In Focus: With a GOP Congress, Development Fund Is on Shaky Ground

Over the last few months, Katharine McKee has been feeling like a manager of a fund without funds.

Ms. McKee is in charge of setting up the Community Development Financial Institutions Fund, a fledgling agency created as a result of last year's community development banking bill to provide seed money to lenders to help small businesses located in low-income neighborhoods.

House and Senate appropriators finished negotiations last week on a rescissions package that contains a provision rescinding all of the CDFI Fund's $125 million appropriation for fiscal 1995.

In essence, they killed the program before it ever really took a breath of air.

"We tried not to take it personally," said Ms. McKee, who is in charge of a staff of eight responsible for crafting the programs and regulations that will be the backbone of the agency. "But we certainly have been doing some contingency planning."

The program is a major priority for President Clinton, who made it a standard part of his campaign speeches in 1992. The law authorizes $382 million for community development insititutions over the next four years, to be distributed through the CDFI Fund.

While the community development bill passed with bipartisan congressional support last September, Ms. McKee said it was made vulnerable this year simply by the fact that Republicans are now in control and the program is "very much identified with President Clinton." She added that the new GOP majority is working to eliminate agencies, not start them.

Indeed, one Senate Appropriations Committee staffer said: "There is a lot of support for providing additional capital for these community development banks, but we figured why create a new agency when we're thinking of killing all these other agencies."

Instead, House and Senate conferees decided to allocate $36 million - the amount Senate appropriators had originally decided to pare CDFI funding to - to an agency that already exists: the Federal Deposit Insurance Corp.

The money would be used by the FDIC to administer the Bank Enterprise Act, a program that provides cash incentives to institutions that either invest in CDFIs, or expand their lending or services in very low-income communities. On the other hand, the CDFI Capital Program - the heart of the CDFI Fund program - would place funds directly onto the balance sheets of CDFIs for these institutions to make available for low-income projects.

Ms. McKee is no stranger to community development organizations. Before becoming transition director at the CDFI Fund, she was associate director of Center For Community Self Help in Durham, N.C. The nonprofit organization is a parent to Self-Help Credit Union and the Self Help Ventures Fund, a nonprofit loan fund that provides money for small business and home ownership lending.

This made it all the more imperative that Ms. McKee keep plugging away at constructing the agency's foundations, even as it became more and more obvious that Congress was seeking to ax the program.

"My staff and I are very committed to the CDFI concept and we owed it to the field to keep fighting," Ms. McKee said.

There is a glimmer of hope for the agency, however. Last week, President Clinton announced he would veto the $16.4 billion rescission package into which the CDFI Fund cut is folded, and it appears as if the House and Senate lawmakers who approved the bill won't have the votes to overturn the president's decision.

"I can't say the veto came as a surprise," Ms. McKee said. "The White House was quite concerned about the fate of the CDFI funds."

However, while the potential veto is allowing Ms. McKee to breathe a little easier, it's only for the time being.

Now she has to worry about appropriations for next year - in his 1996 budget request, President Clinton asked for an additional $144 million for the program.

Ms. McKee thinks she'll be able to present a strong case to appropriators when hearings on fiscal 1996 funding for her agency take place in the next few weeks.

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