What’s a CDFI to do? Make Some Noise

The CDFI industry response so far to the 2016 elections is surprisingly quiet.

In conversations with industry leaders and reports I have heard, I detect little or no apparent urgency in response to the probability that the 2016 elections pose an existential threat to programs CDFIs value and rely on. More important, there is no common or coordinated strategy. As the Trump Administration takes form and Congressional committees take shape, an assertive stance now would pay dividends later.

Whether the threat to fiscal and tax policy poses a serious danger to CDFIs and the CDFI industry depends on how CDFIs respond in practice and in policy. And whether they respond soon enough. That is a lesson the industry learned in 1992 (creation of the CDFI Fund), 1995 (attempts to defund the Fund), 2001 (the Clinton>Bush transition), 2005 (the Bush effort to strangle community development programs government-wide, and 2008-2009 (the response to the Great Recession).

More and more CDFI industry leaders I talk to seem to think that CDFIs might be off the radar screen if not the chopping block. I would not bet on either.

The major risk factors today are not visible but increasingly they are obvious. President-elect Trump and his campaign have said nothing about CDFIs, and they are unlikely to say anything now. Republican Congressional leaders are comparably quiet.

More and more CDFI industry leaders I talk to seem to think that CDFIs might be off the radar screen if not the chopping block. I would not bet on either.

One layer below the surface, there is plenty of cause for concern.

Start with the named Director of the Office of Management and Budget (OMB), Rep. Mick Mulvaney (R-SC), a Freedom Caucus leader who represents the far right fiscal wing of the Tea Party. He will enter his office swinging a broad scythe through federal spending, leaving no program unchallenged. Do not expect trade-offs, compromises, or nuance.

Secretary of the Treasury-designate Michael Mnuchin’s business experience—as the owner of OneWest Bank, best known for using leveraging resources to facilitate predatory mortgage lending, should not make CDFIs sleep well at night. He’s not a “borrower-first” kind of guy, it seems.

Dr. Ben Carson as Secretary of Housing and Urban Development-designate is dispiriting. As hard as it is to do a good job running anything (let alone an embattled federal agency charged with doing some of the least popular jobs in Washington), putting someone who disqualified himself in charge of HUD should cause fear about unintended as well as intended outcomes.

Cuts in corporate tax rates, which seem very likely in 2017, will reduce demand for tax credits of all kinds, including Low Income, New Markets, and Historic, though the impact may not be the same for all credits. Simplification of the tax code may matter as much, if not more. When a billionaire President-elect’s philanthropy is best known for its chicanery and Republican eyes seem to look down their noses at nonprofit organizations that rely on—God forbid!—subsidy, the charitable deduction is not safe.

The Consumer Financial Protections Bureau (CFPB) has always been in the Republican crosshairs. Aside from ensuring riveting drama involving Senator Elizabeth Warren versus all Republican (and maybe some Democratic) opponents of the CFPB, the agency now is the flag-bearer for opposition to financial institution overreach. Consumer protection (in the form of the CFPB and all it has encouraged) has supplanted community development as the front line of advocacy for under-served and under-resourced communities and people.

If the CFPB goes down—or more likely is re-formed into an ineffective Commission—what or who will represent the people and places that CDFIs serve?

Or this: What impact will repeal of the Affordable Care Act have on the people and communities that CDFIs serve, not to mention on CDFIs financing community health centers and other health-related deals? At best, the ACA will be in turmoil, creating uncertainty (and therefore reluctance) among investors.

CDFI-related gains of the past eight and the past 20-plus years may not get a lot of Twitter attention from the President-elect, but that should not encourage confidence.

What former-developer President does not harbor a measure of resentment to anyone he perceives as interfering with his achievements? Or favoring other approaches over his? Sometimes that means enmity toward financiers, sometimes residents or occupants, and always the government. From his first housing deal, now well documented for its racial discrimination, Trump showed disdain for fair housing policies. I would not expect him to embrace programs, policies, or any other form of action that would favor opportunities of the sorts that CDFIs live for.

Despite all that, I do not think the primary threat comes from the Trump Administration.

Representative Jed Hensarling (R-TX) will return to the Chair the House Financial Services Committee with possibly unfettered opportunities to undermine the Community Reinvestment Act (CRA), the CDFI Fund, the Capital Magnet Fund, the State Small Business Credit Initiative, and other CDFI industry mainstays. In past years, his opposition to CDFI Fund appropriations—to name just one object of his disrespect—has been a primary concern for CDFI industry advocates.

Why would CDFIs expect now—with a Republican-controlled Congress and a Trump White House—that he would change his intention of eliminating the CDFI Fund? There is nothing to stop him in 2017 from wiping CRA off the books, as well. If there is a silver lining, it is that Hensarling plans to take on Dodd-Frank financial system regulation first, and that could take a while and so give CDFI and CRA advocates time to get organized.

Introducing legislation to repeal CRA in 2010, Hensarling described it as, “a costly and redundant anachronism that has contributed to our economic crisis and still enables certain activist groups to essentially shake down financial institutions, harming credit and job opportunities for all Americans.”

Did you miss the subtlety in that statement? No? That’s because there is none.

Hensarling has not said much publicly about CDFIs. In a 2010 hearing by the Financial Services Committee on the CDFI Fund, he did not criticize the Fund—but that’s because he did not show up. In fact, the hearing was sparsely attended, leading then-Chairman Barney Frank (D-MA) to joke, “This is a hearing that is mostly about pretty good news, so that is why not many people are here.”

Underlying at least some Republican opposition to the Fund, even after years of reasonable bipartisan support for appropriations, is the memory that the CDFI Fund was a prized program of President Bill Clinton.

Representative Spencer Bachus (R-AL), then the ranking Republican on the Committee and no friend of the Fund, responded quickly that his investigation of alleged wrongdoing at the Fund in the 1990s had led the resignation of the Fund’s two senior officials (not true, but that’s another matter). “While I am confident that the fund is now being operated in a far more professional and transparent manner than was the case back then, I still have concerns about the program’s effectiveness….”

Underlying at least some Republican opposition to the Fund, even after years of bipartisan support for appropriations, is the memory that the CDFI Fund was a prized program of President Bill Clinton. That alone—in a year when Republicans drew on decades-old anti-Clinton animosity to defeat Secretary Hillary Clinton—should ensure that Republican in Congress will put the Fund on the chopping block.

CDFIs are responding, so far, in at least five overlapping ways:

  • Some are crossing their fingers and hoping that Washington’s proven ability to moderate extremes, coupled with a history of bipartisan support in a bipartisan setting, will save the day. That could happen, but remember that the town is Republican-controlled now with little substantive opposition.
  • Some are setting out for Washington, DC, to take the temperature there and look for a narrative that might work in this new, uncharted environment. A new narrative is possible but will not be easy for CDFI advocates who have, as a group, limited experience at it. CDFI advocacy has coasted for too many years. Still, the industry’s best points are CDFI presence in every state and almost every congressional district, their corporate partners (who are not likely to spend much political capital fighting this fight), and their results, if they can present them well enough.
  • National organizations, including the CDFI Coalition and Opportunity Finance Network, are gearing up for a Spring offensive, while CDFI leaders are nervously wondering if that will be enough. That is necessary, to be sure, but is it sufficient?
  • Some, but apparently not most, CDFIs are aggressively probing business-model options, product innovations, and restructurings that might enhance their resilience in hard times; that’s always a smart exercise and it remains to be seen how many CDFIs can succeed at it.
  • And many CDFIs seem to be waiting to see, either because the election results have not yet sunk in or because they lack historical perspective, business management experience, or political insight.

It is a mistake to wait to see if things are going to be okay or get better. Donald Trump did not win a mandate for much in particular, but he can legitimately claim a mandate for change, more change, and substnative change. No one should underestimate his willingness to go off the rails; no one watching his transition and top-level political appointments can reasonably think that he has not already done that.

Most important, CDFIs need to acknowledge and respond to the threat implicit in a Trump presidency and a Republican Congress.

CDFIs can push back and win this fight if they move immediately, adapt their strategy, and mobilize their civic and business allies.

First of all, Trump is unpredictable. That could help CDFIs. Last Friday he reportedly surprised the US Conference of Mayors when he agreed to continue tax-exempt bond financing. Is it impossible that he would find CDFIs interesting, perhaps even good?

Second, CDFIs may, indeed, be too “small” to show up on the Trump radar screen. They fall below the “yuge” standard, to be sure.

Third,  individual Department Secretaries may find CDFIs useful—at Treasury, of course, but perhaps at HUD, Agriculture, and other agencies–as CDFIs can address an expanding range of policy needs. To the extent Cabinet Secretaries balance their orders to cut government with a sense of responsibility to get something done, particularly when resources are tight, CDFIs could shine.

Fourth, perhaps the Republican side of the bipartisan congressional coalition that has been good for CDFI-centered programs will hold. That may depend on which Senator and Congressperson sits in which seat on key appropriations committees. That is one thing that CDFI advocates in Washington are monitoring closely, I’m sure.

And some individual Senators and Members of Congress are true believers in CDFIs. Supporting their leadership may be essential.

What it means for CDFIs is that they need to do more than advocate in DC or plan more ribbon cuttings with elected officials. Both are necessary, but in 2017 not sufficient.

CDFIs need to organize… as in community organizing. They used to be good at that–in 1992, 1995, 2000, and 2005, in particular–and we will find out in 2017 whether they still are.

Case in point: In 1995, Senator Jesse Helms (R-NC), a model for today’s most ardent anti-government, anti-justice political leaders, tried to defund the CDFI Fund through a surprise amendment on the Senate floor. The CDFI industry had less than 24 hours notice and responded quickly and forcefully, bombarding Helms’s office with calls from a bipartisan group of CDFI borrowers, affordable housing residents, business owners, business employees, local elected officials, and others.

CDFIs need to organize, as in community organizing. They used to be good at that, and we will find out in 2017 whether they still are.

Helms pulled his amendment, and I got a call from his legislative director. “Who the hell are you guys?” he wanted to know. “I have never heard of The CDFI Coalition.” Helms’s office got flooded with calls opposing the amendment, concerning and confusing them, and they backed off.

All is not lost. Not yet, anyway. To go forward, the CDFI industry needs to look backward—In 2017, it’s time to organize like it’s 1995.





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