How a Tax Program is Fueling Food Bank Expansion

Food banks across the country have been expanding rapidly, opening newer, larger warehouses every few months. A key driving force behind this trend is the federally funded New Markets Tax Credit (NMTC) program, which has become instrumental in financing construction and renovation projects for food banks.

The NMTC program provides incentives for private investors to direct capital toward low-income communities, significantly benefiting social service providers. Between the program’s early years (2003-2010) and its recent years (2018-2023), community food and shelter projects increased by an impressive 556%, far surpassing other sectors such as manufacturing, which increased by only 88%, according to the New Markets Tax Credit Coalition.

For food banks specifically, the NMTC program has been “nothing short of transformational,” said Trevor Nelson, Manager of Strategic Financing Services at Cherry Bekaert, a tax advisory firm. Unlike traditional funding methods like philanthropy, government grants, or capital campaigns—which can take years to materialize—the NMTC provides a significant and immediate infusion of capital.

“NMTC financing is a game-changer,” Nelson explained, enabling food banks to start projects “years ahead of schedule” while easing reliance on donors and government funds. “It allows food banks to focus on their core mission without being held back by traditional capital limitations.”

One notable example is the Food Bank of the Rockies, which received a total of $55.5 million in NMTC funding through five entities, including Rural Development Partners, an Iowa-based firm that facilitates these investments. “Without NMTC financing, the expansion would be significantly delayed or scaled back,” Rural Development Partners said in a statement.

However, securing these tax credits is not a straightforward process. Operation Food Search in Overland, Missouri, recently navigated the complexities to secure an $11 million deal for its headquarters’ renovation and expansion. “It’s a very in-depth, technical process,” cautioned Julie Mann, CPA and Chief Financial Officer at Operation Food Search. With extensive experience in public accounting, Mann described the NMTC transaction as “by far the most complicated deal” she’s ever handled.

She strongly recommended that food banks seeking NMTC funding engage third party experts to facilitate the intricate process. Key steps include identifying a federally approved Community Development Entity (CDE) to evaluate eligibility and securing an investor. Operation Food Search collaborated with SmithNMTC Associates LLC as third party counsel, ultimately identifying Heartland Regional Investment Fund as the CDE and U.S. Bank as the investor.

Initially budgeting about $8 million, Operation Food Search discovered the project’s actual cost would exceed their estimate. Through the NMTC program, they secured an additional $3 million investment from U.S. Bank. After accounting for legal fees, loan fees, and interest, the food bank ultimately netted approximately $1.7 million in additional benefit. Despite the complexity, Mann emphasized, “It was a lot of work, but for $1.7 million, it was absolutely worth it.”

She noted the rigorous process involves approximately six months of intense review and ongoing reporting obligations extending over seven years. Mann advised against using NMTC funding for projects costing under $500,000 due to the intense effort required.

Despite these challenges, the program has widespread bipartisan support. Although the NMTC program is currently set to expire at the end of 2025, legislation introduced in Congress aims to make the credits a permanent part of the tax code, allocating $5 billion annually. “Successes have galvanized support across the political spectrum,” said Nelson of Cherry Bekaert.

Mann affirmed she would pursue the NMTC program again for substantial projects. “$1.7 million for our community is significant,” she said. “We can turn that into a lot of good.”