Buried deep in President Trump’s federal budget proposal is a zeroing out of money for the Community Development Financial Institutions Fund. It barely registers in the grand scheme of the government budget, but cutting it puts a dagger in the heart of a highly successful effort to provide credit to struggling small towns and communities across America–the very places the president says he wants to help.
It’s no surprise if you’ve never heard of a CDFI. They are small nonprofit financial institutions whose mission is to make loans in distressed rural and urban areas. CDFIs go where banks and other private financial institutions simply won’t go because the costs are too high and the returns too low for them to bother. There are lots of these places across the country.
Small businesses, developers of affordable housing and other properties, charter schools, health centers and grocery stores are among the beneficiaries of these loans. Reinvestment Fund, our CDFI, makes loans mostly in the Northeast and South, but there are over 1,000 CDFIs, and they operate in every corner of the country.
To be clear, while CDFIs are growing, they still need support from taxpayers to be truly effective. The CDFI fund makes grants and equity investments to CDFIs. The CDFIs match these contributions dollar-for-dollar with their own funds. This capital seeds a substantial amount of lending. Just last year, CDFIs received just over $200 million from the CDFI Fund and supercharged that money ten-fold into over $2 billion in investments and loans in areas across the country that have been economically left behind.
Consider Honor Capital, a veteran-owned and operated business, which sought to open a grocery store in the rural community of Winfield, Kansas. It was Reinvestment Fund that provided the capital and expertise needed, working with the South Central Kansas Economic Development District and Crowley County to get the store open. New jobs were created and the community had access to healthier food.
CDFIs also rely on New Market Tax Credits to further lower borrowing costs in distressed communities. These credits attract private capital into low-income communities by permitting individual and corporate investors to receive a credit against their federal income tax in exchange for equity investments in CDFIs. These tax credits are similar to those the President used in some of his own real estate developments.
But CDFIs are coming of age. Reinvestment Fund recently issued a general obligation bond to private investors. We needed the capital because we have outgrown the capacity of the banks to provide funding. It’s one of the first for a CDFI, and builds on the 20-year foundation of public sector support and financing for CDFIs. We are now joining other nonprofits that regularly issue bonds, including universities, hospitals, and state housing finance authorities that are critically vital to their communities.
This is no time for the Trump administration to step away from CDFIs. They meet the gold standard of how private capital can partner with public support to make a difference in communities that have been left behind. They empower cities and local governments throughout the country to make better development decisions, and they enjoy broad bipartisan support. It would be wrong-headed that just as CDFIs are finding new sources of private capital, the federal government pulls the public out of these public-private partnerships.
John Summers, Esq. is Chair of the Litigation Department of Hangley Aronchick Segal Pudlin & Schiller and Reinvestment Fund’s Board Chair.
Mark Zandi is Chief Economist, Moody’s Analytics and Reinvestment Fund’s Board Vice-Chair.