Congress may soon decide the fate of the Community Development Financial Institutions Fund following the Trump administration budget proposal to ax the program, a move that would have drastic consequences for communities that rely on the federal subsidies for desperately needed economic opportunities.
If you haven’t heard of the CDFI Fund, it may be because you don’t live in one of the low- and moderate-income communities where the $250 million that goes to the fund is critical to creating jobs, business growth and other community development.
The seven straight years of economic growth in the U.S. has not yet reached those communities. In these areas, rising incomes, reduction in unemployment, access to capital and generally greater economic opportunity for small and midsize businesses have not occurred. While the overall level of unemployment is down to 4.7% in the United States, there are states and counties where the unemployment is as high as 17%.
The CDFI Fund, which was set up in 1994 as a Treasury Department program, focuses on those overlooked communities. The fund has been instrumental in generating economic growth in LMI communities. It provides targeted resources and programs that invest federal dollars with private investment. Since its inception, the CDFI Fund has awarded more than $2 billion through its CDFI program for financial and technical assistance, $419 million in bank enterprise awards and $50 billion in New Markets Tax Credits.
As of Jan. 31, there were 136 banks that are certified community development financial institutions located in 28 different states, including Washington D.C. That’s nearly three times the number of such CDFIs than just 15 years ago. (The total CDFI program includes other types of institutions, including credit unions and community development loan funds.)
But it’s only part of the growth story. Based on data from SNL Financial, the total assets that are controlled by these banks increased from $5 billion in 2001 to approximately $44.9 billion in 2016 — a compound annual growth rate of 14.6%. And when it comes to providing access to capital for LMI communities, CDFI banks have increased loans from $2.9 billion in 2001 to $30.8 billion in 2016 — a compound annual growth rate of 16%.
These financial institutions are important anchors in local economies. Our research shows that CDFI banks have as many as 80% of their locations in LMI areas. Similarly, the percentage of home loans made by CDFI banks in these areas far exceeds the percentage number for other institutions.
CDFIs take on difficult challenges. Many are located in “persistent poverty” areas that have witnessed significant outmigration of jobs, and CDFIs help bring back hope to these communities. The CDFI Fund has been one of the most important innovations in public finance as it brings standards (via its certification) and competitive access to grant and tax credit capital to institutions that leverage these public dollars as much as eight to 10 times in their local market areas.
Consider these examples: Harbor Bank of Maryland has helped facilitate positive change in highly distressed East Baltimore. It has worked with other anchor institutions, like the Johns Hopkins Hospital system, to promote housing, services, retail and small businesses in a highly impoverished part of Baltimore city. United Bank of Atmore, Ala., was organized in 1904 and is in the process of assisting a rural hospital that is the only hospital in Monroe County, Ala., (population 23,000). Community Bank of the Bay in Oakland, Calif., which was organized in 1996, has used Bank Enterprise Awards and the brand associated with the CDFI Certification to bring in private capital to finance job growth and community development in Oakland, where poverty rates of 16.8% persist despite its proximity to San Francisco.
For these three banks and others that locate in LMI areas, the CDFI Fund is a main source of the lifeblood to carry out their mission of serving underserved markets and communities.
There is a lot that Congress can do to help make life better in these areas. But at a minimum, federal lawmakers should fully fund the CDFI Fund and support the CDFIs that continue to provide economic opportunity where it is needed most around the nation.