The Community Investment Tax Credit (CITC) Programme in Massachusetts
The CITC was signed into law in 2012 (and took effect in 2014) to enable local residents and stakeholders to work with CDCs in improving the economic opportunities for local communities. To achieve this, it offers to "individuals, corporations, and non-profit institutions the opportunity to obtain a 50% refundable Massachusetts state tax credit if they invest in the development of the communities that need help most. The programme is open to both Massachusetts-based donors and those from out of state; donors can also claim a federal tax deduction if they are eligible."
The process of obtaining the tax credits requires organisations to qualify and earn the benefits provided by the tax credits, through the following steps:
- Organisations must first be certified by the Department of Housing and Community Development (DHCD) to be able to participate.
- "The certification process is modelled after the Community Development Financial Institutions Act in that it requires the organisation to demonstrate that community residents are meaningfully represented on the board of directors and that local community members are engaged in setting and implementing the agenda. The organisation must also have a core focus on community development activities and on serving low- and moderate-income people and places...
- "CDCs must then go through a competitive application process to receive an allocation of tax credits from the DHCD. For this, CDCs must submit a detailed Community Investment Plan (CIP) that outlines its goals, strategies, and capacity for improving economic opportunities for residents. Applicants will have to demonstrate that they have the technical and financial capacity to succeed and will have to describe how they will measure their success. The DHCD will pick the highest-quality applications...
- "Once selected, the groups would use the credits to attract private donations from corporations and individuals... With a 50 percent tax credit, the state's investment will be leveraged dollar for dollar with private investment. The community will then use the new resources to leverage further dollars for specific programmes and projects...
- "Organisations benefiting from tax credits are accountable to local community members and leaders, private donors, and state government. This ensures that their activities are well designed, effective, and sustainable. Those that do not perform satisfactorily will lose their tax credits. Donors also benefit substantially: in addition to the 50 percent state tax credit, they receive a federal deduction on their net donation - for some, the true cost of the donation may be as low as 32 cents on a dollar."
For decades, community development corporations (CDCs) have been active in Massachusetts, working to support lower-income citizens and their communities. These organisations are formed by local residents and are thus well positioned to identify and address the needs and the most pressing challenges faced by their communities.
In 2002, the Community Economic Enterprise Development (CEED) programme - a long-standing state programme that provided funding for CDCs - was shut down, and CDCs lost an important source of flexible funding. Around the same time, there was growing awareness that CDCs were addressing important community needs, and the lack of funding made it difficult for them to take a comprehensive, resident-led approach to community development. CDCs struggled for years to underwrite important community projects, particularly those that benefit low- and middle- income residents, due to a shortage of incentives for donor funding.
The public impact
In terms of funds, the programme raised in its first two calendar years (2014-15) a total of USD12.85 million out of a potential USD18 million - demonstrating significant growth between the first and second years. "In 2014, CITC raised USD4.71 million from 1,013 individual donations; in 2015, it raised USD8.14 million from 1,523 donations, with CDCs and donors participating across the state. The USD12.85 million were split by three types of organisations: CDCs (USD9.99 million), Community Support Organisations (CSOs) (USD560,000) and United Way of Massachusetts Bay (UWMB) (USD2.47 million)."
In terms of results from the resource allocation, for example, from the USD2.4 million that UWMB has raised from donors through the CITC programme, the CDCs have since 2014:
- "Built over 600 new affordable housing units
- "Prevented more than 1,300 foreclosures
- "Provided more than 11,600 individuals with financial coaching and financial education to help them build savings, reduce debt and improve credit scores."
Similarly, in the first two years of CITC, CDCs have started to achieve many of the programme's goals, including increased staff capacity, community engagement and expansion of strategic programmes:
- "The majority of CDCs reported that they were able to improve their internal organisational capacity, which included expansion of programme staff and deepened board engagement; they have also sustained, stabilised and expanded ongoing efforts, including community organising.
- "CITC has supported new, expanded and diversified programming beyond affordable housing, including financial assistance/asset building, adult education and ESOL [English for Speakers of Other Languages], youth and arts programming, farmer's markets, small business assistance, transportation, and health initiatives.
- "New partnerships were developed with non-profits and businesses such as Chambers of Commerce, community business associations, higher education, arts, and healthcare organisations."
There was a group of local organisations pushing for the implementation of the CITC programme before it was actually approved. "The passage of the [CITC] into law in 2012 was the result of many years of planning and advocacy led by the Massachusetts Association of Community Development Corporations (MACDC), Local Initiatives Support Corporation (LISC) Boston, the [UWMB] and multiple community development stakeholders."
The DHCD is the agency responsible for administering the CITC process, and it initially developed regulations for the CITC to guide the programme and set guidelines for the tax allocations, with the input of several stakeholders. "DHCD was advised on the development of the CITC programme by a CITC Implementation Advisory Group that consisted of representatives from state agencies, CDCs and CSOs, housing organisations, municipalities, foundations, banks, and financing institutions. The role of CSOs is to provide capacity-building services and assist CDCs with the implementation of their CIP and CITC supported activities."
After the implementation of the programme, both MACDC and LISC Boston have actively supported the CDC partners through a number of activities, most significantly, fundraising technical assistance, peer learning activities, programme marketing, and CIP development. "Given their broad mandate in the legislation, each of the CSOs took a different approach to capacity-building based upon their core strengths and history."
The CITC programme was launched in January 2014 for a period of six years; the Commonwealth made available USD3 million in tax credits in the first year, increasing to USD6 million in each subsequent year.
At its inception, Deval Patrick (the Governor of Massachusetts who signed off the programme in 2012) described it as “a way of strengthening organisations that make possible the kind of lifting up of neighbourhoods and of communities that we need done, and it can never be done through government alone and CDCs are enormously important in that respect”.
Similarly, Governor Charlie Baker praised the tax credit programme on the campaign trail in 2014 and expressed his support for more funding in the future. “'It's a great idea, makes tons of sense,' he told the annual convention of state CDCs last October. “We should be all over it as a Commonwealth.”
The tax credits provided by the CITC programme relieve the financial burden from communities that have limited funds and make a substantial difference to local projects. A few quotations from local stakeholders indicate the benefits of the programme:
- Mullen Sawyer, executive director of Oak Hill Community Development Corporation, said that: “'The state government in Massachusetts has been profoundly forward-thinking, innovative, and they've invested in critical programmes that prove their merit'...
- “'It's a good programme,' said Steve Teasdale, executive director of Main South CDC.
- "'I think people hear the words "tax credits", and there are many different types of tax credits, but this is pretty simple and straightforward,' Worcester Common Ground Executive Director Yvette Dyson said. 'There's some paperwork from the CDCs, but to the person it should be easy'...
- “'Worcester Common Ground was given USD75,000 in tax credits, which yields the organisation USD150,000, which goes directly back to our neighbourhoods” - Yvette Dyson, Worcester Common Ground Executive Director. 'We've had some success thus far. I think if people are more knowledgeable of it, it opens many doors. It is great for local businesses, it's great for the foundations we work with, it's great for individual donors. It benefits everyone.'”
Clarity of objectives
The CITC was created with the objective of supporting "high-impact, resident-led community economic development initiatives through a strategic, market-based approach that leverages private contributions and builds strong, local partnerships." In other words, it was designed to increase funding sources for local projects and enable local residents and stakeholders to partner with CDCs. This, in turn, aimed at improving economic opportunities for low to moderate income households and communities in Massachusetts.
To accomplish this, the programme needed to encourage more individuals, corporations, and not-for-profits to fund local projects through the existing CDCs. It addressed this by offering a 50% refundable Massachusetts state tax credit - open to both Massachusetts-based donors and those from out of state - and allowing them to also claim a federal tax deduction, if eligible.
Strength of evidence
The Federal Reserve Bank of Boston displayed confidence in the CITC model, stating that: "The [CITC programme] is built on a proven, evidenced-based model for sustainable community improvement focused on strengthening civic culture, improving the built environment, and building family assets".
It is also based on "successful laws in several other states, where donation tax credits have leveraged private contributions to support high-performing organisations. The tax-credit programme is designed to capitalise on the best practices that have emerged over the 40-year history of community development in Massachusetts, while leveraging innovation and collaboration that can drive increased performance in the future."
The CITC legislation was filed with the goal of channelling state dollars into encouraging private investment as a sustainable source of flexible funding. The Community Development Innovation Forum (which helped develop the concept of the CITCs), along with key supporters such as the UWMB, made the case that the tax credit would bring "more than one new dollar of investment for communities for every lost dollar of tax revenue".
There are established eligibility criteria for both recipients and donors. For a not-for-profit to qualify for CITC, it must be a [CDC] as defined in the Massachusetts Legislature, Chapter H: Community Economic Development Assistance Corporation (M.G.L. c. 40H 2) and certified as a CDC by DHCD. The guidelines establish that each CDC is eligible to receive between USD50,000 and USD150,000 in tax credits per year for up to three years. This makes it possible for them to get as much as USD300,000 in new, flexible funding.
In terms of resources, the programme established that there would be USD6 million in tax credits available for each of the next five years, starting in 2015. This is borne out by its plans for 2017. "In calendar year 2017, the [DHCD] has USD6,000,000 available for credit allocations to eligible applicants. The [DHCD] reserves the right to hold a second allocation round if, there remains a credit availability after initial awards."
The DHCD is the administering agency for CITC and is responsible for managing the process by which the credits are allocated to eligible organisations - it certifies CDCs as community partners, solicits and reviews applications, and determines credit allocations. The CITC will be available in calendar years 2017 to 2019.
The DHCD, the MACDC, and the LISC Boston engaged external consultants to conduct an independent evaluation of CITC's first two years (see also Measurement below). One aspect was the "execution of the programme administration and the effectiveness of key partners".
In this aspect of the evaluation, the DHCD was considered to have effectively managed the launch of this "complicated programme in a relatively short timeframe, with limited staff and no additional budget for implementation and management". MACDC's role has been considered central to the programme, particularly for: "Education, Outreach and Promotion activities, assistance in best practice and sharing tools to CDCs, as well as programme tracking and assessment (particularly impact and fundraising surveys). The role of LISC Boston with the CITC has been more targeted, with a focus on building organisational and staff capacity; community based-planning, engagement and implementation; real estate development and asset management; community safety; and family income/asset development."
There has been a thorough monitoring of donors and the sources of funding for CDCs. The DHCD, the MACDC, and the LISC Boston engaged external consultants to conduct an independent evaluation of CITC's first two years in order to:
- "Analyse the overall impact of the programme on the magnitude and sources of fundraising for CDCs and CSOs;
- "Understand the nature and magnitude of impact for community development projects, programmes and in internal capacity across CDCs;
- "Evaluate how the programme has influenced/motivated new and existing donors and identify successful fundraising practices for maximising the benefit of the CITC programme;
- "Assess the execution of the programme administration and the effectiveness of key partners;
- "Make recommendations for programme improvement."
The following figures were reported in the 2016 evaluation of the programme:
- Donors - There have been different donor types, with businesses donating the most through CITC, "representing USD5.48 million of the USD12.85 million raised in 2014-2015. Individuals donated nearly as much, USD5.01 million. Other donors, including foundations and non-profit organisations, contributed the remaining USD2.36 million...
- "Size of Donations - Over 70% of donations in both years were USD5,000 or less. Donations of USD5,000-USD100,000 were critical to the programme's success, contributing two-thirds of the total dollars. There were eight donations over USD100,000 in 2014-2015. Donations... increased during the first two years of the programme.
- "Repeat Donors - [According to the participating organisations,] around 40% of donors in 2014 were repeat donors to the receiving entity. Nearly 3/4 of these donors kept the 'CITC Promise' and doubled (or more) their donations in 2014 relative to the prior year. With programme growth and increased donor retention, the number of repeat donors more than doubled... over the first two years.
- "New Donors - [Based on information from the CDCs,] 1,316 new donors made donations to one or more entities through the CITC programme in 2014-2015. This includes 1,002 who gave to CDCs (nearly half of CDC donors) and 278 who gave through the UWMB (more than 2/3 of UWMB donors)...
- "Geography - Most donations came from Massachusetts, but almost USD650,000 came from out of state.
The main state stakeholder in the CITC programme is the DHCD. It works closely with other organisations that support the programme, including the UWMB, which administers the Community Partnership Fund, and the MACDC and LISC Boston, which are the two designated CSOs. "Collectively, DHCD, MACDC, LISC Boston, and UWMB meet several times a year to share programme updates, discuss the status of available tax credits, and address programme administration issues as they arise."
The implementation of the programme has improved considerably in the few years that it has been in place, as CDCs, CSOs and the UWMB have all become more effective in their roles and activities:
- "DHCD has effectively navigated the launch of a complicated programme and has fostered a positive interagency relationship with the Department of Revenue; enhanced public-private relationships with organisations such as the UWMB, and expanded agency relations and visibility with CDCs.
- "MACDC and LISC Boston have actively supported the CDC partners through a variety of targeted activities, most notably fundraising technical assistance, peer learning activities, programme marketing, and Community Impact Plan development.
- "The UWMB has played a significant role attracting hundreds of new donors to the CDC sector, enabled programme participation for CDCs that lack fundraising capacity on their own, provided leverage and reach to CDCs across the state, hosted and joined many events and campaigns to create awareness and develop donors, and cultivated the largest donations to date."
Community Development and Health: A Health Impact Assessment to Inform the CITC Programme, Noémie Sportiche, Ben Wood, Brittany Chen, Peter James, Kate Ito, Rachel Banay, Chris Kuschel, and Barry Keppard, September 2014, Metropolitan Area Planning Council, Boston, MA
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