CDFI Ignored in Coronavirus Stimulus Plan

There’s a federal program that’s geared toward leveraging private capital to invest in economically disadvantaged areas of the United States.

The program sounds like a natural part of the effort to pump money into the economy to help offset the impact of the coronavirus crisis.

Yet so far, the Community Development Financial Institutions program has received none of the stimulus money Congress has set aside to battle the economic impact of the crisis.

That may be because of one political reality: The Trump Administration does not like the program. Since taking office, Trump Administration budgets each year have called for the program to be eliminated. One year, the administration tried to rescind money that already had been appropriated for the CDFI program.

But there’s another political reality: Congress likes the program.

The CDFI program received a $12 million boost this year, which totaled $262 million.

And according to the Treasury Department’s own metrics, the program works.

Buried deep inside the Trump Administration’s FY21 budget is an evaluation of the CDFI program.

Certification criteria require that all CDFIs originate at least 60% of their loans and investments in eligible distressed census tracts or to underserved populations. In FY19, the program allocated 75.6% of its money in those areas. And it also made 78.5% of its loans in those areas.

Inclusiv, the association representing community development credit unions, reported that this year, some 320 credit unions were CDFIs. Those credit unions had 11.7 million members with $125 billion in assets.

This year, once again, the Trump Administration targeted the program to be eliminated.

The administration said the budget “proposes to eliminate funding for the Fund’s four discretionary grant and direct loan programs because continued over-reliance on Federal funds hinders long-run sustainability of this now mature industry.”

But when Treasury Secretary Steven Mnuchin testified before a House Appropriations subcommittee, he declined to defend the killing of the program.

“I acknowledge that the CDFI [program] provides significant benefits to many communities,” Mnuchin told the House Appropriations Financial Services subcommittee.

Asked if the administration would object to a continuation of the CDFI program, Mnuchin said, “We would not object.”

The FY21 appropriations bills have not been written yet. However, the supplemental spending contained in the economic stimulus packages so far has included no increase in CDFI spending.

The House Democrats’ alternative to the $2 trillion stimulus bill enacted last month called for an additional $200 million for CDFIs. And it would have given Congress the authorization to spend an additional $1 billion for the program.

Credit union trade groups have supported an immediate infusion of cash into the program, with CUNA President/CEO Jim Nussle calling for an immediate appropriation of $300 million for the CDFIs, as well as $3 million for the Community Development Revolving Fund program, which is operated by the NCUA.

“Both of these funds support generally smaller financial institutions that serve people and small businesses that will likely be the first to feel the real-world effects of a missed paycheck or a cancelled order or contract,” Nussle said.

“Both the Community Development Financial Institutions Fund and the Community Development Revolving Loan Fund are designed to help the types of community-based financial institutions, like credit unions, that are perfectly positioned to receive this funding the quickest and then turn it around and provide emergency financial assistance to the people and small businesses that need it the most,” he added.

NAFCU President/CEO B. Dan Berger also said the CDFI and the revolving loan fund are important tools for credit unions to access funds to help people in underserved and low-income communities.

The CDFI program has an upcoming deadline of April 21 for the submission of grants, according to Michael Beall, chief strategic and advocacy officer at CU Strategic Planning, a consulting group that assists credit unions in writing CDFI applications.

Those grants were funded in the FY20 appropriations bills enacted by Congress and signed by the president.

In addition, beginning March 29 and ending on May 30, federally-insured, low-income credit unions that want to be certified as CDFIs may apply to use the NCUA’s process for streamlined applications.

Credit unions that do not qualify to use the streamlined process still may apply to become CDFIs through the normal process.

Beall said he remains optimistic that Congress eventually will provide additional funding for the CDFI program.

He had recommended that lawmakers increase CDFI funding to $600 million and immediately provide an emergency round of CDFI grants, providing $500 million targeted to lending institutions that can demonstrate the capacity to increase small-dollar lending.

So far, that hasn’t happened, but Beall said he still believes the program will receive additional funding in future stimulus bills.

Even as the House was passing the latest coronavirus stimulus package, there was talk of another bill being needed.

On March 23, before the House considered that bill, committee chairs including Financial Services Chairwoman Maxine Waters (D-Calif.) introduced legislation that would provide additional funding for a variety of programs.

It includes Waters’ plan to provide the CDFI program with a $200 million supplemental appropriation.

“I believe that both parties and both houses of Congress are bi-partisan supporters of CDFI and its ability to deliver, especially through credit unions, loans to working families,” Beall said. “Those things give me encouragement that Congress and the administration will be including supplemental funding for CDFI in the next round of coronavirus economic stimulus.”

CUNA Chief Advocacy Officer Ryan Donovan said he too remains optimistic.

“There is a lot of support on Capitol Hill for CDFI,” he said. “You see that in the proposal from Speaker Pelosi. I am confident this will be something that will get additional consideration in future packages.”