As communities face a variety of economic challenges, some are
looking to local banks and financial institutions for solutions
that address the specific development needs of low-income and
distressed communities. Community development financial
institutions (CDFIs) provide financial products and services, such
as mortgage financing for homebuyers and not-for-profit developers,
underwriting and risk capital for community facilities; technical
assistance; and commercial loans and investments to small,
start-up, or expanding businesses. CDFIs include regulated
institutions, such as community development banks and credit
unions, and non-regulated institutions, such as loan and venture
capital funds. The Community Development Financial Institutions
Fund (the Fund), an agency within the Department of the Treasury,
administers several programs that encourage the role of CDFIs, and
similar organizations, in community development. Nearly 1,000
financial institutions located throughout all 50 states are
eligible for the Fund's programs to provide financial and technical
assistance to meet the needs of businesses, homebuyers, community
developers, and investors in distressed communities. In addition,
the Fund allocates the New Markets Tax Credit to more than 5,000
eligible investment vehicles in low-income communities (LICs). This
report begins by describing the Fund's history, current
appropriations, and each of its programs. A description of the
Fund's process of certifying certain financial institutions to be
eligible for the Fund's program awards follows. The next section
provides an overview of each program's purpose, use of award
proceeds, eligibility criteria, and relevant issues for Congress.
The final section analyzes four policy considerations of
congressional interest, regarding the Fund and the effective use of
federal resources to promote economic development. First, it
analyzes the debate on targeting development assistance toward
particular geographic areas or low-income individuals generally.
Prior research indicates that geographically targeted assistance,
like the Fund's programs, may increase economic activity in the
targeted place or area. However, this increase may be due to a
shift in activity from an area not eligible for assistance. Second,
it analyzes the debate over targeting economic development policies
toward labor or capital. The Fund's programs primarily rely on the
latter, such as encouraging lending to small businesses, rather
than targeting labor, such as wage subsidies. Research indicates
the benefits of policies that reduce capital costs in a targeted
place may not be passed on to local laborers, in the form of higher
wages or increased employment. Third, it examines whether the Fund
plays a unique role in promoting economic development, or if it
duplicates, compliments, or competes with the goals and activities
of other federal, state, and local programs. Although CDFIs are
eligible for other federal assistance programs and other agencies
have a similar mission as the Fund, the Fund's programs have a
particular emphasis on encouraging private investment and building
the capacity of private financial entities to enhance local
economic development Fourth, it examines assessments of the Fund's
management. Some argue that the Fund's programs are not managed in
an effective manner and are not held to appropriate performance
measures. Others argue that the Fund is fulfilling its mission and
achieving its performance measures.
General
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