February 3, 2022

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Dear Senator Leahy, Senator Shelby, Representative DeLauro, and Representative Granger:

Thank you to the members of the House and Senate for recognizing the value of the Community Development Financial Institutions (CDFI) Fund Program. Increased funding levels reflected in the House Appropriations Committee’s Fiscal Year 2022 (FY22) Financial Services and General Government (FSGG) bill passed earlier this year and, in the Senate’s FY22 FSGG draft bill, demonstrate a commitment to continue strong support of this program and extend its impact.

CEO Action for Racial Equity is a Fellowship of over 100 companies that mobilizes a community of business leaders with diverse expertise across multiple industries and geographies to advance public policy in four key areas — healthcare, education, economic empowerment, and public safety. Its mission is to identify, develop and promote scalable and sustainable public policies and corporate engagement strategies that will address systemic racism, social injustice and improve societal well-being.

We write to specifically encourage you to:

• Approve the Senate’s increase in the CDFI Fund’s budget to $360 million for FY22. Approving the increase will allow CDFIs to continue their mission-driven work by increasing the amount of Financial Assistance (FA) and Technical Assistance (TA) awards they disburse to small businesses and customers. An increase of $50.4 million (from FY2021) to the CDFI Program will result in larger FA awards increasing the number of business and microenterprise loans, home improvement and purchase loans, residential real estate transactions, and other consumer loans and products offered by CDFI awardees. This increase would also support small and/or emerging community development FA applicants and provide more funding for capacity building grants through the TA component[i]. According to U.S. Treasury Secretary Janet Yellen, every dollar injected into a CDFI catalyzes eight more dollars in private-sector investment[ii] – meaning the increase of $50.4 million for the CDFI Program may lead to an additional $403.2 million in private investments for the communities served by CDFIs.
• Maintain bond guarantee program authority. The bond guarantee program provides long term, low-cost capital for CDFIs to extend credit for large scale community revitalization projects. These projects include activities such as the development of small businesses, commercial real estate, housing units, shelters, charter schools, daycares, or healthcare centers[iii]. It can also be used as secondary capital to refinance existing loans at below-market interest rates to help people who have been targets of predatory lending.
• Set aside 10% of CDFI Program Fund for CDFIs with limited assets. Implement set-aside of CDFI Program Funding in FY23 for CDFIs with limited assets (those under $71 million).While CDFI Fund awardees have increased over time, the funding has not been equitably distributed. According to the CDFI Fund’s most recent Institutional Level Report (2017), minority-led CDFIs constitute a small portion of CDFI Fund awardees. Only 84, or 26%, of the 315 CDFIs that received CDFI Fund awards were minority-led or controlled. Conversely, white-led CDFIs represented 66% of CDFI Fund awardees[iv]. Every year, the median asset size of white-owned awardees has been at least twice the median asset size of minority-owned awardees, and in some years, the median asset size was three times as high[v]. Setting aside a percentage of CDFI Program funding, specifically, for CDFIs with less than $71 million in assets could address the asset gap and stagnant growth for minority-led CDFIs. This action will attract capital to support growth and market expansions, enhance their technology, market their products and services, and meet the credit needs of many communities.

Expanding economic opportunity through CDFIs is among the Fellowship’s main areas of focus. We are pursuing policies that help address the gaps in financial inclusion through CDFIs. The policies outlined above will help support CDFI capacity and ability to expand financial inclusion, bring more people into mainstream financial services, and provide access to CDFIs for the 23 million Black Americans who are unbanked and underbanked[vi]. Overall, the Federal Reserve estimates there are 55 million unbanked or underbanked adult Americans, which account for 22 percent of U.S. households[vii].

CDFIs play an essential role in economic empowerment and reducing the racial wealth gap. Nearly two-thirds of CDFI customers are people of color, and 84% are low-income households.[viii] CDFIs’ core mission of providing financial products and services to people and communities in low-income neighborhoods and where mainstream financial services are not available is critical to expanding economic empowerment and reducing the racial wealth gap.

COVID-19 highlighted the importance of CDFIs to families, small businesses, and the communities they serve. According to the CDFI Fund’s Agency Financial Report Fiscal Year 2020, CDFI Program award recipients originated more than one million loans and investments, in excess of $25.4 million: financing more than 41,000 units of affordable housing and funding more than 87,000 businesses[ix].

Since the origination of the CDFI Fund in 1994, the federal government has continued to support CDFIs and their core mission. We appreciate your leadership in advancing transformational and sustainable economic opportunity legislation.

Sincerely,

CEO Action for Racial Equity

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Citations

[i] U.S. Department of the Treasury Community Development Financial Institution Funds. (2021). Congressional Budget Justification and Annual Performance Plan and Report for FY 2022. Department of Treasury. Retrieved on August 1, 2021, from https://home.treasury.gov/system/files/266/12.-CDFI-FY-2022-CJ.pdf

[ii] U.S. Department of the Treasury. (2021, June 15). U.S. Treasury Awards $1.25 Billion to CDFIs to Support Economic Relief in Underserved Communities Affected by COVID-19 [Press release]. https://home.treasury.gov/news/press-releases/jy0228

[iii] CDFI Fund. (2021). CDFI Bond Guarantee Program Fact Sheet. CDFI Fund. Retrieved on August 1, 2021, from https://www.cdfifund.gov/sites/cdfi/files/documents/cdfi-bond-guarantee-program-fact-sheet-(english)-12march2020.pdf

[iv] Hope Policy Institute. (2021, April 21). Closing the CDFI Asset Gap. Retrieved January 5, 2021, from http://hopepolicy.org/blog/closing-the-cdfi-asset-gap/

• For FY2014, 10 minority-led CDFIs, 5 white-led CDIs, and 9 CDFIs with no ownership information did not report total assets. For FY2017, 4 minority-led CDFIs and 11 CDFIs with no ownership information did not report total assets

[v] Hope Policy Institute. (2021, April 21). Closing the CDFI Asset Gap. Retrieved January 5, 2021, from http://hopepolicy.org/blog/closing-the-cdfi-asset-gap/

[vi] Board of Governors of the Federal Reserve System. (2019, June 5). Report on the Economic Well-Being of U.S. Households in 2018 – May 2019. https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-banking-and-credit.htm

[vii] Opportunity Financial Network. (2019). Fiscal Year 2019 Statistical Highlights from the OFN Membership. OFN. Retrieved on August 31, 2021, from https://cdn.ofn.org/s3fs-public/inside_the_membership_fy2019_official.pdf

[viii] Community Development Financial Institutions (CDFI) Fund. (2020, November). Agency Financial Report Fiscal Year 2020. Department of Treasury. Retrieved from https://www.cdfifund.gov/sites/cdfi/files/2021-04/CDFI_FY20_AFR_508_Compliant.pdf

[ix] Federal Deposit Insurance Corporation, Apaam, G., Burhouse, S., Chu, K., Fritzdixon, K., Goodstein, R., Lloro, A., Opoku, C., Osaki, Y., Sharma, D., & Weinstein, J. (2018, October). 2017 FDIC National Survey of Unbanked and Underbanked Households. https://www.fdic.gov/analysis/household-survey/2017/2017report.pdf