CDFI Supporters See Trouble in Both Near and Long Term

ARLINGTON, Va. – Credit unions that have used, or could use, help from the Treasury Department’s Community Development Financial Institutions fund have found this year’s fund announcement rough going. In the near term, the Department announced that it has changed the rules and shortened the deadline for applying for this year’s assistance. In the long term the Administration’s 2004 budget called into question the continued existence of the program, CDFI backers said. The news of the rules change and the shortened deadline came in this year’s Notice of Funds Available, usually a happy occasion for institutions interested in applying for the Department’s support. The Fund initially set March 17, 2003 as the deadline for institutions to apply for a part of the $30 million that the CDFI has made available for financial assistance grants this year, but backed off that to April 4. Grant applications for technical assistance grants will be taken on a rolling basis beginning immediately and running until March 31 of this year. The Fund has set aside $13 million for technical assistance grants. “We’re gratified that the Fund is taking this action,” commented Cliff Rosenthal, Executive Director of the Federation and Chairman of the CDFI Coalition. “There are many changes in the program, and it would have been extremely difficult for most CDCUs to meet the initial deadline – especially if they lack the technology to apply online.” Previously Rosenthal had complained that the shortened deadlines were going to make it very difficult for smaller institutions, which are not as easily able to get online, to make their applications on time. The Federation received $2 million from the fund out of last year’s allocation to help with its different programs for community development credit unions. Community development credit unions themselves got $3 million. The shorter deadline has been complicated by changes to the application procedures, Rosenthal said. Key among the changes was a decision to “really push” electronic applications, which he noted that many smaller institutions would have a hard time doing, and second to change the rules to say that an institution could not apply for certification and funds at the same time, a change that drew the attention of the CDFI Coalition as well. “Formally, it has always been a two-step process,” said Jennifer Vasiloff, executive director of the Arlington, Virginia based CDFI coalition. “Institutions have to be certified as eligible for CDFI grants before they got them. But in practical terms a lot of institutions would apply for certification at the same time they applied for funds, but they have decided not to allow that this year.” Effectively, all applications from new institutions will have to face a two-year process now, she said. On the other hand, Vasiloff noted that some of the changes could be seen as benefiting smaller institutions by moving the Fund to place more emphasis on their needs. One of the new programs the CDFI administers is called the New Market Tax Credit program. Under the NMTC program, community development institutions, particularly larger ones, approach mainstream financial institutions for financial help. The mainstream firms that give the help are, in turn, given tax credits to help defray the cost of their aid. In theory this means that more money from the CDFI will be available for institutions that really need it, Vasiloff said. However Rosenthal, who chairs the CDFI Coalition’s board, disagreed. He noted that the whole funding package needed to be looked at in total and that it might be possible that it disadvantages both larger and smaller community development institutions alike, just in different ways. But as nettlesome as the near term changes are, both Vasiloff and Rosenthal reiterated that the near term concerns paled in comparison to the larger term worry about whether the CDFI Fund might be drawing to a close. Both pointed out that the administration’s budget request for 2004 cut the funding to the CDFI from a request of $68 million in 2003 to $51 million in 2004. And of the $51 million, Rosenthal remarked, $13 million of it has been designated for administrative costs of the program, much of that going to the New Market Tax Credit’s program, which is designed for larger institutions. This compares to an $11 million for administrative costs in 2003, coming out of a total funded program of $80 million. The pie is getting smaller, Rosenthal said, and yet a bigger piece is going for administration. Political Fight Vasiloff said that the CDFI coalition will begin to mobilize to convince Congress to, in her words, “reverse the downward glide of this program.” She admitted that, from one perspective, $51 million is still something but noted that the coalition was concerned that if the grants the Fund made dropped to too low a point that they would no longer justify running the program at all. She said the coalition had begun to muster support on Capitol Hill and could count on support from some of the Republicans in the House as well as the Democrats. She admitted that the Coalition had not yet identified any potential supporters from among the Senate Republicans. Brad Thaler, NAFCU’s Director of Legislative and Political Affairs, said that the association had long backed the CDFI in a general way and had acted in the past to help restore funding that had been cut. “I can’t say what exactly we will do since we are in the middle of setting legislative priorities,” he said. “But I expect we will be supportive now too.” For its part CUNA said it plans a letter to Rep. Alan Mollohan (D-W.V.), ranking member of the House Appropriations Subcommittee on the Veterans Administration, Department of Housing and Urban Affairs and Independent Agencies. The subcommittee has jurisdiction over the CDFI fund. “CUNA strongly supports an increase in this fund to a minimum of $80 million, the level the fund was appropriated at in FY 2002,” a draft of the letter said. [email protected]