CDFIs+Trump: Now What?

Since Tuesday, I have heard from CDFI leaders sorting through what the election of President Trump along with a Republican Congress will mean for the CDFI Fund and CDFIs in general. Many people–including me–start with a general concern about federal policy broadly.

I do not know any more than everyone else so I have been reflecting on the last five Presidential Administrations and CDFIs, looking for lessons. (Others who worked through the same transitions might add additional thoughts.)

Today I told one CDFI CEO, who was struggling to tell his staff what to expect, that the only message I know is that CDFIs have succeeded because we bring people together who otherwise might not work together, and so they need to know that their work is probably more important than ever. For what that’s worth today.

The CDFI industry as we have come to know it rose up in the early and mid-1980s in large part because of Reagan Administration attacks on the social safety net. In particular, Reagan cut support for housing for people with mental health issues and those living on the housing edge for other reasons. There was a surge of homeless people.

The CDFI Fund was a product of the 1992 election of Bill Clinton. He was drawn to the concept by a combination of his exposure to the South Shore Bank model as it was being tried in Arkansas as Southern Development Bank (Hillary Clinton was on the Southern Board in the 1980s). He was also a fan of the emerging microenterprise practice coming out of the work of Grameen Bank in Bangladesh.

President-elect Clinton set out to create 100 community development banks and 1,000 microcredit organizations. The story of how the Fund became what it did, supporting the full range of CDFI types, has a few versions (I will tell mine in the book I am finishing now and that I hope will be out in early 2017.) In short, Cliff Rosenthal of the National Federation of Community Development Credit Unions and Martin Paul Trimble of the then-named National Association of Community Development Loan Funds (now OFN) convened a meeting in Washington, DC, on–I think–November 21, 1992, to form The CDFI Coalition.

Starting from a paper Rosenthal had written in the mid-1980s proposing a National Community Bank modeled on the National Coop Bank and a concept paper Trimble wrote at the request of the John D. and Catherine T. MacArthur Foundation, that founding group produced, Principles of Community Development Lending & Proposal for Key Federal Support, and it won the day. It took a lot of determination and luck to get the paper into the right hands, but when President-elect Clinton started using language from the paper in interviews, CDFIs knew they had a shot.

Because President Clinton took the CDFI Fund under his wing, doubling down late in his Administration with New Markets Tax Credits, the CDFI Fund was a target for the George W. Bush Administration, which tried for five or six years to de-fund it. Congress kept it funded, with determined advocacy by the CDFI industry.

A turning point came in 2005, when Bush advisor Karl Rove floated the idea of consolidating the Fund and many other community and economic development programs into a block grant program. The Strengthening America’s Community Initiative, or SACI, as it was named, would have reduced funding overall by about 30%, put all the programs into the Department of Commerce, and allocated funding to states as block grants for distribution as governors saw fit. Inside the White House, I was told, the program was known as the Strangling America’s Community Initiative.

I thought that Mayors and others who stood to lose more than the CDFI industry would rise up and lead an effort to stop SACI. Instead, they all sought to extract their individual programs from the bundle. As CDFIs, we had little leverage, so we circulated to the Mayors, community advocacy groups, and others a sign-on letter that received hundreds of signatures.

The White House backed down and dropped SACI. CDFIs won a lot of attention from influential partners and potential allies. That has helped CDFI advocacy since.

The Obama Administration has been a steadfast supporter, of course, and created a sense of stability at the Fund. In addition, over the past eight years, the Fund has expanded and enriched many programs, while Congress has increased funding. Support for CDFIs grew during the Great Recession, of course, through programs ranging the Community Development Capital Initiative for community development credit unions and banks, the Small Business Loan Fund for community development loan funds, the CDFI Bond Guarantee Program, and the State Small Business Credit Initiative, among other new resources across government.

Now what?

CDFIs have done a great job since 2001, when the Bush Administration took office, building bipartisan support that could provide a measure of insulation from budget cutting in the Trump Administration. Expect cuts, but perhaps not deep cuts. That’s if things in Washington go as expected. Of course, nothing political has gone as expected this year, so the CDFI industry can not just cross its fingers.

The threat to CDFI programs is great, and the risk that other parts of the federal government (particularly HUD) will be under attack is greater, I would think. The Consumer Financial Protection Bureau will almost certainly be in the crosshairs. Bank regulation is likely to ease if not reverse, Fannie Mae and Freddie Mac will be at risk, and federal appetite for new community development opportunities will be slim to none, trending toward none.

The next chapter–the one about CDFIs under the Trump Administration–is being written now.

I would love to share news of organizing efforts to fend off the threats, and I hope to support the best of them. All suggestions and comments are welcome.

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