CDFI Fund At Risk of Federal Funding Cuts
Across the country, low-income individuals and families lack access to financial products and services that are necessary to achieve economic security. Increasing the availability of things like bank accounts, mortgages for first-time homebuyers, and seed money for people who want to start a small business is vital to ensuring that everyone has the opportunity to thrive. Without these banking solutions, families, neighborhoods, and the economy all suffer.
A lack of access to basic financial tools is not a new issue. In 1977, Congress attempted to address these inequalities when it passed the Community Reinvestment Act, which encouraged financial institutions to help meet the banking needs of the communities in which they work. Around the same time, Community Development Financial Institutions (CDFIs) began bridging gaps in areas that are often difficult for traditional financial institutions to serve, providing affordable and responsible credit and capital in minority and economically distressed communities.
Over the past 4 decades, CDFIs, which include banks, credit unions, loan funds, microloan funds, and venture capital providers, have vastly increased their impact and ability to foster economic opportunity and revitalize neighborhoods. Today, CDFIs are a key component of the financial services industry, meeting the needs of communities across the country.
One of the reasons CDFIs have been able to grow and meet the evolving needs of the communities they serve is the CDFI Fund. CDFIs are a great example of a public-private partnership, as most get their capital from private investors, while the CDFI Fund works to both foster their creation and expand their capacity. As the CDFI Fund has grown, it has also worked to leverage more sophisticated financial mechanisms, like tax credits, to support community development. Since its inception in 1994, the CDFI Fund has awarded more than $2 billion to CDFIs and allocated $50.5 billion in New Markets Tax Credits, making it one of the best federal resources for generating economic growth.
Unfortunately, in this tough budget year, the CDFI Fund has been targeted for cuts. The current continuing resolution that funds the government expires on December 8, and while Congress has yet to pass funding legislation for FY18, the House approved its FY18 Appropriations bill, which reduced the CDFI Fund's budget from its FY17 funding level of $248 million to $190 million, a decrease of 23 percent. The Senate has not yet released its proposed funding levels for the CDFI Fund, but the topline spending numbers for the Senate’s Financial Services and General Government (FSGG) account, which houses the CDFI Fund, are lower than last year, meaning the CDFI Fund is likely to see a cut in that chamber as well.
Drastic decreases to the CDFI Fund’s budget would be a major blow to the low-income communities who are most in need of capital. For more information on the important work of CDFIs and the CDFI Fund, and what you can do to advocate for this vital program, follow our blog or visit ofn.org.