractors and architects that the project would cost more than that. That led the food bank to explore the tax credits, and it reached out to a local firm, SmithNMTC Associates LLC, to act as its third party counsel. Ultimately, Heartland Regional Investment Fund was identified as its Community Development Entity and U.S. Bank as its investor.
The investor added $3 million to the $8 million that Operation Food Search put up. After paying out attorney fees, loan fees, interest and so on, the food bank ended up with a benefit of about $1.7 million, Mann said. “It was a lot of work and it continues to be a lot of work. But for $1.7 million, it was absolutely worth it.”
Mann described the process as “six months of pretty intense reviewing” of all the requirements. She doesn’t recommend using the credits for projects costing $500,000 or less. “It is an all-consuming process for a while when you’re trying to get to the closing portion of it. And then there’s reporting that is required over the next seven years.”
Despite all the work involved, the tax credits are widely recognized as having a positive impact. Though the New Markets Tax Credit program is scheduled to sunset at the end of 2025, bipartisan legislation introduced in both chambers of Congress would make it a permanent fixture of the tax code and also establish a $5 billion annual allocation. “Successes have galvanized support across the political spectrum,” noted Nelson of Cherry Bekaert.
Mann would definitely turn to the program again for a large project. “$1.7 million for our community is no small amount of money,” she said. “We can turn that into a lot of good.” – Chris Costanzo
PHOTO, TOP: The new reception area and kitchen at Operation Food Search’s renovated warehouse.
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