The New Markets Tax Credit (“NMTC”) is a federal tax incentive used to promote investment in low-income neighborhoods. Many of these neighborhoods are home to historically marginalized communities. However, very few minority-led institutions participate in the NMTC program. This Article provides the first theoretical and empirical exploration of the underrepresentation of minority-led institutions in the NMTC program. Based on original interviews with representatives of Community Development Entities (“CDEs”), investors, borrowers, and consultants who participate in the NMTC program, this Article describes the “NMTC ecosystem,” a complex, relationship-driven network of NMTC program participants who influence decision-making and create opportunities for success within the NMTC program. The Article demonstrates that within the NMTC ecosystem, minority-led CDEs face structural barriers to entry similar to those that exist in purely private markets, such as unequal access to professional networks and lack of track records. Troublingly, those barriers are intensifying with time.

The underrepresentation of minority-led CDEs in the NMTC program undermines its capacity to promote equitable economic development. To remedy that problem, this Article proposes that the Treasury should increase transparency and guidance in its administrative process, engage institutional intermediaries to aid minority-led CDEs, and relax requirements that chill participation among minority-led CDEs. These insights and prescriptions have relevance well beyond the context of the NMTC. In many domains, regulators have adopted measures that aim to promote equitable community development. This Article’s findings and reform recommendations thus have important implications for the broader universe of place-based regulatory policies, including for the many other tax incentive programs that aim to promote equity and reduce economic marginalization.

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