CDFI Fund Advisory Board Meeting Updates

Today money+purpose is monitoring the CDFI Fund’s Advisory Board meeting in Washington, DC. Look for news updates during the day.

One Big Takeaway from the Day: From Secretary Mnuchin through senior Treasury staff to Advisory Board Meetings, the day was upbeat and positive. The CDFI Fund’s bipartisan appeal seems to continue at a steady pace, even as tax policy and, so, fiscal policy are chaotic.

Treasury Secretary Steve Mnuchin is scheduled to deliver comments soon.

Annie Donovan, CDFI Fund Director, noted that all of the Members of the CDFI Fund Advisory Board are new this year. Here is a list of the current Membership.

Assistant Secretary Chris Campbell welcome the audience and introduced the Secretary with warm words about the importance of The CDFI Fund.

Secretary Mnuchin’s comments briefly described the roles that CDFIs play in financing and development services. His characterization was true to CDFIs, if brief and unenthusiastic. He offered no comments about the fate of the Fund or the Administration’s support for it.

Shane Jett of Citizen Potawatomi Community Development Corporation was elected Chair of Advisory Board.

Donovan’s Director’s Report spotlights industry growth to more than $135 billion and CDFI Fund certification to approximately 1,100 CDFIs.

Key aggregate CDFI Fund production numbers:

  • More than $2.2 billion awarded through core Financial Assistance programs
  • More than $500 million awarded under the Bank Enterprise Assistance program
  • $50.5 billion issued in New Markets Tax Credits
  • $1.4 billion in CDFI Bond Guarantee allocations to 26 CDFIs

In addition, Donovan noted, the current (3rd) round of the Capital Magnet Fund has more than $550 million in demand from 122 applicants (both CDFIs and housing developers are eligible).

Looking ahead at 2018, Donovan started with a promise that the Fund will continue to “maximize performance, efficiency, and program results.” Sounds like a nod to the business-oriented mindset at Treasury.

She also announced plans to “update criteria and modernize” CDFI certification, acknowledging that the financial sector has changed in significant ways since the Fund was created in 1994. Long controversial, CDFI Fund certification criteria will deserve careful industry attention.

Program Updates

The Fund will open the fiscal 2018 funding round for the Financial Assistance and Technical Assistance programs in “early 2018” with no significant changes from fiscal 2017.

The Fund will continue its 2017 emphasis on impacts and outcomes, requiring applicants again to commit to at least one of the following: Increasing volume of financing, Introducing a new product or service, Entering a new geography, or Serving a new targeted population.

In response to a question about the challenge of matching CDFI Fund awards, CDFI Fund staff says that reducing the average award size last year helped ameliorate the challenge. There is an active debate within the CDFI industry about the Fund’s trend toward more, smaller awards. The Fund reaches more CDFIs and possibly more places–and so builds its political base, along the way. On the other hand, as CDFIs have grown the relative size of awards compared to CDFI asset sizes and lending volume is shrinking. Without a significant increase in CDFI Fund appropriations, CDFI industry growth will slow.

Bank Enterprise Awards Program

The Fund is getting ready to evaluate the fiscal 2017 Bank Enterprise Award applications, due by November 30th, with $23 million available. It expects to announce awards in early 2018.

The 2018 round will open in early summer 2018 without any significant changes, the Fund staff reports.

BEA has been very effective at attracting non-CDFI banks investing in CDFIs, as well as recognizing CDFI banks, the Fund emphasized.

Pressed on how minority-owned banks fared under BEA, CDFI Fund staff said 19% of the fiscal 2016 awardees were minority-owned. Minority-owned banks have had “a very high rate of success,” Director Donovan said.

The conversation around the purpose and functions of BEA led to a history lesson. Fund staff pointed out that the original program incented large banks, and over time the Fund has shifted priority to encouraging smaller banks. The original BEA program was inserted into the CDFI Act by then-Congressman Reverend Floyd Flake (D-NY), who had previously authored a similar law (that never got funded) with former Congressman Tom Ridge (R-PA). Flake believed that President Clinton had promised to fund BEA, but the Clinton team disagreed. When Flake won support for BEA, the CDFI Act nearly died in Congress.

Notably, Flake later became a vocal supporter of the CDFI Fund in Congress and as a pastor after he left Congress. Ridge took his support for CDFIs with him when he won election as Governor of Pennsylvania; he led the effort to create the Pennsylvania CDFI Bank program, arguably the most effective state CDFI program ever.

New Markets Tax Credits

In NMTC’s history, the Fund has made 1,032 awards totaling $50.5 billion, based on a total of 3,481 applications requesting $315.5 billion. Approximately 30% of applications were selected.

In the current round, totaling $3.5 billion in available allocations, the Fund received 230 applications for $16.2 billion. It expects to award 70-75 allocations at an average size of approximately $50 million.

Donovan notes that the statute creating the NMTC does not encourage capacity building for smaller organizations seeking to participate in contrast to the CDFI Act, which explicitly directs the Fund to build the field. As a result, she and others noted, it is difficult for new applicants and smaller organizations to compete successfully.

The Board’s conversation veered toward the “underrepresented geographic areas” and the need to increase access and awareness. CDFI Fund staff pointed out that the Fund’s new priority goals include expanding coverage.

CDFI Bond Guarantee Program

Advisory Board Members pushed the CDFI Fund Staff on the flexibility of Bond Guarantee funds, including use as capital for minority-owned and other CDFI banks. In addition, Board Members asked about the need to increase CDFI demand for the program.

Staff emphasized the constraints that the Bond Guarantee statute puts on the program.

Research

Data about BEA shows a trend of BEA Awards going to smaller banks and CDFI banks. The explanation offered to explain the trend is that there were few–only three–CDFI banks when the program started. That number is correct, but the explanation is not. The statutory purpose of BEA was to incent big banks to invest in under-resourced markets. To its credit, the CDFI Fund leadership over multiple Administrations has transformed how BEA works.

Here’s a new number I had not heard before: Every $1 in BEA Awards results in $17 in new investments. Additional commentary: BEA-related activity goes beyond more traditional Community Reinvestment Act-related activity and is, presumably, higher impact. The implication is that the 17X multiplier understates the value that BEA Awards create.

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