Bush Proposes To Eliminate Most CDFI Subsidies

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Community development credit unions and banks would take a big hit under the proposed federal spending plan unveiled by President Bush last week that would virtually eliminate all subsidies for the popular Community Development Financial Institutions Fund.

"This would have a very negative impact on a movement that we've spent 10 years building," lamented Clifford Rosenthal, executive director of the National Federation of CDCUs in New York and one of the fathers of the CDFI movement.

The president's budget proposal would consolidate the Clinton-era Treasury Department program into dozens of other community development programs administered by the U.S. Department of Commerce and fund it at $8 million for 2006, just enough to pay administrative costs. That would virtually eliminate new funding for loans and grants that provided more than $55-million in aid CDFIs last year-$7 million of which went to credit unions and affiliated organizations.

The president's proposal was the main topic of concern last week among dozens of credit union, bank and community development loan fund executives who gathered in Washington for the CDFI Coalition's annual conference, with representatives vowing to fight the funding cutbacks.

"The thing to keep in mind is this is the opening gambit in a very serious and vigorous battle," said Rosenthal, who helped develop the concept for a CDFI program more than a decade ago.

Officials with CUNA, which has been instrumental in lobbying for CDFI funding, said they are concerned with the funding cutbacks and will be working with Congress to determine the future of the program. "We would certainly be supportive of increased funding," said CUNA lobbyist Gary Kohn.

Rosenthal said he was concerned because the reduced funding, combined with other proposed cuts in spending on low-income and community development programs, will severely hamper the ability of CDCUs to grow and expand. "This is not going to mean the difference between life or death, per se, but it will be hitting low-income people at a time when other budget cuts will be hitting them," he said.

Throughout the 10 years of the program credit unions have played a significant role in CDFI. More than 75 credit unions or affiliated organizations, like Rosenthal's CDCU Federation, Self-Help CU's Venture Fund and the North Carolina Minority Support Center, a group of a dozen CDCUs, have received more than $45 million in loans and grants, helping them build capital, launch low-income mortgage or payday loan programs, and finance capital purchases. As many as two dozen CDCUs received small technical assistance grants from the program under $65,000 last year that will help them do everything from develop Spanish language marketing programs to buy personal computers.

Where CUNA Will Focus

John McKechnie, chief lobbyist for CUNA, said the focus of the group's interests now will be to ensure that whatever structure the program takes that CUs continue to be looked at as a vital part of the program. "We want to make sure that whatever the changes in the administration of the program are that it doesn't mean any change in the important role that credit unions can play in fostering community development," he said.

The Bush budget would also affect credit union-favored programs in several other areas, among them the U.S. Small Business Administration. While the budget would raise funding for the popular 7 (a) guaranteed program, in which some 200 CUs now participate, to $16.5 billion from the current $13 billion, it would eliminate loan subsidies and fund the program solely through user fees on CU and bank participants.

The budget would also cut subsidies to credit unions and bank participants in the guaranteed student loan program to help pay for a $15-billion funding increase in Pell grants to low-income students over the next five years. It would also reduce the reimbursement rate to lenders on student loan defaults and increases in the fees charged lenders for loan consolidations and end a loophole in the guaranteed student loan program that allows some lenders to recover a 9.5% guaranteed rate of return on some loans. The proposed budget cuts in the student loan program come as hundreds of credit unions are either trimming back or eliminating altogether the student loan programs in the face of rising competition from such giants as Sallie Mae, JP Morgan Chase or Citibank.

CUNA's McKechnie, wanted to emphasize that the President's proposal is the first step in the budget process. "It's important to remember that this has to go through several hoops on (Capitol) Hill," he noted.

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