Community Development Financial
Institutions (CDFI) Fund:
Programs and Policy Issues
Sean Lowry
Analyst in Public Finance
March 13, 2014
Congressional Research Service
7-5700
www.crs.gov
R42770
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Summary
As communities face a variety of economic challenges, some are looking to local banks and
financial institutions for solutions that address the specific development needs of low-income and
distressed communities. Community development financial institutions (CDFIs) provide financial
products and services, such as mortgage financing for homebuyers and not-for-profit developers,
underwriting and risk capital for community facilities; technical assistance; and commercial loans
and investments to small, start-up, or expanding businesses. CDFIs include regulated institutions,
such as community development banks and credit unions, and nonregulated institutions, such as
loan and venture capital funds.
The Community Development Financial Institutions Fund (the Fund), an agency within the
Department of the Treasury, administers several programs that encourage the role of CDFIs, and
similar organizations, in community development. Nearly 1,000 financial institutions located
throughout all 50 states and the District of Columbia are eligible for the Fund’s programs to
provide financial and technical assistance to meet the needs of businesses, homebuyers,
community developers, and investors in distressed communities. In addition, the Fund allocates
the New Markets Tax Credit to more than 5,000 eligible investment vehicles in low-income
communities (LICs).
This report begins by describing the Fund’s history, current appropriations, and each of its
programs. A description of the Fund’s process of certifying certain financial institutions to be
eligible for the Fund’s program awards follows. The next section provides an overview of each
program’s purpose, use of award proceeds, eligibility criteria, and relevant issues for Congress.
The final section analyzes four policy considerations of congressional interest, regarding the Fund
and the effective use of federal resources to promote economic development. First, it analyzes the
debate on targeting development assistance toward particular geographic areas or low-income
individuals generally. Prior research indicates that geographically targeted assistance, like the
Fund’s programs, may increase economic activity in the targeted place or area. However, this
increase may be due to a shift in activity from an area not eligible for assistance.
Second, it analyzes the debate over targeting economic development policies toward labor or
capital. The Fund’s programs primarily rely on the latter, such as encouraging lending to small
businesses, rather than targeting labor, such as wage subsidies. Research indicates the benefits of
policies that reduce capital costs in a targeted place may not be passed on to local laborers, in the
form of higher wages or increased employment.
Third, it examines whether the Fund plays a unique role in promoting economic development, or
if it duplicates, complements, or competes with the goals and activities of other federal, state, and
local programs. Although CDFIs are eligible for other federal assistance programs and other
agencies have a similar mission as the Fund, the Fund’s programs have a particular emphasis on
encouraging private investment and building the capacity of private financial entities to enhance
local economic development
Fourth, it examines assessments of the Fund’s management. Some argue that the Fund’s programs
are not managed in an effective manner and are not held to appropriate performance measures.
Others argue that the Fund is fulfilling its mission and achieving its performance measures.
Congressional Research Service
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Contents
Introduction ...................................................................................................................................... 1
CDFI and CDE Certification ........................................................................................................... 4
Programs .......................................................................................................................................... 7
CDFI Program ........................................................................................................................... 7
Native American CDFI Assistance .................................................................................... 10
Small and Emerging CDFI Assistance .............................................................................. 11
Capacity Building Initiative .............................................................................................. 11
Healthy Food Financing Initiative ..................................................................................... 11
New Markets Tax Credit .......................................................................................................... 12
Bank Enterprise Award ............................................................................................................ 14
Bond Guarantee Program ........................................................................................................ 16
Policy Considerations .................................................................................................................... 17
How Effective Are Geographically Targeted Economic Development Policies? .................... 17
Should Economic Development Policies Target Capital or Labor? ........................................ 20
Do the Fund’s Programs Duplicate Other Government Efforts? ............................................. 21
Is the Fund Managed Effectively? ........................................................................................... 23
Figures
Figure 1. Certified CDFIs, By Location .......................................................................................... 5
Figure 2. Certified CDEs, By Location ........................................................................................... 6
Tables
Table 1. Community Development Financial Institutions (CDFI) Fund Programs
Funding, FY2012 to FY2015 Request .......................................................................................... 3
Table B-1. Certified Native CDFIs, by State ................................................................................. 29
Appendixes
Appendix A. Inactive Programs ..................................................................................................... 26
Appendix B. Certified Native CDFIs ............................................................................................ 29
Contacts
Author Contact Information........................................................................................................... 29
Congressional Research Service
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Introduction
Community development financial institutions (CDFIs) have been using small-scale, and locally
developed strategies to stabilize and advance low-income and financially underserved
communities for decades. CDFIs are specialized financial institutions that work in market niches
that are underserved by traditional financial institutions. They provide a range of financial
products and services in economically distressed markets, such as mortgage financing for low-
income and first-time homebuyers and not-for-profit developers, flexible underwriting and risk
capital for needed community facilities, technical assistance, and commercial loans and
investments to small start-up or expanding businesses in low-income areas. CDFIs exist in both
rural and urban communities. CDFIs include regulated institutions, such as community
development banks and credit unions, and
nonregulated institutions, such as loan and
Types of CDFIs
venture capital funds.
•
Depository institutions offer a range of consumer and
institutional savings, checking, and lending services.
Community banks also play a role in
This group includes for-profit community
economic recovery. The success of these
development banks and nonprofit community
banks is often linked with local communities;
development credit unions. These CDFIS are
businesses and individuals need the financial
regulated and insured by the same agencies that
govern other banks and credit unions.
services that community banks provide, while
the banks need opportunities for profitable
•
Loan funds are nonregulated, nonprofit institutions
lending.1 Some are specifically concerned that
that focus on one or more aspects of capital access
and community development, such as small business
a shortage of credit from community banks
lending, home mortgage financing, and community
will reduce the abilities for new entrepreneurs
facilities development financing.
to establish a business, existing businesses to
•
Community development venture capital funds are for-
expand and hire new workers, and for
profit or nonprofit institutions that deliver equity
consumers to acquire the credit they need to
capital to businesses in distressed communities.
buy or make improvements to a property.
•
Community development intermediaries facilitate
various revitalization activities between large
This report begins by describing the
investors and a defined population of community
Community Development Financial
development corporations, CDFIs, or nonprofit
Institutions Fund’s (Fund’s) history, current
organizations.
appropriations, and each of its programs. The
Source: Federal Reserve Bank of Richmond,
next section of the report analyzes four policy
“Community Development Financial Institutions: A
considerations of congressional interest,
Unique Partnership for Banks,” Community Development
regarding the Fund and the effective use of
Special Issue, 2011.
federal resources to promote economic
development. It analyzes the reasons why some individuals may choose not to locate in an
underdeveloped community, why government policies may be justified to encourage economic
activity to relocate to underdeveloped communities, and which policies are more successful in
addressing aspects of underdevelopment. Lastly, this report examines the Fund’s programs and
management to see if they represent an effective and efficient government effort to promote
economic development in low-income and distressed communities.
1 Ben S. Bernanke, “Community Banking,” Speech at the Independent Community Bankers of America National
Convention and Techworld, Nashville, TN, March 14, 2012, at http://www.federalreserve.gov/newsevents/speech/
bernanke20120314a.htm.
Congressional Research Service
1
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
The Riegle Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325)
established the Community Development Financial Institutions Fund to assist CDFIs in providing
coordinated development strategies across various sectors of the local economy. These
coordinated development strategies are designed to encourage small businesses, affordable
housing, the availability of commercial real estate, and human development.2 The legislation
intended to improve the supply of capital, credit, private investment, and development services in
economically distressed areas. In proposing the Fund, President Clinton stated that, “by ensuring
greater access to capital and credit, we will tap the entrepreneurial energy of America’s poorest
communities and enable individuals and communities to become self-sufficient.”3
Though the Riegle Act created the Fund as a wholly owned, independent government corporation,
a supplemental appropriations bill moved the Fund into the Department of Treasury (Treasury) in
1995.4 The Fund was moved within Treasury because of its focus on financial institutions and
because other bank regulatory agencies (i.e., the Office of Thrift Supervision and Office of the
Comptroller of the Currency) were already located within the agency.5 The Fund is a component
of the programs of the Under Secretary’s Office of Domestic Finance, and it is directly under the
Assistant Secretary for Financial Institutions.6
The Fund is headed by a director, who is appointed by the Secretary of the Treasury and not
subject to Senate confirmation. Initially, the director served a three-year term, however the Fund
was led by approximately 10 directors in its first 15 years. To bring greater stability to the Fund’s
leadership, the Secretary of the Treasury made the director’s position into a career appointment in
2010, meaning that there are no limits on the length of the director’s term.7
By statute, the Fund also has a 15-member Community Development Advisory Board. The board
members include the Secretaries of Agriculture, Commerce, Housing and Urban Development
(HUD), Interior, and the Treasury; the Administrator of the Small Business Administration
(SBA); and nine private citizens appointed by the President. The Advisory Board’s function is to
advise the director of the Fund on the policies regarding the Fund’s activities. The Advisory
Board is not allowed, by law, to advise the Fund on the granting or denial of any particular
application for monetary or nonmonetary awards.
2 U.S. Congress, House Committee on Banking, Finance, and Urban Affairs, Proposed Legislation: The Community
Development Banking and Financial Institutions Act of 1993, Message from the President, 103rd Cong., 1st sess., July
15, 1993, H. Doc. 103-118 (Washington: GPO, 1993).
3 Ibid.
4 The Emergency Supplemental Appropriations for Additional Disaster Assistance, for Anti-terrorism Initiatives, for
Assistance in the Recovery from the Tragedy that Occurred at Oklahoma City, and Rescissions Act, 1995 (P.L. 104-
19).
5 See Lehn Benjamin, Julia Sass Rubin, and Sean Zielenbach, “Community Development Financial Institutions:
Current Issues and Future Prospects,” Proceedings, Board of Governors of the Federal Reserve System’s Community
Affairs Research Conference, Sustainable Community Development: What Works, What Doesn't, and Why, March 28,
2003, p. 7, at http://www.federalreserve.gov/communityaffairs/national/CA_Conf_SusCommDev/pdf/
zeilenbachsean.pdf.
6 U.S. Department of the Treasury, “Organizational Structure,” August 11, 2011, at http://www.treasury.gov/about/
organizational-structure/Pages/default.aspx.
7 Donna Gambrell was appointed to a three-year term as the Fund’s director, which began in November 2007 and
expired at the end of 2010. However, Ms. Gambrell has stayed on as director under Treasury’s new rules.
Congressional Research Service
2
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Although the Fund is organized within Treasury’s Office of Domestic Finance, in recent years
Congress has provided the Fund with its own budget authority line in annual financial services
appropriations bills.8 These appropriations go toward the administration of the Fund, its
programs, and program awards. The Fund’s appropriations cover administration of approvals for
allocations of the New Markets Tax Credit (NMTC); however, the actual tax credit is awarded
through the Internal Revenue Code, not through the Fund’s appropriations.
As shown in Table 1, the Fund’s total enacted budget authority for FY2014 is $226.0 million.9 Of
this $226.0 million, 65% (approximately $146.4 million) is appropriated for the Fund’s core
CDFI assistance programs; 11% (approximately $24.6 million) is appropriated for administration
of the Fund’s programs, including the NMTC; and the remaining 24% ($55 million) is
appropriated for set-asides for other, specific programs.
Table 1. Community Development Financial Institutions (CDFI) Fund
Programs Funding, FY2012 to FY2015 Request
(in millions of dollars)
FY2015
Budget Activity
FY2012
FY2013
FY2014
(Request)
CDFI Program
$146.0
$138.4
$146.4
$151.3
Administration $23.0
$21.8
$24.6
$23.6
Healthy Food Financing Initiative
$22.0
$20.8
$22.0
$35.0
Bank Enterprise Award Program
$18.0
$17.1
$18.0
$0
Native American CDFI Assistance
$12.0
$11.4
$15.0
$15.0
Total Budget Authority
$221.0
$209.4
$226.0
$224.9
Source: U.S. Department of the Treasury, Community Development Financial Institutions Fund FY2015 President’s
Budget, March 2014, p. 3, at http://www.treasury.gov/about/budget-performance/CJ15/
06.%20CDFI%20Fund%20CJ.pdf; and U.S. Department of the Treasury, Community Development Financial
Institutions Fund FY2014 President’s Budget, p. 3, at http://www.treasury.gov/about/budget-performance/CJ14/
6.%20CDFI%20CJ%20FINAL%20ok.pdf.
Note: Administration costs include administration of the New Markets Tax Credit. Total budget authority
numbers might not add up to program totals due to rounding.
As shown in Table 1, the Obama Administration’s latest budget request of $226.0 million for
FY2015 is $1.1 million less than the level enacted for the Fund for FY2014. Specifically, the
Administration has requested a $4.9 million increase in FY2015 (compared with FY2014)
8 During the Clinton administration, funding was provided through the annual Veteran’s Affairs-HUD-Independent
agencies appropriations.
9 These totals for FY2013 were verified by the CDFI Fund. For the most part, FY2013 appropriations can be calculated
using the appropriations for FY2012 as a base before applying the 5% reduction from the sequester across all program
categories and a 0.2% rescission across all program categories (before accounting for program transfers, surpluses in
program subsidy costs, recoveries, etc.). See P.L. 112-74, the Consolidated Appropriations Act, 2012; U.S. Office of
Management and Budget, OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013,
March 1, 2013, p. 47, at http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/
fy13ombjcsequestrationreport.pdf; P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013; and
U.S. Office of Management and Budget, OMB Final Sequestration Report to the President and Congress for Fiscal
Year 2013, at http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/sequestration/
sequestration_final_april2013.pdf.
Congressional Research Service
3
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
funding for the core CDFI financial assistance program and a $13.0 million increase in the CDFI
program’s support of the Healthy Food Financing Initiative (HFFI). The President is not
requesting any funds for the Bank Enterprise Award (BEA) program for FY2015.
CDFI and CDE Certification
To be eligible for certain Fund-related programs, an organization must be certified as either a
CDFI or a Community Development Entity (CDE). CDFI certification is a designation conferred
by the CDFI Fund and is a requirement for accessing financial award assistance from the CDFI
Fund through the CDFI program, Native American CDFI Assistance (NACA) programs, and
certain benefits under the BEA program to support an organization’s established community
development financing programs.
An organization that does not meet each of the certification eligibility requirements at the time of
application for Technical Assistance is still eligible to apply for and receive Technical Assistance.
This may occur if the Fund determines that the organization’s application materials provide a
realistic course of action to ensure that it will meet each of the certification requirements within
two years of entering into an assistance agreement with the Fund.
To be eligible for CDFI certification, the applicant must
• be a legal entity;
• have a primary mission of promoting community development;
• primarily provide financial products, development services, or other similar
financing in arms-length transactions;
• primarily serve (direct at least 60% of financial product activities to) one or more
geographic investment areas meeting certain poverty or income standards, low-
income targeted populations, or other targeted populations that lack adequate
access to capital and historically have been denied credit;
• provide development services, such as credit or home-buying counseling, in
conjunction with financial products;
• maintain accountability to defined target markets through representation on
governing or advisory board or through outreach activities; and
• be a nongovernment entity and not under control of any government entity
(except tribal governments).10
10 U.S. Government Accountability Office, Community Development Financial Institutions and New Markets Tax
Credit Programs in Metropolitan and Nonmetropolitan Areas, GAO-12-547R, April 26, 2012, p. 4, at
http://www.gao.gov/products/GAO-12-547R.
Congressional Research Service
4
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Figure 1. Certified CDFIs, By Location
Source: Community Development Financial Institutions Fund, at http://www.cdfifund.gov/docs/certification/cdfi/
CDFI%20List%20-%2007-31-12.xls
Note: CDFI counts are as of January 1, 2014.
As of January 1, 2014, there were 807 certified CDFIs (down from 999, as of July 31, 2012).11 As
shown in Figure 1, at least one CDFI is located in each of the 50 states, the District of Columbia,
Guam, Puerto Rico, and the U.S. Virgin Islands. California and New York contain more certified
CDFIs than any other U.S. state or territory.
CDE certification is required to receive an NMTC allocation. A certified CDE is a domestic
corporation or partnership that is an intermediary vehicle for the provision of loans, investments,
or financial counseling in low-income communities (LICs). CDEs use the NMTC to encourage
investors to make equity investments in the CDE or its subsidiaries. To be eligible for CDE
certification, the applicant must
• be a legal entity and a domestic corporation or partnership for federal tax
purposes;
11 For a list of these certified CDFIs with their contact information, see Community Development Financial Institutions
Fund, “CDFI Certification,” at http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=9.
Congressional Research Service
5
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
• have a primary mission of serving or providing investment capital to low-income
communities or low-income individuals and target at least 60% of activities to
these groups; and
• maintain accountability to low-income communities through representation on
governing or advisory board.12
Figure 2. Certified CDEs, By Location
Source: Community Development Financial Institutions Fund, at http://www.cdfifund.gov/what_we_do/
programs_id.asp?programID=10.
Note: CDE counts are as of July 31, 2012.
As of July 31, 2012, there were 5,780 certified CDEs (including their subsidiaries) located
throughout the United States, Puerto Rico, and the U.S. Virgin Islands.13 As shown in Figure 2,
California and New York also contain more certified CDEs than any other U.S. state or territory.
12 Ibid.
13 For a list of these certified CDEs (and their subsidiaries) with their contact information, see Community
Development Financial Institutions Fund, “CDE Certification,” at http://www.cdfifund.gov/what_we_do/
programs_id.asp?programID=10.
Congressional Research Service
6
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Programs
The Fund’s official mission is to increase economic opportunity and promote community
development investments in low-income and distressed communities in the United States. To
carry out this mission, the Fund is composed of several programs that address multiple needs of
distressed communities. These programs encourage qualified entities to provide financial and
technical assistance to meet the needs of local businesses, potential homebuyers, community
developers, and potential investors in distressed and LICs. The Fund’s range of incentives
includes equity investment in program awardees, tax credits, grants, loans, and deposits and credit
union shares in insured CDFIs and state-insured credit unions.14
All of the Fund’s programs share a common characteristic, in that they use geographically
targeted incentives intended to increase community development in underserved and distressed
communities, where certain types of economic activity might not otherwise occur. Ideas for
geographically targeted community development policies were a feature of federal policy debates
throughout the 1980s and early 1990s.15 Despite bipartisan support for these policies at the time,
they did not become more widely implemented, at the federal level, until the Clinton
Administration.16
CDFI Program
The Fund’s core CDFI program was authorized by the Community Development Banking and
Financial Institutions Act of 1994 in the Riegle Community Development and Regulatory
Improvement Act of 1994 (P.L. 103-325). The CDFI program provides two types of monetary
awards, financial assistance (FA) and technical assistance (TA). These awards are given to CDFIs
to build their capacity of CDFIs to serve low-income people and communities that lack access to
affordable financial products and services.17
14 12 C.F.R. §1805.401.
15 For a historical analysis of these debates, see the Discussion section of CRS Report R41268, Small Business
Administration HUBZone Program, by Robert Jay Dilger.
16 These programs include the 1993 reform of the Community Reinvestment Act of 1977 (P.L. 95-128) and the
Empowerment Zone program, established by the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).
17 Laws pertaining to the Fund’s FA and TA are located in 46 U.S.C. §§1805.300-1805.303.
Congressional Research Service
7
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
To be eligible for an FA award, a CDFI must
be certified by the Fund before it applies for
Minimum Requirements for
the award. Prospective applicants that are not
Meeting the CDFI Program’s
yet certified must submit a separate
Definition of a Distressed Community
certification application to be considered for
•
A contiguous area located with a unit of General
an FA award during a funding round. Both
Local Government with a population, as determined
certified and noncertified CDFIs are eligible to
by the most recent census data available, of at least
apply for TA awards. However, noncertified
4,000, if any of the portion of the area is located
organizations must be able to become certified
with a Metropolitan Area with a population of
50,000; a population of at least 1,000, in any other
within two years after receiving a TA award.
case; or be located entirely within an Indian
reservation;
In evaluating and selecting applicants for
•
At least 30% of the Eligible Residents have incomes
awards, the Fund evaluates the applicants’
that are less than the national poverty level, as
likelihood of meeting its goals as described in
published by the U.S. Bureau of the Census in the
a required comprehensive business plan. The
most recent decennial census for which data is
applicants’ prior history of servicing distressed
available; the unemployment rate is at least 1.5
communities, its operational capacity,
times greater than the national average, as
determined by the U.S. Bureau of Labor Statistics’
financial track record, and other attributes are
(BLS’s) most recent data, including estimates of
also taken into consideration.18
unemployment developed using the BLS’s Census
Share calculation method; or
Activities eligible for program awards must
•
Such additional requirements as may be specified by
target a distressed community, which is
the Fund in the applicable notice of funds availability.
defined by two requirements. First, the
Source: 12 C.F.R. §1806.200(b).
community (investment area) must meet
minimum area requirements. The community
must be a continuous area of general local government that either has (1) a population of at least
4,000, if located in a Metropolitan Statistical Area, (2) a population of at least 1,000, in
nonmetropolitan areas, or (3) located entirely within an Indian reservation.19
Second, at least 30% of the eligible residents in the community must have incomes that are less
than the national poverty level, as published by the U.S. Bureau of Labor Statistics (BLS), and the
community must have an unemployment rate that is at least 1.5 times greater than the national
average, as determined by the BLS’s most recent data. In addition, the Fund may specify other
requirements in a program’s applicable notice of funds availability (NOFA).20 The Fund’s online
resource, CDFI Fund Mapping System (CIMS), designates which localities either fully qualify or
partially qualify as distressed communities, based on the three criteria.21
If the community does not meet the individual minimum area requirements, the applicant may
select two or more geographic units which, in the aggregate, meet the minimum area eligibility
requirements, provided that none of the geographic units has a poverty rate less than 20%.22
18 12 CFR §1805.701.
19 12 C.F.R. §1806.200(b)(1).
20 12 C.F.R. §1806.200(b)(2).
21 Community Development Financial Institutions Fund, “Community Development Financial Institutions Fund
Mapping System (CIMS),” December 3, 2008, at http://www.cdfifund.gov/what_we_do/mapping.asp.
22 12 C.F.R. §1806.200(c).
Congressional Research Service
8
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
The Fund makes awards up to $2 million to certified CDFIs under the FA component of the CDFI
program.23 A CDFI may use an FA award for lending, investing, enhancing liquidity, or other
means of financing
• commercial facilities that promote revitalization, community stability, or job
creation or retention;
• businesses that provide jobs to, are owned by, or enhance the availability of
products and services to low-income individuals;
• housing that is principally affordable to low-income persons, with some
exceptions;
• the provision of consumer loans; or
• other businesses or activities as requested by the applicant and deemed
appropriate by the Fund.24
The Fund awards grants of up $100,000 to certified CDFIs and established entities seeking to
become certified under the TA component of the CDFI program. TA awards are intended to build
a CDFI’s capacity to provide affordable financial products and services to low-income
communities and families.25 TA grants may be used for a variety of purposes, including
• the purchase equipment, materials, or supplies;
• to pay for consulting or contracting services;
• to pay the salaries and benefits of certain personnel;
• to train staff or board members;
• or other activities deemed appropriate by the Fund.26
FA and TA awards are both generally subject to two restrictions. First, the Fund typically requires
an applicant to demonstrate that they can match from a nonfederal source, dollar-for-dollar, the
amount of money that they are requesting from the Fund. With regard to FA awards, the Fund is
authorized to make awards to applicants in a like form to the matching funds secured by the
awardee.27 For example, the Fund can only match a nonfederal grant with an FA grant—not a
loan. Second, the Fund generally limits any one entity or its affiliates from receiving more than
$5 million in awards from the Fund within a three-year period.28
However, restrictions on the Fund’s awards have been subject to temporary legislative changes.
For example, the American Reinvestment and Recovery Act (ARRA) of 2009 (P.L. 111-5)
23 Community Development Financial Institutions Fund, “Community Development Financial Institutions Program,”
August 6, 2012, at http://www.cdfifund.gov/what_we_do/programs_id.asp?programid=7.
24 12 C.F.R. §1805.301.
25 Ibid.
26 12 C.F.R. §1805.303.
27 12 C.F.R. §1805.501.
28 12 C.F.R. §1805.402(a). However, an entity and its affiliates may receive up to $8.75 million in awards from the
Fund within a three year period if the entity serves an area where there are no other applicants for awards. These
exceptions to $5 million cap are detailed in 12 C.F.R. §§1805.402(b)-(c).
Congressional Research Service
9
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
waived the nonfederal, dollar-for-dollar matching requirement for three years.29 Thus, the Fund
did not require awards in FY2009, FY2010, and FY2011 to be matched by nonfederal sources.30
The matching requirement returned for awards in FY2012 for Fund programs that did not receive
a congressional wavier.31 ARRA also waived the $5 million cap for FY2009, FY2010, and
FY2011.32
The Fund reported that it awarded 148 FA awards and 43 TA awards totaling $150.3 million in
FY2013.33
Native American CDFI Assistance
The origin of the Native American CDFI Assistance (NACA) component of the CDFI program
dates back to the Riegle Act of 1994. The Riegle Act mandated that the Fund conduct a study of
lending and investment practices on Indian reservations. The study was directed to identify and
determine the impact of private-financing barriers on Native American populations.34 Since the
November 2001 release of the Native American Lending Study, the Fund certifies Native CDFIs
and provides assistance through the CDFI program’s authority. These programs are designed to
reduce barriers preventing access to credit, capital, and financial services in Native American,
Alaska Native, and Native Hawaiian communities (collectively referred to as Native
Communities).35
The Fund receives a separate appropriation for the NACA component of the CDFI program.
Under the NACA component of the CDFI program, the Fund issues FA and TA awards to
organizations with the primary mission of increasing access to capital in Native Communities. In
addition, the NACA component provides TA grants to certified Native CDFIs, emerging Native
CDFIs, and sponsoring entities (see below). TA awards may be used by the recipient to become
certified as a Native CDFI or to create a new Native CDFI.
A CDFI must be certified by the Fund as one of three types of entities to become eligible for
NACA’s FA and TA awards:36
29 American Recovery and Reinvestment Act of 2009 (P.L. 111-5), 123 Stat. 148.
30 Ibid.
31 For FY2012 funding rounds, Congress waived the matching funds requirement for Small and Emerging CDFI
Assistance (SECA) program applicants and Financial Assistance (FA) applicants for the Native American CDFI
Assistance (NACA) program. See Community Development Financial Institutions Fund, “Matching Funds Update for
CDFI and NACA Program Applicants,” press release, January 4, 2012, at http://www.cdfifund.gov/news_events/CDFI-
2011-41-Matching_Funds_Funding_Cap_Update_CDFI_Program_NACA_Program_Applicants.asp.
32 See Catalog of Federal Domestic Assistance, “Community Development Financial Institutions Program,” program
information, accessed August 13, 2012, at https://www.cfda.gov/?s=program&mode=form&tab=step1&id=
18dd106bf98422454e41f434ed2856d8.
33 Community Development Financial Institutions Fund, “Treasury Awards Over $172 Million To Organizations
Serving Low-Income Communities,” September 24, 2013, at http://www.cdfifund.gov/news_events/CDFI-2013-40-
TREASURY_AWARDS_OVER_$172_MILLION_TO_ORGANIZATIONS_SERVING_LOW-
INCOME_COMMUNITIES.asp.
34 P.L. 103-325, Section 117(c).
35 For the results of this study, see Community Development Financial Institutions Fund, The Report of the Native
American Lending Study, November 2001, at http://www.cdfifund.gov/docs/2001_nacta_lending_study.pdf.
36 Community Development Financial Institutions Fund, “Native American Initiatives Program,” at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programid=3.
Congressional Research Service
10
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
• certified Native CDFI, an organization must direct at least 50% of its activities
toward serving Native Communities;
• emerging Native CDFI, an organization must demonstrate to the satisfaction of
the Fund that is has a plan to achieve Native CDFI certification within a
reasonable timeframe; or
• sponsoring entity, an organization (typically a tribe or tribal entity) must pledge
that it will create a separate legal entity, which will eventually become certified
as a Native CDFI.
Table B-1 summarizes the locations of Certified Native CDFIs, by state. Hawaii and Oklahoma
contain more certified Native CDFIs than any other U.S. state.
Small and Emerging CDFI Assistance
The Small and Emerging CDFI Assistance (SECA) component of the CDFI program is designed
to assist small or emerging CDFIs. It provides the same type of FA and TA awards as the general
CDFI program. It distinguishes small or emerging CDFIs from other CDFIs using two eligibility
criteria, as announced in the annual notice of funds availability. For FY2014 awards, a certified
CDFI met the eligibility criteria of being a small or emerging CDFI if they had financial holdings
below certain caps (based on their respective type of financial institution), or if they began
operations after January 1, 2010.37
Awards provided through the SECA application are subject to caps on the size of the awards. For
FY2014, these caps include $700,000 in general FA funds, up to and including $5 million funds
under the FA funds designated for the Healthy Food Financing Initiative, and up to $100,000 in
TA funds for capacity-building activities.38
Capacity Building Initiative
The Fund provides technical assistance and training opportunities for CDFIs through its Capacity
Building Initiative. The Capacity Building Initiative is a combination of online and in-person
resources.39 The Fund’s website provides a collection of best practices related to topics, such as
microfinance operations, foreclosure intervention counseling, and healthy food retail financing in
low-income communities. The Fund also offers a limited number of in-person training events on
similar topics in different locations across the United States.
Healthy Food Financing Initiative
The Fund has used its authority within its CDFI program to support the Healthy Food Financing
Initiative (HFFI), which began in FY2011. The Fund’s HFFI is part of a multi-agency HFFI,
37 For regulations, see Department of the Treasury, “Notice of Funds Availability (NOFA) Inviting Applications for the
Community Development Financial Institutions Program (CDFI Program) FY 2014 Funding Round (FY 2014 Funding
Round),” 78 FR 65431 Federal Register 65431 - 65440, October 31, 2013.
38 Ibid.
39 Community Development Financial Institutions Fund, “Capacity Building Initiative,” March 25, 2010, at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=13.
Congressional Research Service
11
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
involving Treasury, the U.S. Department of Agriculture (USDA), and the U.S. Department of
Health and Human Services (HHS).40 The HFFI represents the federal government’s effort to
expand the supply and demand for nutritious foods, including increasing the distribution of
agricultural products, developing and equipping grocery stores, and strengthening producer-to-
consumer relationships. Through its role in the HFFI, the Fund provides grants for organizations
serving low-income neighborhoods with limited access to affordable and nutritious food.
The Fund reported that it awarded 10 HFFI awards (totaling $22 million) in FY2013, on top of
the more than $172 million in FA and TA awards through its core CDFI program.41
New Markets Tax Credit
Congress established the New Markets Tax Credit (NMTC) program as part of the Community
Renewal Tax Relief Act of 2000, contained within the Consolidated Appropriations Act, 2001
(P.L. 106-554), to encourage investors to make investments in impoverished, low-income
communities (LICs) that traditionally lack access to capital. The NMTC is designed to increase
private investment in LICs, where conventional access to credit and investment capital for
developing small businesses, creating and retaining jobs, and revitalizing neighborhoods is often
limited.42 The NMTC is a nonrefundable tax credit intended to encourage qualified investment
groups to support CDEs that operate in eligible, LICs.43 Although the NMTC is credited through
the federal tax code, the Fund is responsible for awarding the tax credit allocations to eligible
CDEs through a competitive award process. The credit provided to the investor totals 39% of the
amount of the investment made in a CDE and is claimed over a seven-year credit allowance
period.44 In each of the first three years, the investor receives a credit equal to 5% of the total
amount paid for the stock or capital interest at the time of purchase. For the final four years, the
value of the credit is 6% annually. Investors must retain their interest in a qualified equity
investment throughout the seven-year period, or risk forfeiture of that interest.45
Under the tax code’s NMTC provisions, only eligible investments in qualifying LICs can receive
the NMTC. Qualifying LICs include census tracts that have at least one of the following criteria:
(1) a poverty rate of at least 20%; (2) is located in a metropolitan area, a median family income
below 80% of the greater of the statewide, or metropolitan area median family income; or (3) if
40 Community Development Financial Institutions Fund, “Community Development Financial Institutions Fund
Announces $25 Million in Healthy Food Financing Initiative Awards,” press release, September 14, 2011, at
http://www.cdfifund.gov/news_events/CDFI-2011-18-CDFI-Fund-Announces-$25-Million-in-Healthy-Food-
Financing-Initiative-Awards.asp.
41 Community Development Financial Institutions Fund, “Treasury Awards Over $172 Million To Organizations
Serving Low-Income Communities,” September 24, 2013, at http://www.cdfifund.gov/news_events/CDFI-2013-40-
TREASURY_AWARDS_OVER_$172_MILLION_TO_ORGANIZATIONS_SERVING_LOW-
INCOME_COMMUNITIES.asp.
42 U.S. Government Accountability Office, New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in
Low-Income Communities, but Could Be Simplified, GAO-10-334, January 2010, p. 1, at http://www.gao.gov/
new.items/d10334.pdf.
43 A nonrefundable tax credit, like the NMTC, can be used to reduce tax liability toward, but not below, zero. In
contrast, a refundable tax credit can be used to reduce tax liability beyond zero, enabling a taxpayer to receive a tax
refund from the Internal Revenue Service.
44 Laws pertaining to the NMTC are located in 26 U.S.C. §45D.
45 For more details on the NMTC, see CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J.
Marples and Sean Lowry.
Congressional Research Service
12
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
located outside a metropolitan area, a median family income below 80% of the median statewide
family income. As defined by the criteria above, about 39% of the nation’s census tracts covering
nearly 36% of the U.S. population are eligible for the NMTC.46 In addition, designated targeted
populations may be treated as LICs. As a result of the definition of qualified LICs, virtually all of
the country’s census tracts are potentially eligible for the NMTC.47
Qualified investment groups can apply to the Fund for an allocation of the NMTC. CDEs seek
individuals who can benefit from tax preferences to make qualifying equity investments in the
CDE.48 The CDE then makes equity investments in LICs and low-income community businesses,
all of which must be qualified. After the CDE is awarded a tax credit allocation, the CDE is
authorized to offer the tax credits to private equity investors in the CDE.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L.
111-312) extended NMTC authorization through 2011 at $3.5 billion per year. The American
Taxpayer Relief Act (ATRA; H.R. 8, as enacted) extended the NMTC through 2012 and 2013
with an authority of $3.5 billion per year. The NMTC expired at the end of 2013 along with
dozens of other temporary, “tax extender” provisions.49
The Government Accountability Office (GAO) has issued several reports examining the NMTC’s
overall performance and ability to benefit certain types of LICs. A 2007 GAO report contains
survey results from a sample of NMTC recipients suggesting that the NMTC influenced the
decisions of investors to invest in LICs.50 GAO published a 2009 report responding to
congressional concerns about the low success rate of minority-owned CDEs in obtaining NMTC
allocations. GAO found that although a CDE’s resources and experience are important factors in
successfully obtaining an NMTC allocation, minority status is associated with a lower probability
of receiving an allocation, when controlling for other factors. GAO could not determine why this
relationship exists or whether any actions (or lack of) by the Department of the Treasury
contributed to minority CDEs’ lower probability of success, given that the Fund provides
assistance that is available to all CDEs that do not receive awards detailing some of the
weaknesses in its applications.51 In a 2012 report, GAO concluded that although the NMTC
directed most awards and tax credits to metropolitan areas, it generally met proportionality goals
of nonmetropolitan areas.52 Another GAO report released in 2012 reported that the effects of the
NMTC are difficult to assess because of information gaps in the collection of tax data.53
46 CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean Lowry.
47 Ibid.
48 If an investor does not have a tax liability, then the investor would not benefit from the nonrefundable NMTC.
49 For more information on tax extenders, see CRS Report R43124, Tax Provisions Expiring in 2013 (“Tax
Extenders”), by Molly F. Sherlock.
50 U.S. Government Accountability Office, New Markets Tax Credit Appears to Increase Investment by Investors in
Low-Income Communities, but Opportunities Exist to Better Monitor Compliance, GAO-07-296, January 2007, p. 35,
at http://www.gao.gov/new.items/d07296.pdf.
51 U.S. Government Accountability Office, New Markets Tax Credit: Minority Entities Are Less Successful in
Obtaining Awards Than Non-Minority Entities, GAO-09-536, April 2009, at http://www.gao.gov/new.items/
d09536.pdf.
52 U.S. Government Accountability Office, Community Development Financial Institutions and New Markets Tax
Credit Programs in Metropolitan and Nonmetropolitan Areas, GAO-12-547R, April 2012, at http://www.gao.gov/
assets/600/590432.pdf.
53 U.S. Government Accountability Office, Limited Information on the Use and Effectiveness of Tax Expenditures
Could be Mitigated Through Congressional Action, GAO-12-262, February 2012, at http://gao.gov/assets/590/
(continued...)
Congressional Research Service
13
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
In addition, the NMTC’s complex application and administration have been the focus of GAO
reports, which have provided recommendations to make the program simpler and more accessible
to those in LICs. For example, a 2010 GAO report noted that the complexity of NMTC
transaction structures appears to make it more difficult for CDEs to execute smaller transactions
and results in less equity ending up in low-income community businesses than would likely end
up there were the transaction structures simplified.54 In a 2011 report, GAO suggested that
Congress convert at least part of the NMTC to a grant program to increase the amount of federal
subsidy reaching businesses in impoverished, LICs.55
Bank Enterprise Award
The Bank Enterprise Award (BEA) was originally authorized by the Bank Enterprise Act of 1991
in the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
Appropriations Act, 1992 (P.L. 102-142). Prior to the creation of the Fund, the BEA was
administered by the Comptroller of the Currency and the Federal Deposit Insurance Corporation
(FDIC). Section 114 of the Riegle Community Development and Regulatory Improvement Act of
1994 (P.L. 103-325) moved the BEA under the operations of the Fund.
The Fund’s BEA program provides formula-based grants to FDIC-insured banks and thrifts to
expand investments in CDFIs and to increase lending, investment, and service activities within
economically distressed communities. The Fund measures increases in an applicant’s lending,
investment, and service activities relative to a baseline of similar, qualified activities conducted
by the applicant in the previous application cycle. BEA rewards are retrospective, awarding
applicants for activities they have already completed, in contrast to the Fund’s primary CDFI
program—which typically award applicants based on their plans for the future.56
The BEA provides formula-based grants to qualified banks and thrifts based on three categories:
• CDFI-related activities include equity investments (e.g., grants, stock purchases,
purchases of partnership interests, or limited liability company membership
interests), equity-like loans, and support activities (e.g., loans, deposits, or
technical assistance), to certified CDFIs.57
(...continued)
588978.pdf.
54 See U.S. Government Accountability Office, New Markets Tax Credit: The Credit Helps Fund a Variety of Projects
in Low-Income Communities, but Could Be Simplified, GAO-10-334, January 2010, p. 41, at http://www.gao.gov/
new.items/d10334.pdf.
55 U.S. Government Accountability Office, Opportunities to Reduce Potential Duplication of Government Programs,
Save Tax Dollars, and Enhance Revenue, GAO-11-318SP, March 2011, at http://www.gao.gov/new.items/
d11318sp.pdf.
56 The Fund publishes a more in-depth account of its BEA application evaluation process regularly in the program’s
notice of funds availability. For example, see Department of Treasury, “Community Development Financial Institutions
Fund - Notice of Funds Availability (NOFA) inviting Applications for the FY 2012 Funding Round of the Bank
Enterprise Award (BEA) Program,” 77 Federal Register 37742-37749, June 22, 2012.
57 Community Development Financial Institutions Fund, “FY 2012 Funding Round of BEA Program Now Open,” press
release, June 30, 2012, at http://www.cdfifund.gov/news_events/CDFI-2012-24-
FY_2012_Funding_Round_of_BEA_Program_Now_Open.asp.
Congressional Research Service
14
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
• Distressed community financing activities include loans or investments for home
mortgages, housing development, home improvement, commercial real estate
development, small businesses, and education financing in distressed
communities.
• Service activities include the provision of financial services (e.g., check-cashing
or money order services, electronic transfer accounts, and individual
development accounts).58
FDIC-insured financial institutions that are dedicated to financing and supporting economic
development in qualified communities are eligible for the BEA. No applicant may receive a BEA
if it has (1) an application pending for assistance under the current round of the awards under the
CDFI program; (2) been awarded assistance from the Fund under the CDFI program within the
12-month period prior to the date the Fund selects the applicant to receive a BEA; or (3) ever
received assistance under the CDFI program for the same activities for which it is seeking a
BEA.59 Applicants may apply for both a CDFI program award and a BEA program award in a
given year; however, receiving a CDFI program award removes an applicant from eligibility for a
BEA in the same year.60
The President has not recommended funding for the BEA program for FY2015.61
According to a GAO report, the Fund’s authorizing statute places no restrictions on how BEA
recipients may use their award.62 In this same report, the Fund agreed with GAO’s interpretation
of its authorizing statute.63 However, the Fund changed the terms of the program’s award
agreements in 2009.64 Recipients must now use the award, or an amount equivalent to the award
amount, for BEA qualified activities in a distressed community.65 This change in the BEA
program generated public requests for the Fund to provide further guidance on an awardee’s
reporting requirements.66 As part of the BEA award agreement, the Fund now requires BEA
recipients to account and track the use of the award (or an amount equivalent to the award
amount) and verify that this amount was used in accordance with performance goals designated
by the Fund.
58 12 C.F.R. §1806.101(3)(c).
59 12 C.F.R. §1805.102, and U.S. Department of the Treasury, “Community Development Financial Institutions Fund -
Notice of Funds Availability (NOFA) inviting Applications for the FY 2012 Funding Round of the Bank Enterprise
Award (BEA) Program,” 77 Federal Register 37743, June 22, 2012.
60 Ibid.
61 U.S. Department of the Treasury, Community Development Financial Institutions Fund FY2015 President’s Budget,
March 2014, p. 3, at http://www.treasury.gov/about/budget-performance/CJ15/06.%20CDFI%20Fund%20CJ.pdf. In a
phone call with the author on March 5, 2013, the Fund’s congressional affairs office indicated that the decision to zero-
out the BEA program reflected the President’s decision to prioritize funding for the core, CDFI program.
62 U.S. Government Accountability Office, Treasury’s Bank Enterprise Award Program: Impact on Investments in
Distressed Communities Is Difficult to Determine, but Likely Not Significant, GAO-06-824, July 2006, p. 6, at
http://www.gao.gov/new.items/d06824.pdf.
63 Ibid., p. 28.
64 Department of the Treasury, “Community Development Financial Institutions Fund 12 CFR Part 1806,” 74 Federal
Register 5790, January 30, 2009.
65 12 C.F.R. §1806.101(c).
66 Letter from Joseph Pigg, Vice President and Senior Counsel, to Jodie Harris, Associate Program Manager -
Community Development Financial Institutions Fund, March 24, 2010, at http://www.aba.com/Issues/Documents/
c7e6303e475b4085afef85855eb422f632410TreasuryBankEnterpriseAwardProgramBEA.pdf.
Congressional Research Service
15
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
The BEA program’s effect on investment in distressed communities is the topic of multiple GAO
reports to Congress. In 1998, GAO reported that, according to the Fund, most of the 1996
awardees reported using their awards to further the objectives of the BEA program even though
the program’s authorizing legislation did not place restrictions on the use of the awards.67 Each of
GAO’s five case study banks also reported using its award money to expand its existing
investments in community development.68 In a 2006 report, GAO concluded that the extent to
which the BEA program may provide banks with incentives to increase their investments in
CDFIs and lending in distressed communities is difficult to determine, but available evidence
GAO reviewed suggested that the program’s impact has likely not been significant. Award
recipients GAO interviewed said that the BEA program lowers bank costs associated with
investing in a CDFI or lending in a distressed community, allowing for increases in both types of
activities. However, other economic and regulatory incentives also encourage banks to undertake
award-eligible activities, and it is difficult to isolate and distinguish these incentives from those of
a BEA award.69 Treasury disputed GAO’s findings and questioned GAO’s methodology of
evaluating the BEA program.
Bond Guarantee Program
The Small Business Jobs Act of 2010 (P.L. 111-240) authorized the Bond Guarantee program on
September 27, 2010.70 The Fund’s Bond Guarantee program is designed to provide a low-cost
source of long-term, patient capital to CDFIs.71 Treasury may issue up to 10 bonds per year, each
at a minimum of $100 million. The total of all bonds cannot exceed $1 billion per year. Each
bond is fully guaranteed by the United States and offered at a cost equivalent to the current
Treasury rates for comparable maturities. The bonds cannot exceed a maturity of 30 years, are
taxable, and do not qualify for Community Reinvestment Act (CRA) credit.72 Treasury guarantees
the full amount of notes or bonds issued to support CDFIs that make investments for eligible
community or economic development purposes.73
Authorized uses of the loans financed may include a variety of financial activities that constitute
community or economic development in low-income or underserved areas (e.g., the provision of
basic financial services, housing that is principally affordable to low-income individuals, and
businesses that provide jobs for low-income people or are owned by low-income individuals).74
By legislative design, the Bond Guarantee program is a zero subsidy credit program and does not
require annual appropriations funding. Since the bonds will be guaranteed by the United States, in
accordance with federal credit policy, the Federal Financing Bank (FFB), a U.S. government
67 Ibid.
68 Ibid., p. 54.
69 See U.S. Government Accountability Office, Treasury’s Bank Enterprise Award Program: Impact on Investments in
Distressed Communities is Difficult to Determine, but Likely Not Significant, GAO-06-824, July 2006, p. 4, at
http://www.gao.gov/new.items/d06824.pdf.
70 Laws pertaining to the Fund’s Bond Guarantee program are located in 12 U.S.C. §4713a.
71 Patient capital refers to an investment in which the investor has little expectation of earning a short-term return, in
anticipation of earning more substantial returns in the longer-run.
72 Community Development Financial Institutions Fund, “CDFI Bond Guarantee Program,” at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=14.
73 Ibid.
74 Ibid.
Congressional Research Service
16
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
corporation under the general supervision and direction of Treasury, will purchase the bonds
issued by qualified issuers.75 Qualified issuers will lend the bond proceeds to eligible CDFIs. The
FFB finances obligations that are fully guaranteed by the United States, such as the bonds or
notes issued by CDFIs under the CDFI Bond Guarantee program.
Despite being first authorized in 2010, the Bond Guarantee program has been slow to develop.
Congress reduced the program’s potential lending authority of $4 billion ($1 billion annually for
four years of authorization) to $1 billion between 2010 and 2014. The President has requested
that Congress reauthorize the Bond Guarantee Program for an additional year (through
FY2015).76
In 2013, the Fund approved term sheets for $325 million in bonds that, when issued, will be used
for “affordable multi-family rental housing, healthcare facilities, charter schools, and commercial
real estate in low-income or underserved rural areas.”77 The Fund plans to open the FY2014
round of the Bond Guarantee program in early 2014.78
Policy Considerations
This section analyzes four policy considerations that may generate congressional attention,
regarding the Fund’s use of federal resources to promote economic development. First, it analyzes
the debate on targeting development assistance toward people versus places. Second, it analyzes
the debate over targeting economic development policies toward labor or capital. Third, it
examines whether the Fund plays a unique role in promoting economic development, or if it
duplicates, complements, or competes with the goals and activities of other federal, state, and
local programs. Fourth, it examines assessments of the Fund’s management.
How Effective Are Geographically Targeted Economic
Development Policies?
From an economic perspective, what theoretical basis is there for the promotion of development
in distressed communities? Economic theory suggests that firms and workers will locate to the
most efficient and productive areas to do business in the long run, without the assistance of
government policy. From this perspective, government policies, such as tax exemptions or tax
expenditures, that create incentives to locate in one area at the expense of another results in net
social loss of efficiency—where finite resources are not being used to produce their maximum
output for the lowest cost.79 Economic theory indicates that these policies create a distortion in
75 Catalog of Federal Domestic Assistance, “Community Development Financial Institutions Bond Guarantee
Program,” at https://www.cfda.gov/?s=program&mode=form&tab=step1&id=90977a236dc41c64b428744a8180642b.
76 Ibid.
77 U.S. Department of the Treasury, The Budget in Brief FY2015, March 3, 2014, p. 39, at http://www.treasury.gov/
about/budget-performance/budget-in-brief/Documents/Treasury_FY_2015_BIB.pdf.
78 Community Development Financial Institutions Fund, “Year End Message from the Director,” December 2013, at
http://www.cdfifund.gov/who_we_are/director/directors_message.asp.
79 Economists typically view the most efficient means of production as the one that provides the most benefit at the
lowest cost.
Congressional Research Service
17
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
the market, such that resources are directed from an area of higher potential productivity to an
area of lower potential productivity.80
However, government policy may be economically justified if business investment in distressed
communities would generate positive externalities.81 Positive externalities, also known as
spillover benefits, occur when the actions of one individual or firm benefit others in society.
Because a given business will tend to only consider its own (private) benefit from an activity, and
not the total benefit to society, too little of the positive externality-generating activity may be
undertaken from society’s perspective. Governments, however, may intervene through the use of
taxes, subsidies, and other forms of assistance to align the interests of individual businesses with
the interests of society to achieve a more economically efficient outcome.
How may government policy generate positive externalities within a community? It is possible
that potential investors may invest in an underdeveloped community as long as the potential
return on that investment exceeds the potential risk. If investors are not attracted to a particular
community, however, government incentives may be able to change investors’ perceived return
and risk calculations. If this initial group of businesses is successful, due in part to the
government’s incentives, then they may send positive signals about potential return for other
businesses that choose to locate in the community. In addition, if government incentives
encourage employment in the communities, employees may feel they have more of a stake in the
community and participate positively in activities outside of work. Although government
incentives initially benefit particular businesses or investments, they may also allow the broader
community to capture these spillover benefits.
Empirical evaluations of geographically targeted economic development policies have been
mixed.82 Evaluations differ, in part, due to several factors, including the use of different
evaluation criteria for economic development, different policies or sample areas used for analysis,
or the use of different empirical strategies. Many of these studies are based on variations of state
and local enterprise zones and federal empowerment zones. Enterprise zones typically provide
certain tax incentives and regulatory relief for distressed communities, whereas federal
Empowerment Zones provide certain tax exemptions and employer tax credits for hiring new
employees.
Some studies have found that geographically targeted policies have a positive effect on several
indicators of economic activity in the targeted area. These studies cite that these policies facilitate
entrepreneurship and increase employment in the targeted area.83 Ham et al. find that
80 Herbert G. Grubel, “Review of Enterprise Zones: Greenlining the Inner Cities, by Stuart M. Butler,” Journal of
Economic Literature, vol. XX (December 1982), pp. 1614-1616.
81 A noneconomic justification for a governmental role in targeted economic development policy is that these low-
income communities are largely composed of minority or low-education populations. Although this argument is outside
of the scope of this paper, more information on this policy justification can be found in Timothy Bartik, Who Benefits
From State and Local Economic Development Policies? (Kalamazoo, MI: W. E. Upjohn Institute for Employment
Research, 1991).
82 Terry F. Buss, “The Effect of State Tax Incentives on Economic Growth and Firm Location Decisions: An Overview
of the Literature,” Economic Development Quarterly, vol. 15, no. 1 (February 2001), pp. 90-105.
83 For other studies that have found that geographically targeted development policies have positive effects on
economic activity in the target area, see Stephen Billings, “Do Enterprise Zones Work? An Analysis at the Borders,”
Public Finance Review, vol. 37, no. 1 (2008), pp. 68-93, and Douglas Krupka and Douglas Noonan, “Empowerment
Zones, Neighborhood Change, and Owner Occupied Housing,” Regional Science and Urban Economics, vol. 39, no. 4
(2009), pp. 386-396.
Congressional Research Service
18
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Empowerment Zone designation reduces local unemployment and poverty rates by 8.7% and
8.8%, respectively, whereas enterprise zone designation reduces local unemployment and poverty
rates by 2.6% and 20%, respectively.84 Papke’s review of surveys from participants in multiple
U.S. enterprise zones indicates that start-up firms average approximately 25% of new businesses
within the targeted zones.85 Rubin and Wilder’s analysis of Indiana’s Enterprise Zone indicates
that 76% of the 1,878 jobs created between the beginning of the program in 1983 and 1986 could
not be attributed to regional or sectoral growth.86 Assuming that these residual jobs were created
in large part due to policy, the researchers calculated that the creation of each of these 1,430 jobs
cost taxpayers $1,372 per job, annually.87
On the other hand, other evaluations indicate that these policies have little effect on economic
activity within the targeted area, or they do not contribute to a net increase of economic activity
throughout the larger economy. These studies find that geographically targeted policies encourage
some types of economic activity at the detriment of others—thus rearranging the mix of economic
activity within the target area.88 For example, Hanson and Rohlin indicate that location based-tax
incentives have a positive effect on the firm location in industries that benefit the most from the
tax incentives, but net growth in new establishments is offset by declines or slower growth in
other industries that are less likely to use the tax incentives.89
In addition, some studies indicate that geographically targeted policies may shift activity from a
comparative area toward the targeted zone, rather than create new economic activity. For
example, Gurley-Calvez et al. find that the NMTC may have led to an increase in corporate
investment within the targeted areas, but did not lead to a net increase in corporate investment.90
These authors conclude that the NMTC might encourage investment to shift from one low-
84 John C. Ham et al., “Government Programs Can Improve Local Labor Markets: Evidence from State Enterprise
Zones, Federal Empowerment Zones, and Federal Enterprise Communities,” Journal of Public Economics, vol. 95, no.
7-8 (July 2011), pp. 779-797.
85 Leslie Papke, “What Do We Know About Enterprise Zones?,” in Tax Policy and the Economy, ed. James Poterba,
vol. 7 (Cambridge, MA: MIT Press, 1993), pp. 32-72.
86 Barry M. Rubin and Margaret G. Wilder, “Urban Enterprise Zones: Employment Impacts and Fiscal Incentives,”
Journal of the American Planning Association, vol. 55, no. 4 (Autumn 1989), pp. 418-431.
87 Rubin and Wilder’s cost estimates are among the lowest in the literature. In Ladd’s review of six studies of enterprise
zones, the basic annual cost estimates of various programs ranged from $1,633 to $53,507 per job, depending on
methodology used to calculate costs. Bartik’s (1992) review of 57 studies of state and local tax incentives found annual
cost estimates ranging from $2,000 to $11,000 per job. See Helen F. Ladd, “Spatially Targeted Economic Development
Strategies: Do They Work?,” Cityscape, vol. 1, no. 1 (August 1994), pp. 193-218, and Timothy J. Bartik, “The Effects
of State and Local Taxes on Economic Development: A Review of Recent Research,” Economic Development
Quarterly, vol. 6, no. 1 (1992), pp. 102-111.
88 For studies that have found that geographically targeted development policies have little or no positive effects on
economic activity in the target area, see Marlon Boarnet and William Bogart, “Enterprise Zones and Employment:
Evidence from New Jersey,” Journal of Urban Economics, vol. 40, no. 2 (1996), pp. 198-215; Danielle Bondonio and
John Engberg, “Enterprise Zones and Local Employment: Evidence from the States’ Programs,” Regional Science and
Urban Economics, vol. 30, no. 5 (2000), pp. 519-549; Robert Greenbaum and John Engberg, “The Impact of State
Enterprise Zones on Urban Manufacturing Establishments,” Journal of Policy Analysis and Management, vol. 23, no. 2
(2004), pp. 315-339; and David Neumark and Jed Kolko, “Do Enterprise Zones Create Jobs? Evidence from
California’s Enterprise Zone Program,” Journal of Urban Economics, vol. 68, no. 1 (2010), pp. 1-19.
89 Andrew Hanson and Shawn Rohlin, “Do Location-Based Tax Incentives Attract New Business Establishments?,”
Journal of Regional Science, vol. 51, no. 3 (2011), pp. 427-449.
90 Tami Gurley-Calvez et al., “An Analysis of the New Markets Tax Credit,” Public Finance Review, vol. 37, no. 4
(July 2009), pp. 371-398.
Congressional Research Service
19
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
income community (LIC) to another close substitute, as some corporate investors might already
be investing in LICs to fulfill Community Reinvestment Act requirements.91
The effect of geographically targeted economic development policies on local property prices is
also an area of contention among researchers.92 From a theoretical perspective, government
incentives to increase the supply of affordable property increase the demand for that property.
That increase in demand drives rents higher. If local residents do not benefit from the increase in
economic activity, then higher property values may encourage those with lower incomes to move
out of the community.93
Given the lack of consensus among researchers on the effectiveness of geographically targeted
economic policies, policy makers may opt to more narrowly define the core objective of
development. At its core, the debate is a question of whether development policies should help
people or places. If the primary objective is to improve business and employment opportunities
relative to other areas, then these policies might be effective. If the primary objective of such
policies is to create new jobs, then the effect of these policies may be limited. If policy makers
wish to help the poor, then it might be asked why should government assistance only be extended
to the poor living in distressed communities (as opposed to the poor living in nondistressed
communities)? Each standard for evaluation implies a different set of metrics and results in a
different set of trade-offs.
Should Economic Development Policies Target Capital or Labor?
Assuming that geographically targeted policies can positively affect economic development
within the intended community, then what type of benefit is most effective? Policies can provide
a benefit related to labor costs, capital costs, or both (i.e., total costs). In other words, should
development policies target workers, business owners, or both?
When a geographically targeted subsidy is applied to one of these two factors of production,
economic theory suggests that two behavioral responses occur. The first response is that total
output (i.e., economic activity) increases. This increase in total output increases the use of both
capital and labor, to some degree. Economists label this the output effect of production. The
second response is a substitution effect, whereby firms use one factor of production at the
detriment of the other. The net effect of the output effect and substitution effect determines the
91 The Community Reinvestment Act (CRA), passed by Congress in 1977, encourages financial institutions to help
meet their communities’ needs through safe and sound lending practices and by providing retail banking and
community development services. The Federal Reserve System, the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency, and the Office of Thrift Supervision are responsible for enforcing the CRA. Banks
are evaluated for their CRA performance according to various criteria. See Federal Reserve Bank of Atlanta,
“Standards Used to Evaluate Your Bank’s CRA Performance,”at http://www.frbatlanta.org/pubs/cra/
standards_used_to_evaluate_your_banks_cra_performance.cfm.
92 For studies that have model the effects of geographically targeted development policies on property values in the
target area, see Douglas Krupka and Douglas Noonan, “Empowerment Zones, Neighborhood Change, and Owner
Occupied Housing,” Regional Science and Urban Economics, vol. 39, no. 4 (2009), pp. 386-396 and Andrew Hanson,
“Local Employment, Poverty, and Property Value Effects of Geographically-Targeted Tax Incentives: An Instrumental
Variables Approach,” Regional Science and Urban Economics, vol. 39, no. 6 (November 2009), pp. 721-731.
93 Andrew Hanson and Shawn Rohlin, “The Effect of Location Based Tax Incentives on Establishment Location and
Employment Across Industry Sectors,” Public Finance Review, vol. 39, no. 2 (March 2011), pp. 195-225.
Congressional Research Service
20
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
total effect of the policy. In other words, the total effect reflects whether the policy benefits labor
more than capital, or vice versa.
For example, a labor subsidy, such as a payroll tax credit for hiring a worker, provided within a
particular area will encourage labor-intensive firms to locate within that same area. All firms
(whether attracted by the labor subsidy or already operating in the area) will tend, in addition to
expanding operations, to substitute their use of labor for capital. If the objective of the labor
subsidy is to promote employment, then the substitution effect (the use of more labor, relative to
capital) reinforces the benefits of the output effect (the use of more labor, due to expanded
operation). In other words, the policy is expected to result in a net increase in employment.
By contrast, a capital subsidy, such as tax deductions for capital investments, provided within a
particular area will encourage capital-intensive firms to locate within the area. All firms (whether
attracted by the capital subsidy or already operating in the area) will tend, in addition to
expanding operations, to substitute their use of capital for labor. If the objective of the capital
subsidy is to promote employment, then the substitution effect (the use of more capital, relative to
labor) offsets the benefits of the output effect (the use of more labor, due to expanded operation).
Moreover, if the substitution effect is more powerful than the output effect, a capital subsidy may
end up decreasing employment in the area.94 In this instance, the net effect of the capital subsidy
is less employment in the area than before the policy.
Policies that relate to total costs may balance the trade-off between the promotion of capital or
labor in the targeted area. If producers are indifferent between using labor or capital, then a policy
that provides equally weighted incentives toward the employment of labor and capital will result
in a positive income effect, with no substitution effect. However, if producers use relative factor
price differentials to inform the mix of capital and labor they employ, then the result of a policy
that relates to total costs will depend on the strength and direction of the substitution effect.
Studies indicate that geographically targeted tax incentives for business owners (e.g., the NMTC)
have a positive, but limited effect in increasing the economic well-being of other individuals
living within the target area. Bartik’s review of 57 empirical studies on the effect of state and
local preferential tax incentives for employers in a state or metropolitan area found that 57% of
the studies found at least one statistically significant effect on generating development in the
target area.95 Bartik found that the average measure of responsiveness, or elasticities, or change
between tax measures and economic activity in a targeted state or metropolitan area range from
-0.25 across all studies to -0.51 for studies that include statistical controls for both public service
and fixed effects. In other words, the study concluded that a 10% reduction in all taxes within a
particular geographic zone would generate a 2.5% to 5.1% increase in economic activity within
the same zone.
Do the Fund’s Programs Duplicate Other Government Efforts?
There has been growing legislative interest in identifying duplicative federal programs, as some
Members of Congress have become concerned about the size or efficient management of federal
94 CRS Report 92-476 S Enterprise Zones: The Design of Tax Incentives, by Jane G. Gravelle (out of print; available by
request) models this possible effect of geographically targeted tax incentives.
95 Bartik (1992).
Congressional Research Service
21
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
budgetary resources. GAO defines duplicative programs as federal programs that overlap with the
goals or activities of other federal, state, or local policies.96
Some say that the Fund’s programs duplicate other federal, state, local, and private-sector efforts
to increase economic development in distressed and low-income communities. The Fund’s
website contains a guide that provides a list of possible financing sources for CDFIs.97 At the
federal level, various programs exist as possible sources of finance for CDFIs. These programs
are managed by executive agencies, such as USDA, SBA, HHS, HUD, Interior, Treasury, and
Commerce. Based on this variety of possible funding sources for CDFIs, the Office of
Management and Budget (OMB), under President George W. Bush, said that the Fund’s core
CDFI program was not unique, as several states administer similar programs and CDFIs can use
private-sector equity investment to accomplish activities that they would otherwise accomplish
with the Fund’s awards.98
In addition, the NMTC is not the only tax incentive designed to encourage economic
development in distressed communities. The Senate Committee on the Budget Print on Tax
Expenditures lists several other tax incentives that are meant to achieve similar goals as the
NMTC. These incentives provide short-term development assistance (e.g., disaster relief
provisions), enhance tribal area development, and encourage business and capital investment in
target communities.99 The Bush era’s OMB also stated that the NMTC was not unique because
other federal, state, and local tax credit programs are available through agencies, such as HUD
and Commerce’s Economic Development Agency.100
On the other hand, there are those that believe that the Fund plays a unique or complementary
role to the programs mentioned above. First, Fund supporters most commonly argue that
community lenders are ready and willing to fill financing gaps, but they often struggle to find the
amount of capital and liquidity they need to meet loan demand in distressed communities.101
Although certain CDFIs may be eligible for similar forms of assistance from other federal
programs (e.g., guaranteed loans from SBA), the Fund’s limitations to activities in distressed
communities allows CDFIs to compete with other entities that face similar economic,
96 U.S. Government Accountability Office, Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve
Savings, and Enhance Revenue, GAO-12-342SP, February 28, 2012, p. 1, http://www.gao.gov/products/GAO-12-
342SP.
97 Community Development Financial Institutions Fund, Financial Resources Catalog, June 11, 2012, at
http://www.cdfifund.gov/what_we_do/resources/Financial%20Resources%20Catalogue%20PDF.pdf.
98 The Office of Management and Budget (OMB) under President George W. Bush maintained ExpectMore.gov, a
website that listed performance evaluations and issued budgetary recommendations across executive branch agencies.
OMB under President Bush implemented the Program Assessment Rating Tool (PART), as a means to assess the
effectiveness of federal programs and help inform management actions, budget requests, and legislative proposals. For
OMB’s last PART assessment of the Fund and the NMTC, see Office of Management and Budget, FY 2009 Budget
Performance: Community Development Financial Institutions Fund, pp. 15-16, at http://www.treasury.gov/about/
budget-performance/Documents/CJ%20FY09-CDFI.pdf.
99 See U.S. Congress, Senate Committee on the Budget, Tax Expenditures: Compendium of Background Material on
Individual Provisions, committee print, prepared by the Congressional Research Service, 111th Cong., 2nd sess.,
December 2010, S.Prt.111-58 (Washington: GPO, 2002), pp. 566-599.
100 Office of Management and Budget, FY 2009 Budget Performance: Community Development Financial Institutions
Fund, pp. 15-16, at http://www.treasury.gov/about/budget-performance/Documents/CJ%20FY09-CDFI.pdf.
101 U.S. Congress, House Committee on Financial Services, Community Development Financial Institutions (CDFIs):
Their Unique Role and Challenges Serving Lower-Income, Underserved, and Minority Communities, 111th Cong., 2nd
sess., March 9, 2010, 111-106 (Washington: GPO, 2010), p. 99.
Congressional Research Service
22
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
environmental, and geographic challenges. Second, Fund programs have supported alternatives to
predatory lending institutions in distressed communities—notably in tribal communities.102 Third,
some argue that the Fund’s programs complement, not compete with, the goals and programs of
other federal initiatives. For example, former-Assistant Secretary for Financial Institutions
Michael Barr testified before the House Committee on Financial Services that funding for the
Community Reinvestment Act encourages more entities to invest in CDFIs.103
In contrast to the assessment by the Bush era’s OMB, some say that the Fund provides incentives
for activity that private-sector investors would not otherwise engage in. For example, the Fund
enables more CDFIs to provide affordable, critical-gap financing for businesses.104 In other
words, the Fund encourages CDFIs to provide short-term loans to businesses or homebuyers to
cover financial obligations in the meantime, while that borrower secures sufficient funds to make
a full payment or find a more stable financing scheme. In addition, CDFIs also provide technical
assistance and training to borrowers to reduce default risk. For these reasons, some
representatives from national banking chains argue that CDFIs complement traditional banking
products in distressed communities and LICs and help these financial markets operate more
efficiently.105
Is the Fund Managed Effectively?
Concerns over the Fund’s management primarily involve questions over the transparency and
consistency of the Fund’s award evaluation processes. In March 1997, as a result of complaints
about the selection process used in the first round of grants announced in July 1996,
Representative Spencer Bachus, chairman of the General Oversight and Investigations
Subcommittee (the Subcommittee) of the House Committee on Banking and Financial Services,
requested information about management practices at the Fund from Treasury. At Chairman
Bachus’s request, the majority staff of the subcommittee published a report that reviewed the
management practices at the Fund. The majority staff report indicated that the Fund had failed to
employ an objective scoring system in selecting award winners in its first round of allocations,
and that the director and deputy director of the Fund had participated in making awards to firms
with that they had been previously associated.106 Chairman Bachus asserted that the Fund’s award
evaluation process had been politically motivated by the White House, naming Shorebank of
Chicago, Illinois, and several other community development organizations affiliated with
Shorebank among the award-recipients.107 The majority staff report also indicated that, when it
102 U.S. Congress, Senate Committee on Indian Affairs, Predatory Lending in Indian Country, 110th Cong., 2nd sess.,
June 5, 2008, 110-484 (Washington: GPO, 2008), p. 13.
103 U.S. Congress, House Committee on Financial Services, Community Development Financial Institutions (CDFIs):
Their Unique Role and Challenges Serving Lower-Income, Underserved, and Minority Communities, 111th Cong., 2nd
sess., March 9, 2010, 111-106 (Washington: GPO, 2010), p. 7.
104 Federal Reserve Bank of Richmond, “Community Development Financial Institutions: A Unique Partnership for
Banks,” Community Development Special Issue, 2011, p. 2, at http://www.richmondfed.org/community_development/
announcements/2011/pdf/cdfi-special-2011.pdf.
105 Ibid.
106 U.S. Congress, House Committee on Banking and Financial Services, Subcommittee on General Oversight and
Investigations, Review of Management Practice at the Treasury Department’s Community Development Financial
Institutions Fund, committee print, prepared by Majority Staff, 105th Cong., 2nd sess., June 1998, 105-2 (Washington:
GPO, 1998), pp. 1-9.
107 Ibid., p. (v) and 9. Note 1 on p. 9 details the majority staff’s views on the connections between Shorebank, its
affiliates, First Lady Hillary Clinton, and President Clinton.
Congressional Research Service
23
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
made its first round of awards, the Fund did not follow the recommendations of Treasury’s Office
of Inspector General (OIG) to adopt draft procedures for a numerical scoring system, a procedure
similar to that used by other federal grant programs to ensure objectivity in the review process.108
In August 1997, Treasury Secretary Robert Rubin replied to a request from Chairman Leach of
the Senate Banking Committee by providing a detailed outline of procedural and organization
reforms to be implemented by the Fund in its 1997 funding round.109 These reforms included the
development of selection criteria, a conflict of interest policy for Fund reviewers, and other tools
and procedures to encourage consistent evaluation of award applications. Secretary Rubin’s letter
also announced the resignations of the Fund’s director and deputy director. The subcommittee’s
staff conducted a review of the Fund’s second round of awards in 1997. Although the majority
staff report recommended further actions to enhance the fund’s management and review
processes, subcommittee staff concluded that the Fund “appeared to make great strides in
documenting the grant process.”110
In addition, some have expressed concern about the Fund’s ability to develop clear performance
goals. In 1998, GAO released a report on the Fund’s performance.111 GAO acknowledged that
assessing the Fund’s performance was difficult, as the Fund’s authorizing legislation provides
limited guidance for evaluating performance measures and staffing limits delayed the Fund’s
ability to develop mandated monitoring and evaluation systems.112 GAO stated that until the Fund
identifies the types of data needed to monitor and evaluate awardees and incorporates these data
needs in a formal system, it will be hampered in its ability to report on its progress toward
achieving its stated goals and objectives.113 GAO also noted that the Fund could fulfill its
strategic goal to coordinate its strategies with other Treasury bureaus and agencies with similar
missions (e.g., HUD and the SBA).114 According to GAO, interagency coordination is important
for ensuring that crosscutting programs are mutually reinforcing and efficiently implemented.
Therefore, the Fund’s strategic plan would be strengthened if it identified and incorporated some
descriptions of other agencies’ programs with similar missions and discussed their influence on
the Fund’s strategic objectives.115
Some Members of Congress have expressed concern regarding the lack of CDFIs that serve U.S.
territories and rural communities.116 However, a 2012 GAO report concluded that the policies and
108 Ibid., p. 4.
109 Ibid., p. 95.
110 Ibid., p. 96.
111 Section 112(c)(3) of the Riegle Act mandated the Comptroller General (Director of GAO) to submit to the President
and the Congress a study evaluating the structure, governance, and performance of the Fund. However, GAO, in
consultation with the four congressional committees that the report was submitted to, only examined the Fund’s
performance measures in its 1998 study, due to a concurrent audit of structure and governance issues being conducted
by Treasury’s Inspector General. See the correspondence of Judy A. England-Joseph, GAO Director of Housing and
Community Development Issues to Congressional Committees in U.S. General Accounting Office, Community
Development Financial Institutions Fund Can Improve Its Systems to Measure, Monitor, and Evaluate Awardees’
Performance, GAO/RCED-98-225, July 1998, at http://www.gao.gov/assets/160/156245.pdf.
112 Ibid., p. 6.
113 Ibid., p. 63.
114 Ibid., p. 62.
115 Ibid.
116 U.S. Congress, House Committee on Appropriations, Financial Services and General Government Appropriations
Bill, 2013, 112th Cong., 2nd sess., June 26, 2012, H.Rept. 112-550 (Washington: GPO, 2012), p. 16.
Congressional Research Service
24
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
procedures of the CDFI and NMTC Programs help ensure that awards and allocations generally
are proportionate to the numbers of qualified applicants that serve metropolitan and
nonmetropolitan areas.117 In addition, some Members of Congress have expressed interest in the
performance of CDFIs compared with their non-CDFI, peers.118
In addition, some Members of Congress have raised concerns over the use of funds from the
Troubled Asset Relief Program (TARP) for assistance to CDFIs. President Obama authorized a
program that made certified CDFIs eligible to receive capital investments at a discounted
dividend, with the intent of increasing the supply of credit to community banks.119 Some
maintained that TARP’s temporary funds were not intended to target regional banks, and the
program functionally resulted in a bypass of the typical appropriations process for the Fund.120
117 U.S. Government Accountability Office, Community Development Financial Institutions and New Markets Tax
Credit Programs in Metropolitan and Nonmetropolitan Areas, GAO-12-547R, April 26, 2012, p. 4,
http://www.gao.gov/assets/600/590432.pdf.
118 U.S. Congress, House Committee on Financial Services, Community Development Financial Institutions (CDFIs):
Their Unique Role and Challenges Serving Lower-Income, Underserved, and Minority Communities, 111th Cong., 2nd
sess., March 9, 2010, 111-106 (Washington: GPO, 2010), pp. 19 and 24.
119 U.S. Department of the Treasury, “Obama Administration Announces Enhancements for TARP Initiative for
Community Development Financial Institutions,” press release, February 3, 2010, at http://www.cdfifund.gov/docs/
2010/cdfi/Obama-Administration-Announces-Enhancements-Tarp-Initiative-for-Community-Dev-Fin-Inst.pdf.
120 U.S. Congress, House Committee on Financial Services, Community Development Financial Institutions (CDFIs):
Their Unique Role and Challenges Serving Lower-Income, Underserved, and Minority Communities, 111th Cong., 2nd
sess., March 9, 2010, 111-106 (Washington: GPO, 2010), p. 8.
Congressional Research Service
25
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Appendix A. Inactive Programs
Bank on USA Program
In his FY2011 budget request, President Obama proposed the Bank on USA program as a means
to facilitate access to, and evaluate the effectiveness of, affordable, high-quality financial
products, services, and education to unbanked and underbanked individuals.121 Title 12 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) authorized the
Fund to “encourage initiatives for financial products and services that are appropriate and
accessible for millions of Americans who are not fully incorporated into the financial
mainstream.”122
Although the President requested more than $41 million in funding for Bank on USA for FY2012
and $20 million for FY2013, Congress did not approve funding for the program.123 There was no
request for Bank on USA appropriations in the President’s FY2014 budget request.
Capital Magnet Fund
The Housing and Economic Recovery Act (HERA) of 2008 (P.L. 110-289) established the
Capital Magnet Fund (CMF) for CDFIs and other nonprofits to expand financing for the
development, rehabilitation and purchase of affordable housing and economic development
projects in distressed communities.124 Through the CMF the Fund provided competitively
awarded grants to CDFIs and qualified nonprofit housing organizations. CMF awards could be
used to finance affordable housing activities as well as related economic development activities
and community service facilities. Awardees were able to use financing tools, such as loan loss
reserves, loan funds, risk-sharing loans, and loan guarantees, to produce eligible activities whose
aggregate costs are at least 10 times the size of the award amount.125
Three types of organizations were eligible to apply for a CMF award. An organization applying
for a CMF Award had to either (1) be certified as a CDFI by the Fund; (2) have an application for
CDFI certification pending with the CDFI Fund, provided such application was submitted prior to
the due date specified in the applicable notice of funds availability; or (3) be a nonprofit
organization having as one of its principal purposes the development or management of
affordable housing.126
As authorized in HERA, CMF was to receive funding via a set-aside from government-sponsored
enterprises (GSEs), such as Fannie Mae and Freddie Mac. However, such contributions have been
121 Community Development Financial Institutions Fund, FY2013 President’s Budget Submission, , p. 9, at
http://www.treasury.gov/about/budget-performance/Documents/7%20-%20FY%202013%20CDFI%20CJ.pdf.
122 Community Development Financial Institutions Fund, FY 2013 President’s Budget Submission, p.12, at
http://www.treasury.gov/about/budget-performance/Documents/7%20-%20FY%202013%20CDFI%20CJ.pdf.
123 Ibid., p. 11.
124 Laws pertaining to the CMF are located in 46 U.S.C. §1807.
125 Community Development Financial Institutions Fund, “Capital Magnet Fund,” June 8, 2012, at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=11.
126 Ibid.
Congressional Research Service
26
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
suspended indefinitely. The GSEs never made contributions to the CMF, as was originally
expected under HERA, due to their financial condition and status under conservatorships.127
Instead, the Consolidation Appropriations Act, 2010 (P.L. 111-117) appropriated $80 million in
initial funding for the CMF for FY2010.128 Funding for the CMF was discontinued for FY2011.
The Fund awarded grants to 23 CDFIs and qualified nonprofit housing organizations serving in
FY2010.129 The Fund received a total of 230 applications requesting $1 billion for the FY2010
CMF funding round.130
Financial Education and Counseling Pilot Program
The Financial Education and Counseling (FEC) pilot program provided grants through FY2010 to
organizations that provided financial education and counseling services to prospective
homebuyers. The goals of the FEC pilot program were to increase the financial knowledge and
decision-making capabilities of prospective homebuyers, assist prospective buyers to plan for
major purchases, and provide information on how to improve credit scores. Certified CDFIs, a
HUD-approved housing counseling agency, credit union, or government entity could request FEC
funding for administrative expenses for FEC-related programs.131
Section 1132 of HERA of 2008 (P.L. 110-289) authorized the Secretary of the Treasury to create
FEC pilot programs. For FY2009, Congress appropriated $2 million to the Fund for the FEC
program.132 Treasury selected five organizations to receive $400,000 for their services toward the
mission of the program.133 In FY2010, Congress appropriated $4.15 million, of which $3.15
million was designated for an eligible organization in Hawaii.134
A 2011 GAO report concluded that Treasury’s process for selecting FEC grantees was applied
consistently using established criteria. In 2010, the four grantees served a combined total of 311
127 U.S. Congress, House Committee on Financial Services, Subcommittee on Capital Markets and Government
Sponsored Enterprises, Transparency, Transition, and Taxpayer Protection: More Steps to End the GSE Bailout, 112th
Cong., 1st sess., May 25, 2011, 112-33 (Washington: GPO, 2011), p. 10.
128 Department of the Treasury, Community Development Financial Institutions Fund - Agency Financial Report FY
2011, November 16, 2011, p. 8, at http://www.cdfifund.gov/news_events/
CDFI%20Fund%20FY%202011%20Agency%20Financial%20Report%20FINAL%2011%2016%2011.pdf.
129 U.S. Department of the Treasury, Community Development Financial Institutions Fund: Agency Financial Report
FY 2012, November 2011, at http://www.cdfifund.gov/news_events/
CDFI%20Fund%20FY%202011%20Agency%20Financial%20Report%20FINAL%2011%2016%2011.pdf.
130 Department of the Treasury, Community Development Financial Institutions Fund - Agency Financial Report FY
2011, November 16, 2011, p. 30, at http://www.cdfifund.gov/news_events/
CDFI%20Fund%20FY%202011%20Agency%20Financial%20Report%20FINAL%2011%2016%2011.pdf.
131 For further details about the objective and eligibility criteria of the FEC pilot program, see Community
Development Financial Institutions Fund, “Financial Education and Counseling Pilot Program,” June 5, 2012, at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=8.
132 U.S. Department of Treasury Office of Inspector General, Audit of the Community Development Financial
Institutions Fund’s Fiscal Years 2010 and 2009 Financial Statements, Department of the Treasury, OIG-11-024,
November 15, 2010, at http://www.treasury.gov/about/organizational-structure/ig/Documents/
oig11024%20%28CDFI%20Financials%20FY%2010%29.pdf.
133 U.S. Government Accountability Office, Financial Education and Counseling, GAO-11-737R, July 27, 2011, p. 2,
at http://www.gao.gov/new.items/d11737r.pdf.
134 Ibid.
Congressional Research Service
27
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
clients.135 However, GAO could not meaningfully assess the impact of the program or the
effectiveness of individual grantees because grantees had been providing services under the FEC
program for less than a year.136
135 According to the 2011 GAO report, one grantee, the New Hampshire Housing Finance Authority, used their FEC
award to develop an interactive financial education website that had not been launched when GAO reports were due.
136 Ibid.
Congressional Research Service
28
Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issue
Appendix B. Certified Native CDFIs
Table B-1. Certified Native CDFIs, by State
State
Certified Native CDFIs
Hawaii 11
Oklahoma 10
Alaska 6
Arizona 6
South Dakota
6
Minnesota 5
Montana 4
California 3
Colorado 3
New Mexico
3
Washington 3
Wisconsin 3
Michigan 2
North Carolina
2
Maine 1
Mississippi 1
North Dakota
1
Oregon 1
Wyoming
1
Total
72
Source: Community Development Financial Institutions Fund, http://www.cdfifund.gov/docs/certification/cdfi/
CDFI%20List%20-%2007-31-12.xls
Note: CDFI counts are as of July 31, 2012.
Author Contact Information
Sean Lowry
Analyst in Public Finance
slowry@crs.loc.gov, 7-9154
Congressional Research Service
29