This report describes the status of our work toward developing a methodology for evaluating the New Markets Tax Credit (NMTC) Program. Our objectives are to provide information about (1) the NMTC Program, including its goals, its design, and progress in implementing the program, and (2)our mandated review of the program, including the potential scope of the review and how the program may be evaluated for effectiveness and compliance.

The goals of the NMTC Program are not stated explicitly in the legislation that authorizes the program. However, according to congressional supporters of the legislation, the program's goals are to direct new business capital to low-income communities, facilitate economic development in these communities, and encourage investment in high-risk area. The NMTC Program is structured as follows. The Community Development Financial Institutions Fund, which administers the application and allocation procedures of the NMTC Program under authority delegated by the Secretary of the Treasury, allocated shares of the total available tax credit to "community development entities" (CDEs) through a competitive application process. In return for the tax credit, investors supply capital to the CDE's which in turn, invest the capital in qualified businesses operating in low-income communities. The tax credit, which may be claimed over 7 years, equals about 30 percent in present value terms of the amount invested. The NMTC Program is in the initial stages of its implementation. The legislation mandating that we audit and report on the NMTC program did not specify the scope of our review. After consulting with congressional staff, we concluded that potential topics for our review could include an evaluation of the program's effectiveness in promoting investment and economic development in low-income communities and an evaluation of compliance with the program's requirements in terms of its vulnerability to waste, fraud, and abuse.

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