Community Development Financial
Institutions (CDFI) Fund:
Programs and Policy Issues

Sean Lowry
Analyst in Public Finance
December 29, 2014
Congressional Research Service
7-5700
www.crs.gov
R42770


Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues

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 (CDFI 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 CDFI 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 CDFI 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 and
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 contend that the fund is fulfilling its mission and achieving its performance measures.
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Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues

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
Capital Magnet Fund ............................................................................................................... 17
Policy Considerations .................................................................................................................... 18
How Effective Are Geographically Targeted Economic Development Policies? .................... 19
Should Economic Development Policies Target Capital or Labor? ........................................ 22
Do the Fund’s Programs Duplicate Other Government Efforts? ............................................. 23
Is the Fund Managed Effectively? ........................................................................................... 24

Figures
Figure 1. Certified CDFIs, by Location ........................................................................................... 5
Figure 2. Certified Community Development Entities (CDEs), by Location .................................. 6

Tables
Table 1. Community Development Financial Institutions (CDFI) Fund Programs
Funding, FY2012 to FY2015 ........................................................................................................ 3
Table B-1. Certified Native CDFIs, by State ................................................................................. 29

Appendixes
Appendix A. Inactive Programs ..................................................................................................... 27
Appendix B. Certified Native CDFIs ............................................................................................ 29

Contacts
Author Contact Information........................................................................................................... 29
Congressional Research Service

Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues

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, and
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 opportunities for new
facilities development financing.
entrepreneurs to establish a business, existing

Community development venture capital funds are for-
businesses to expand and hire new workers,
profit or nonprofit institutions that deliver equity
and consumers to acquire the credit they need
capital to businesses in distressed communities.
to 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 (CDFI Fund’s) history,
organizations.
current appropriations, and each of its
Source: Federal Reserve Bank of Richmond,
programs. The next section of the report
“Community Development Financial Institutions: A
analyzes four policy considerations of
Unique Partnership for Banks,” Community Development
congressional interest regarding the fund and
Special Issue, 2011.
the effective use of 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 in
encouraging economic activity to relocate to underdeveloped communities, and which policies
are more successful in addressing aspects of underdevelopment. Lastly, this report examines the
CDFI 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.
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Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues

The Riegle Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325)
established the CDFI 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
Although the Riegle Act created the CDFI Fund as a wholly owned, independent government
corporation, a supplemental appropriations bill moved the fund into the Department of the
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 CDFI 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 there are no limits on the length of the director’s term. Annie Donovan has been
director of the fund since December 2014.7
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 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 See U.S. Department of the Treasury, “U.S. Treasury Department Announces New Director of the Community
Development Financial Institutions Fund,” press release, November 25, 2014, at http://www.treasury.gov/press-center/
press-releases/Pages/jl9709.aspx.
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Although the CDFI 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 fund’s administration,
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 FY2015 is $230.5 million.9 Of
this $230.5 million, 66% ($152.4 million) is appropriated for the fund’s core CDFI financial and
technical assistance programs; 10% ($23.1 million) is appropriated for administration of the
fund’s programs, including the NMTC; 8% ($18.0 million) is appropriated for the Bank
Enterprise Award (BEA) program; and the remaining 16% ($37.0 million) is appropriated for set-
asides for other specific programs.
Table 1. Community Development Financial Institutions (CDFI) Fund
Programs Funding, FY2012 to FY2015
(in millions of dollars)
Budget Activity
FY2012
FY2013
FY2014
FY2015
CDFI Program
146.0
138.4
146.4
152.4
Administration 23.0
21.8
24.6
23.1
Healthy Food Financing Initiative
22.0
20.8
22.0
22.0
Bank Enterprise Award Program
18.0
17.1
18.0
18.0
Native American CDFI Assistance
12.0
11.4
15.0
15.0
Total Budget Authority
221.0
209.4
226.0
230.5
Sources: Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235); 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.

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.
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CDFI and CDE Certification
To be eligible for certain CDFI 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 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 a
governing or advisory board or through outreach activities; and
• be a nongovernment entity and not under the control of any government entity
(except tribal governments).10

10 U.S. Government Accountability Office (GAO), 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.
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Figure 1. Certified CDFIs, by Location

Source: Community Development Financial Institutions Fund, at http://www.cdfifund.gov/docs/2014/Cert/
CDFI%20List%2010-31-14.xls.
Note: CDFI counts are as of October 31, 2014.
As of October 31, 2014, there were 923 certified CDFIs (up from 887, as of July 31, 2014).11 As
shown in Figure 1, at least one CDFI is located in each of the 50 states, the District of Columbia,
Guam, and Puerto Rico. California and New York contain more certified CDFIs than any other
U.S. state or territory. Of the 923 certified CDFIs, 502 (54%) are loan funds, 241 (26%) are credit
unions, 108 (12%) are banks or thrifts, 58 (6%) are depository institution holding companies, and
14 (2%) are venture capital funds.12 Of the 923 certified CDFIs, 71 (8%) are certified Native
American CDFIs.
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

11 For a list of these certified CDFIs with their contact information, see Community Development Financial Institutions
(CDFI) Fund, “CDFI Certification,” at http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=9.
12 CRS analysis of certified CDFI data in http://www.cdfifund.gov/docs/2014/Cert/CDFI%20List%2010-31-14.xls.
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• be a legal entity and a domestic corporation or partnership for federal tax
purposes;
• 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 a
governing or advisory board.13
Figure 2. Certified Community Development Entities (CDEs), by Location

Source: Data previously posted on the CDFI Fund website.
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.14 As shown in Figure 2,
California and New York also contain more certified CDEs than any other U.S. state or territory.

13 Ibid.
14 The CDFI Fund has not updated its public counts of certified community development entities (CDEs) since this date
and has removed the spreadsheet of certified CDEs from its website.
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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 low-income and distressed communities. 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.15
All of the fund’s programs 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.16 Despite
bipartisan support for these policies at the time, they were not widely implemented at the federal
level until the Clinton Administration.17
CDFI Program
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) authorized
the fund’s core CDFI program. 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 to serve low-income people and communities that lack access to affordable
financial products and services.18
To be eligible for an FA award, a CDFI must be certified by the fund before it applies for the
award. Prospective applicants that are not yet certified must submit a separate certification
application to be considered for an FA award during a funding round. Both certified and
noncertified CDFIs are eligible to apply for TA awards. However, noncertified organizations must
be able to become certified within two years after receiving a TA award.
In evaluating and selecting applicants for awards, the fund evaluates the applicant’s likelihood of
meeting its goals as described in a required comprehensive business plan. The fund also considers
the applicant’s prior history of servicing distressed communities, operational capacity, financial
track record, and other attributes.19

15 12 C.F.R. §1805.401.
16 For a historical analysis of these debates, see the discussion section of CRS Report R41268, Small Business
Administration HUBZone Program
, by Robert Jay Dilger.
17 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).
18 Laws pertaining to the CDFI Fund’s financial assistance (FA) and technical assistance (TA) are located in 46 U.S.C.
§§1805.300-1805.303.
19 12 C.F.R. §1805.701.
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Activities eligible for program awards must
target a distressed community, which is
Minimum Requirements for
defined by two requirements. First, the
Meeting the CDFI Program’s
community (investment area) must meet
Definition of a Distressed Community
minimum area requirements. The community

A contiguous area located with a unit of general
must be a continuous area of general local
local government that has a population, as
government that (1) has a population of at
determined by the most recent census data
least 4,000, if located in a metropolitan
available, of at least 4,000, if any of the portion of
statistical area; (2) has a population of at least
the area is located with a metropolitan area with a
population of 50,000; has a population of at least
1,000, in nonmetropolitan areas; or (3) is
1,000 in any other case; or is located entirely within
located entirely within an Indian reservation.20
an Indian reservation.

At least 30% of the eligible residents have incomes
Second, at least 30% of eligible residents in
that are less than the national poverty level, as
the community must have incomes that are
published by the U.S. Bureau of the Census in the
less than the national poverty level, as
most recent decennial census for which data is
published by the U.S. Bureau of the Census,
available; the unemployment rate is at least 1.5
and the community must have an
times greater than the national average, as
determined by the U.S. Bureau of Labor Statistics’
unemployment rate that is at least 1.5 times
(BLS’s) most recent data, including estimates of
greater than the national average, as
unemployment developed using the BLS’s Census
determined by the U.S. Bureau of Labor
Share calculation method.
Statistics’ most recent data. In addition, the

Such additional requirements as may be specified by
CDFI Fund may specify other requirements in
the CDFI Fund in the applicable notice of funds
a program’s applicable notice of funds
availability.
availability (NOFA).21 The fund’s online
Source: 12 C.F.R. §1806.200(b).
resource, CDFI Fund Mapping System
(CIMS), designates which localities either fully qualify or partially qualify as distressed
communities, based on the three criteria.22
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 none of the geographic units has a poverty rate less than 20%.23
The fund makes awards up to $2 million to certified CDFIs under the FA component of the CDFI
program.24 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;

20 12 C.F.R. §1806.200(b)(1).
21 12 C.F.R. §1806.200(b)(2).
22 CDFI Fund, “Community Development Financial Institutions Fund Mapping System (CIMS),” December 3, 2008, at
http://www.cdfifund.gov/what_we_do/mapping.asp.
23 12 C.F.R. §1806.200(c).
24 CDFI Fund, “Community Development Financial Institutions Program,” August 6, 2012, at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programid=7.
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• 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.25
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.26 TA grants may be used for a variety of purposes, including
• purchasing equipment, materials, or supplies;
• procuring for consulting or contracting services;
• paying the salaries and benefits of certain personnel;
• training staff or board members; and
• conducting other activities deemed appropriate by the fund.27
FA and TA awards are both generally subject to two restrictions. First, the CDFI Fund typically
requires an applicant to demonstrate that it can match from a nonfederal source, dollar-for-dollar,
the amount of money that it is 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.28 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.29
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)
waived the nonfederal, dollar-for-dollar matching requirement for three years.30 Thus, the fund
did not require awards in FY2009, FY2010, and FY2011 to be matched by nonfederal sources.31
The matching requirement returned for awards in FY2012 for fund programs that did not receive

25 12 C.F.R. §1805.301.
26 Ibid.
27 12 C.F.R. §1805.303.
28 12 C.F.R. §1805.501.
29 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 in which there are no other applicants for awards. These
exceptions to the $5 million cap are detailed in 12 C.F.R. §§1805.402(b)-(c).
30 American Recovery and Reinvestment Act of 2009 (P.L. 111-5), 123 Stat. 148.
31 Ibid.
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a congressional wavier.32 ARRA also waived the $5 million cap for FY2009, FY2010, and
FY2011.33
The fund reported that it awarded 133 FA awards and 22 TA awards totaling $160.8 million in
FY2014.34
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 CDFUI 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.35
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).36
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:37
certified Native CDFIs, organizations that direct at least 50% of their activities
toward serving Native Communities;
emerging Native CDFIs, organizations that demonstrate to the satisfaction of the
fund that they have a plan to achieve Native CDFI certification within a
reasonable timeframe; or

32 For FY2012 funding rounds, Congress waived the matching funds requirement for Small and Emerging CDFI
Assistance (SECA) program applicants and FA applicants for the Native American CDFI Assistance (NACA) program.
See CDFI 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.
33 See Catalog of Federal Domestic Assistance, “Community Development Financial Institutions Program,” program
information, at https://www.cfda.gov/?s=program&mode=form&tab=step1&id=
18dd106bf98422454e41f434ed2856d8.
34 CDFI Fund, “CDFI Program Award Book, FY2014,” at http://www.cdfifund.gov/docs/2014/CDFI/
2014%20CDFI%20Program%20Award%20Book.pdf.
35 P.L. 103-325, Section 117(c).
36 For the results of this study, see CDFI Fund, The Report of the Native American Lending Study, November 2001, at
http://www.cdfifund.gov/docs/2001_nacta_lending_study.pdf.
37 CDFI Fund, “Native American Initiatives Program,” at http://www.cdfifund.gov/what_we_do/programs_id.asp?
programid=3.
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• sponsoring entities, organizations (typically tribes or tribal entities) that pledge to
create separate legal entities that will eventually become certified as Native
CDFIs.
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 it had financial holdings
below certain caps (based on the respective type of financial institution) or if it began operations
after January 1, 2011.38
Awards provided through the SECA application are subject to caps. 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 $125,000 in TA funds for
capacity-building activities.39
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.40 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,
involving Treasury, the U.S. Department of Agriculture (USDA), and the U.S. Department of
Health and Human Services (HHS).41 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-

38 For regulations, see Department of the Treasury, “Notice of Funds Availability (NOFA) Inviting Applications for the
Community Development Financial Institutions Program (CDFI Program) FY 2015 Funding Round (FY 2015 Funding
Round),” 79 FR 58404 Federal Register 58404 - 58416, September 29, 2014.
39 Ibid.
40 CDFI Fund, “Capacity Building Initiative,” March 25, 2010, at http://www.cdfifund.gov/what_we_do/
programs_id.asp?programID=13.
41 CDFI 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.
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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 12 HFFI awards (totaling $22.4 million) in FY2014.42
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.43 The NMTC is a nonrefundable tax credit intended to encourage qualified investment
groups to support CDEs that operate in eligible LICs.44 Although the NMTC is credited through
the federal tax code, the CDFI 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.45 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.46
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) a median family income below 80% of the greater of the
statewide or metropolitan area median family income if the LIC is located in a metropolitan area;
or (3) a median family income below 80% of the median statewide family income if the LIC is
located outside a metropolitan area. As defined by these criteria, about 39% of the nation’s census
tracts covering nearly 36% of the U.S. population are eligible for the NMTC.47 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.48
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

42 CDFI Fund, “CDFI Program Award Book, FY2014,” at http://www.cdfifund.gov/docs/2014/CDFI/
2014%20CDFI%20Program%20Award%20Book.pdf.
43 GAO, 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.
44 A nonrefundable tax credit, like the New Markets Tax Credit (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.
45 Laws pertaining to the NMTC are located in 26 U.S.C. §45D.
46 For more details on the NMTC, see CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J.
Marples and Sean Lowry.
47 CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean Lowry.
48 Ibid.
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CDE.49 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 Tax Increase Prevention Act of 2014 (P.L. 113-295)
extended the NMTC through 2014 at $3.5 billion. The NMTC expired at the end of 2014 along
with dozens of other temporary “tax extender” provisions.50
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.51 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.52 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.53 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.54
In addition, GAO reports have focused on the NMTC’s complex application and administration
and 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.55 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

49 If an investor does not have a tax liability, then the investor would not benefit from the nonrefundable NMTC.
50 See CRS Report R43541, Recently Expired Community Assistance Related Tax Provisions (“Tax Extenders”): In
Brief
, by Sean Lowry; and CRS Report R43124, Expired and Expiring Temporary Tax Provisions (“Tax Extenders”),
by Molly F. Sherlock.
51 GAO, 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.
52 GAO, 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.
53 GAO, 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.
54 GAO, 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/590/588978.pdf.
55 See GAO, 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.
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businesses in impoverished LICs.56 In a 2014 report, GAO found that the financial structures of
NMTC investments have become more complex and less transparent over time.57 The complexity
is due, in part, to combining financing from multiple sources (including multiple government-
based development incentives) and can sometimes lead to higher fees or interest rates charged by
CDEs.58
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 awards applicants based on their plans for the future.59
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.60
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.

56 GAO, 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.
57 GAO, Better Controls and Data Are Needed to Ensure Effectiveness, GAO-14-500, July 2014, at
http://www.gao.gov/products/GAO-14-500.
58 Ibid., p.20.
59 The CDFI Fund publishes a more in-depth account of its Bank Enterprise Award (BEA) application evaluation
process regularly in the program’s notice of funds availability. For example, see 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 37742-37749, June
22, 2012.
60 CDFI 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.
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Service activities include the provision of financial services (e.g., check-cashing
or money order services, electronic transfer accounts, and individual
development accounts).61
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.62 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.63
The President did not recommend funding for the BEA program for FY2015.64 However, the
Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235) appropriated $18.0
million for the BEA program for FY2015.
According to a GAO report, the fund’s authorizing statute places no restrictions on how BEA
recipients may use their award.65 In this same report, the fund agreed with GAO’s interpretation
of its authorizing statute.66 However, the fund changed the terms of the program’s award
agreements in 2009.67 Recipients must now use the award, or an amount equivalent to the award
amount, for BEA-qualified activities in a distressed community.68 This change in the BEA
program generated public requests for the fund to provide further guidance on an awardee’s
reporting requirements.69 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.
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

61 12 C.F.R. §1806.101(3)(c).
62 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.
63 Ibid.
64 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 CDFI 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.
65 GAO, 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.
66 Ibid., p. 28.
67 Department of the Treasury, “Community Development Financial Institutions Fund 12 CFR Part 1806,” 74 Federal
Register
5790, January 30, 2009.
68 12 C.F.R. §1806.101(c).
69 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.
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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.70 Each of
GAO’s five case study banks also reported using its award money to expand its existing
investments in community development.71 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 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.72 Treasury disputed GAO’s findings and questioned GAO’s methodology in
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, 2010.73 The CDFI Fund’s Bond Guarantee program is designed to provide a low-
cost source of long-term, patient capital to CDFIs.74 Treasury may guarantee 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.75 Treasury guarantees
the full amount of notes or bonds issued to support CDFIs that make investments for eligible
community or economic development purposes.76
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).77
By legislative design, the Bond Guarantee program is a zero-subsidy credit program and does not
require annual appropriations funding. Because the bonds will be guaranteed by the United
States, in accordance with federal credit policy, the Federal Financing Bank (FFB), a U.S.
government corporation under the general supervision and direction of Treasury, will purchase

70 Ibid.
71 Ibid., p. 54.
72 See GAO, 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.
73 Laws pertaining to the CDFI Fund’s Bond Guarantee program are located in 12 U.S.C. §4713a.
74 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.
75 CDFI Fund, “CDFI Bond Guarantee Program,” at http://www.cdfifund.gov/what_we_do/programs_id.asp?
programID=14.
76 Ibid.
77 Ibid.
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the bonds issued by qualified issuers.78 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 requested that
Congress reauthorize the Bond Guarantee program for an additional year (through FY2015).79
The Consolidated and Further Continuing Appropriations Act, 2015 (P.L. 113-235) limited the
total loan principal for the Bond Guarantee program in FY2015 to $750 million.
The fund announced recipients of bond guarantees totaling $525 million for FY2014.80
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.81 Through the CMF, the CDFI 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.82
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 CDFI 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.83
As authorized in HERA, the CMF was to receive funding via a set-aside from government-
sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. However, such contributions

78 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.
79 Ibid.
80 See U.S. Department of the Treasury, “U.S. Treasury provides $325 million in bond guarantees for investment in
underserved communities,” press release, August 20, 2014, at http://www.cdfifund.gov/news_events/
US_Treasury_Provides_$325_Million_in_Bond_Guarantees_for_Investments_in_Underserved_Communities.pdf; and
CDFI Fund, “Treasury Guarantees Additional $200 Million in Bond Funding for Nationwide Community and
Economic Development Projects,” press release, October 2, 2014, at http://www.cdfifund.gov/news_events/CDFI-
2014-42-
Treasury_Guarantees_Additional_$200_Million_in_Bond_Funding_for_Nationwide_Community_and_Economic_Dev
elopment_Projects.asp.
81 Laws pertaining to the Capital Magnet Fund (CMF) are located in 46 U.S.C. §1807.
82 CDFI Fund, “Capital Magnet Fund,” June 8, 2012, at http://www.cdfifund.gov/what_we_do/programs_id.asp?
programID=11.
83 Ibid.
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have been 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.84 Instead, the Consolidation Appropriations Act, 2010 (P.L. 111-117)
appropriated $80 million in initial funding for the CMF for FY2010.85
Funding for the CMF was discontinued for FY2011, and contributions from the GSEs remained
suspended. In 2014, a group of 33 Senators and a group of 78 Representatives sent letters to Mel
Watt, director of the Federal Housing Finance Agency (FHFA), asking that the FHFA cease its
suspension of contributions to the CMF (issued when Fannie Mae and Freddie Mac entered into
conservatorship).86 On December 11, 2014, Director Watt sent letters to the GSEs instructing
them to begin making their first-ever financial contributions to the CMF.87
The CDFI Fund awarded grants to 23 CDFIs and qualified nonprofit housing organizations
serving in FY2010.88 It received a total of 230 applications requesting $1 billion for the FY2010
CMF funding round.89 In March 2014, the CDFI Fund released an impact assessment report for
the CMF’s initial investments.90
Policy Considerations
This section analyzes four policy considerations that may generate congressional attention
regarding the CDFI 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
examines the debate on targeting economic development policies toward labor or capital. Third, it
analyzes whether the fund plays a unique role in promoting economic development or whether 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.

84 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.
85 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.
86 See Letter from Senator Jack Reed et al. to Mel Watt, director of the Federal Housing Finance Agency, January 1,
2014, at http://www.reed.senate.gov/news/releases/33-us-senators-urge-fhfa-to-revisit-affordable-rental-housing; and
letter from Representative Keith Ellison et al. to The Honorable Mel Watt, Director of the Federal Housing Finance
Agency, July 21, 2014, at http://nlihc.org/sites/default/files/CMF_letter_to_Mel_Watt.pdf.
87 See Federal Housing Finance Agency (FHFA), “FHFA Statement on the Housing Trust Fund and Capital Magnet
Fund,” press release, December 11, 2014, at http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Statement-on-the-
Housing-Trust-Fund-and-Capital-Magnet-Fund.aspx; and for more information, see CRS Report IN10201, Fannie Mae
and Freddie Mac to Begin Contributions to Affordable Housing Funds
, by Katie Jones.
88 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.
89 U.S. 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.
90 CDFI Fund, “CDFI Fund Releases Interim Impact Assessment for Capital Magnet Fund,” March 24, 2014, at
http://www.cdfifund.gov/news_events/CDFI-2014-06-
CDFI_Fund_Releases_Interim_Impact_Assessment_for_Capital_Magnet_Fund.asp.
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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 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 result in net social loss of
efficiency—where finite resources are not being used to produce their maximum output for the
lowest cost.91 Economic theory indicates that these policies create a distortion in the market, such
that resources are directed from an area of higher potential productivity to an area of lower
potential productivity.92
However, government policy may be economically justified if business investment in distressed
communities would generate positive externalities.93 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 that success 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.94 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,

91 Economists typically view the most efficient means of production as the one that provides the most benefit at the
lowest cost.
92 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.
93 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).
94 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.
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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 such policies facilitate
entrepreneurship and increase employment in the targeted area.95 John Ham et al. find that an
empowerment zone designation reduces local unemployment and poverty rates by 8.7% and
8.8%, respectively, whereas an enterprise zone designation reduces local unemployment and
poverty rates by 2.6% and 20%, respectively.96 Leslie 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.97 Barry Rubin and Margaret 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.98 Assuming
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.99
By contrast, other evaluations indicate that these policies have little effect on economic activity
within the targeted area or that 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.100 For example, Andrew Hanson and Shawn Rohlin indicate that

95 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.
96 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.
97 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.
98 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.
99 Rubin and Wilder’s cost estimates are among the lowest in the literature. In Helen 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.
100 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.
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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.101
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, Tami Gurley-Calvez et al. find that the NMTC may have led to an increase in corporate
investment within the targeted areas but that it did not lead to a net increase in corporate
investment.102 These authors conclude that the NMTC might encourage investment to shift from
one LIC to another close substitute, as some corporate investors might already be investing in
LICs to fulfill Community Reinvestment Act requirements.103
The effect of geographically targeted economic development policies on local property prices is
also an area of contention among researchers.104 From a theoretical perspective, government
incentives to increase the supply of affordable property increase the demand for that property.
That greater 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.105
Given the lack of consensus among researchers on the effectiveness of geographically targeted
economic policies, policy makers may opt to more narrowly define the primary 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 government assistance should 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.

101 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.
102 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.
103 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.
104 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.
105 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.
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Should Economic Development Policies Target Capital or Labor?
Assuming geographically targeted policies can positively affect economic development within the
intended community, 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 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 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 that 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.106 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. Timothy 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

106 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.
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target area.107 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 ranges 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?
Legislative interest in identifying duplicative federal programs has grown as some Members of
Congress have become concerned about the size or efficient management of federal budgetary
resources. GAO defines duplicative programs as federal programs that overlap with the goals or
activities of other federal, state, or local policies.108
Some say 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.109 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 the fund’s core CDFI
program was not unique because several states administer similar programs and CDFIs can use
private-sector equity investment to accomplish activities they would otherwise accomplish with
the fund’s awards.110
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.111 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.112

107 Bartik (1992).
108 GAO, 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.
109 CDFI Fund, Financial Resources Catalog, June 11, 2012, at http://www.cdfifund.gov/what_we_do/resources/
Financial%20Resources%20Catalogue%20PDF.pdf.
110 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 CDFI 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.
111 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.
112 Office of Management and Budget, FY 2009 Budget Performance: Community Development Financial Institutions
(continued...)
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However, others believe 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.113 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, environmental, and geographic
challenges. Second, fund programs have supported alternatives to predatory lending institutions
in distressed communities—notably in tribal communities.114 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.115
In contrast to the assessment by the Bush era’s OMB, some say 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.116 In other
words, the fund encourages CDFIs to provide short-term loans to businesses or homebuyers to
cover immediate financial obligations while that borrower secures sufficient funds to make a full
payment or find a more stable financing scheme. In addition, CDFIs 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.117
Is the Fund Managed Effectively?
Concerns over the CDFI 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 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

(...continued)
Fund, pp. 15-16, at http://www.treasury.gov/about/budget-performance/Documents/CJ%20FY09-CDFI.pdf.
113 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.
114 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.
115 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.
116 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.
117 Ibid.
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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 which
they had been previously associated.118 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.119 The majority staff report also indicated that, when it
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.120
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.121 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.”122
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.123 GAO acknowledged that
assessing the fund’s performance was difficult because 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.124 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.125 GAO also noted that the fund could fulfill its strategic
goal to coordinate its strategies with other Treasury bureaus and agencies with similar missions

118 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.
119 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.
120 Ibid., p. 4.
121 Ibid., p. 95.
122 Ibid., p. 96.
123 Section 112(c)(3) of the Riegle Act mandated the Comptroller General (Director of GAO) to submit to the President
and Congress a study evaluating the structure, governance, and performance of the CDFI Fund. However, GAO, in
consultation with the four congressional committees to which the report was submitted, 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.
124 Ibid., p. 6.
125 Ibid., p. 63.
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(e.g., HUD and the SBA).126 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.127
Some Members of Congress have expressed concern regarding the lack of CDFIs that serve U.S.
territories and rural communities.128 However, a 2012 GAO report concluded that the policies and
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.129 In addition, some Members of Congress have expressed interest in the
performance of CDFIs compared with their non-CDFI peers.130
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.131 Some
maintained that TARP’s temporary funds were not intended to target regional banks and that the
program functionally resulted in a bypass of the typical appropriations process for the fund.132

126 Ibid., p. 62.
127 Ibid.
128 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.
129 GAO, 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.
130 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.
131 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.
132 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.
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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.133 Title 12 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) authorized the
Community Development Financial Institutions (CDFI) 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.”134
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.135 There was no
request for Bank on USA appropriations in the President’s FY2014 budget request.
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
Housing and Urban Development-approved housing counseling agency, credit union, or
government entity could request FEC funding for administrative expenses for FEC-related
programs.136
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 CDFI Fund for the
FEC program.137 Treasury selected five organizations to receive $400,000 for their services

133 CDFI Fund, FY2013 President’s Budget Submission, p. 9, at http://www.treasury.gov/about/budget-performance/
Documents/7%20-%20FY%202013%20CDFI%20CJ.pdf.
134 CDFI 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.
135 Ibid., p. 11.
136 For further details about the objective and eligibility criteria of the Financial Education and Counseling (FEC) pilot
program, see CDFI Fund, “Financial Education and Counseling Pilot Program,” June 5, 2012, at
http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=8.
137 U.S. Department of the 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.
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toward the mission of the program.138 In FY2010, Congress appropriated $4.15 million, of which
$3.15 million was designated for an eligible organization in Hawaii.139
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
clients.140 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.141

138 GAO, Financial Education and Counseling, GAO-11-737R, July 27, 2011, p. 2, at http://www.gao.gov/new.items/
d11737r.pdf.
139 Ibid.
140 According to the 2011 GAO report, one grantee, the New Hampshire Housing Finance Authority, used its FEC
award to develop an interactive financial education website that had not been launched when GAO reports were due.
141 Ibid.
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Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues

Appendix B. Certified Native CDFIs
Table B-1. Certified Native CDFIs, by State
State
Certified Native CDFIs
Hawaii 8
Oklahoma 8
Arizona 6
New Mexico
5
South Dakota
5
Alaska 4
California 4
Minnesota 4
Montana 4
Washington 4
Wisconsin 4
Colorado 3
Michigan 3
North Dakota
2
Maine 1
Mississippi 1
Nebraska 1
New York
1
North Carolina
1
Oregon 1
Wyoming 1
Total 71
Source: Community Development Financial Institutions (CDFI) Fund, at http://www.cdfifund.gov/docs/2014/
Cert/CDFI%20List%2010-31-14.xls.
Note: CDFI counts are as of October 31, 2014.

Author Contact Information

Sean Lowry

Analyst in Public Finance
slowry@crs.loc.gov, 7-9154


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