On July 31, 1996, just before dusk, I was driving down a dirt road to make a phone call. My family and I were on vacation in Ruidoso, New Mexico, and the CDFI Fund had announced earlier that day the first-ever round of financial awards. I did not have a cell phones then, though they would not have mattered. There is no cell reception in Eagle Creek Canyon, where we were staying.
The first round announcements were a big deal because the Fund was no longer just an idea. Since November 1992, when Bill Clinton’s election opened the possibility that there might be a federal program to support CDFIs (though we did not yet call them CDFIs) through the enactment of the law creating the Fund in September 1994, the idea of federal investments in CDFIs on CDFI-friendly terms seemed impossible. When Republicans took control of the House of Representatives in the November 1994 elections, killing the CDFI Fund was a priority. Speaker Newt Gingrich targeted it, President Bill Clinton defended it, and it survived.So we knew the Fund would make at least one round of funding–the 1996 round of some $36 million–but no one was naive enough to expect it to survive long. That made it all the more important for CDFIs to get the money while they could. The CDFI industry had done okay before there was a CDFI Fund, and everyone knew it would be fine after there was a CDFI Fund.
So we knew the Fund would make at least one round of funding–the 1996 round of some $36 million–but no one was naive enough to expect it to survive long. That made it all the more important for CDFIs to get the money while they could. The CDFI industry had done okay before there was a CDFI Fund, and everyone knew it would be fine after there was a CDFI Fund.
Most people thought the bulk of the $36 million would go to Shorebank, Southern Development Bank, and community development credit unions. The President had favored them, the White House staff preferred them, and the legislation seemed most friendly to them. Community development loan funds expected to pick up crumbs.
As Executive Director at the time of the National Association of Community Development Loan Funds (NACDLF), I struggled to resist the hope that loan funds would do better than expected. I chose not to cut my vacation short to go back East for the Awards announcement.
Instead, I arranged for Margaret Lehr Whitford, who ran NACDLF’s financing program at the time, to leave a voice recording for me listing the awards. The phone nearest to the cabin was at a gas station about three miles–and 40 minutes drive along a rutty dirt road–down the canyon. My wife and I had agreed that I would not bring my disappointment back to the cabin–she urged me to go for a long drive in the New Mexico mountains, maybe to get a bite to eat, before I returned. Jennifer told me later that she was prepared to cut the vacation short if the news was too bad; by the time I made the call, she was wondering whether to pack up.
The news was very good for loan funds and disappointing for community development banks and credit unions. A lot of CDFI leaders were confused and many were angry, and no one knew if there would ever be another CDFI Fund round.
Now, twenty-one years later, CDFI Fund Awards are essential to many CDFIs’s operations. For some CDFIs, CDFI Fund decisions can make or break a year.
That’s a problem we had tried to prevent.
For the first few years of the Funds’ operations, FA awards were highly competitive, the process was a mystery, and no one could count on success. After a decade or so–after the CDFI industry beat back the Bush Administration’s defunding efforts by building a bipartisan base of support–CDFI attitudes and assumptions changed.
It started to be a problem first for small and mid-sized CDFIs that depended on CDFI Fund grant support, often in the riskiest way–by budgeting CDFI awards for core operating support.
It has spread as a problem. More CDFIs of all sizes think of CDFI Fund awards–including New Markets and CDFI Bond Guarantee Program decisions–as buffers on fundraising shortfalls, although the Fund to its credit has put a limit on that.In the early 1990s, in industry discussions about how the CDFI Fund should–and should not–function, leading voices called for an emphasis on “equity” investments (grants and investments) into CDFIs so that CDFIs never grew addicted to federal support.
In the early 1990s, as industry leaders helped shape the CDFI Fund’s programs and processes, they focused on “equity” investments (grants and investments) into CDFIs so that CDFIs would never get addicted to federal support.
In its best form–as in core Financial Assistance Awards into equity–federal money (like most sources) is great. CDFI Fund Awards are the primary driver of industry growth from about $2 billion in 1995 to more than $130 billion today.
The challenge is that advocating for CDFI Fund support in Congress often requires informal (and formal) agreements to increase CDFI focus on one area or activity or another–rural CDFIs, for example, or small-dollar consumer loans. There is always merit in the influence that these conversations have.
But how much influence is too much? When do CDFIs cede independence and slip gradually down the slippery slope of reliance on a source of funding? How do a funder’s priorities–even the federal government’s priorities–re-frame a CDFI’s focus? When do CDFIs begin to think of the CDFI Fund (or any other federal source of money) as their focal point instead of the people and communities CDFIs mean to serve?
When does supporting CDFI-centered policy come at too high a cost?
As intermediaries, CDFIs need to serve two groups of customers–the sources of their capital and the users of it. The best CDFIs serve just one purpose, though, and that always comes from the people, businesses, and leaders in their communities. Their challenge is to make their sources of capital fit their customers.
We all know that, and most CDFIs try to work that way.
Yet the most compelling force today bringing CDFIs together around a common goal is preserving funding for The CDFI Fund and other federal programs.
Driving along Eagle Creek back up to the cabin 21 years ago today, I did not see that coming. I should have, but I was thinking about something else–it was my birthday and I was going home to celebrate.