Bankers and policymakers understand that getting $12 of impact for every one dollar invested is a good return on investment. It’s even better if those dollars result in jobs, housing and wealth-building opportunities in underserved areas.
Community development financial institutions have demonstrated success in leveraging federal dollars at least at this rate, so it seems right that Congress should grow investments in CDFIs. Bankers should also to support the growth of CDFIs because they create vibrant communities with more bankable deals and people.
CDFIs use competitively awarded federal dollars to help fill the gap when traditional banking services do not reach certain low-income people and communities. These institutions are helping address the credit gap encountered in many communities, creating jobs, improving housing and community facilities and creating economic opportunity.
But CDFIs may soon become an endangered species if President Trump gets his way, as the White House has called for cutting the majority of federal funding for CDFIs.
Despite the significant success to date and strong bipartisan support in Congress, the president’s fiscal year 2019 budget would largely eliminate the CDFI Fund, a program created in 1994 within the Treasury Department to promote community development. The budget would reserve just $14 million for the operation of two nongrant programs — the New Markets Tax Credit and the CDFI Fund Bond Guarantee Program.
House appropriators marked up their bill earlier this month, providing $216 million for the CDFI Fund. While this level of funding is substantially greater than the president’s proposal, it would be a significant cut from the current level of $250 million. And that cut would feel even deeper in the distressed communities where funding is deployed, given that CDFIs leverage these federal dollars with private funds.
This week, the Senate Appropriations Committee marked up their bill. The bill provides level funding for CDFI Fund programs, signaling a strong commitment to the economic development of underserved rural communities and distressed urban neighborhoods.
According to the administration, the CDFI program has enjoyed so much success that it has achieved its goals, and low-income and underserved communities are no longer in need of the program’s resources.
Yet if low-income communities are no longer in need of access to capital, then to what can we attribute the significant demand for the program? The fiscal year 2018 application round for the CDFI program and the Native American CDFI assistance program drew 538 applications from 485 organizations, with a cumulative request of $504.5 million. But the existing federal budget is just $198 million.
Moreover, there were 119 applications for the Bank Enterprise Award Program in fiscal year 2017, resulting in requests of more than $131.7 million — nearly six times the $23 million available.
There is no reason why CDFIs should be on the president’s chopping block, and lawmakers in Congress should work to protect the program’s future. Economic opportunity and self-sufficiency in America will be substantially strengthened if CDFIs can grow.
