Introduction
Thank you, Ron, for your kind introduction. It is a pleasure to be here again this year. And what a year it has been! But before I share with you some of the highlights at the CDFI Fund this past year and a little bit about where we are and where we are going, let me first thank you. Thank you for your tireless efforts to educate and advocate on behalf of the New Markets Tax Credit Program, and for your hard work and commitment to serving low-income people and communities across the nation.
As you probably know, the CDFI Fund is celebrating its 15th anniversary. Fifteen years ago, on September 23, 1994, Congress created the CDFI Fund to promote economic revitalization and community development in our nation's underserved communities.
Since then, we have helped to build a nationwide network of Community Development Entities (CDEs) and CDFIs and have awarded $26 billion in allocation authority through the New Markets Tax Credit Program. We also have awarded over $1.2 billion to CDFIs, community development organizations, and financial institutions through our CDFI Program, Native Initiatives, and Bank Enterprise Award Program. And through these awards over the last 15 years, and into the future, our beacon continues to be a vision of an America in which all people have access to affordable credit, capital, and financial services, and we look forward to continuing to work with you to make that vision a reality.
2009 in Review
Since we were last gathered here in 2008, the economic crisis has presented extraordinary challenges to the Community Development Finance industry. These sweeping economic and financial developments call on us to think deeply and strategically about our industry's direction. Your willingness to face these challenges head on, to understand, and to navigate as skillfully and effectively as possible - speaks volumes about this industry's resilience, your commitment, and your creativity. And all of us at the CDFI Fund appreciate this and thank you.
Today I would like to offer a few thoughts about the past year. I do not want to minimize the challenges confronting the Community Development Finance industry in the wake of the economic downturn, but I know we will come out on the other side of these challenges for the better.
As you know, over the past year and a half, there has been a serious contraction of credit within the mainstream community. With investors pulling back and traditional lenders unable to meet the demand, CDEs and CDFIs have stepped forward, offering their ideas and best practices, and demonstrating that investing in low-income communities and lending to low-income people can result in positive change for these communities and for the bottom line, even in these difficult times.
The role of the CDFI Fund was given a great boost by the arrival of the new Administration in January. President Obama views the Community Development Finance industry as a key part of his strategy to address the economic crisis, and Congress and the Administration have taken major steps to expand our mission and impact.
The first of these steps was the passage of the American Recovery and Reinvestment Act on February 17, 2009. The Recovery Act provided the CDFI Fund an additional $3 billion of New Markets Tax Credit allocation authority that was evenly divided between the 2008 and 2009 rounds of the program. The new legislation also contained extra funding - $100 million beyond our annual appropriation for fiscal year 2009 - to enhance the lending capacity of CDFIs. $90 million of this amount was designated for our CDFI Program, $8 million for our Native Initiatives, and the final $2 million for administrative expenses.
On February 26, 2009, the new Administration took a second important step to support the CDFI Fund when it released President Obama's budget for the 2010 fiscal year. Entitled A New Era of Responsibility - Renewing America's Promise, the new budget raises the CDFI Fund's current budget of $107 million for 2009 to $243.6 million for 2010 - an increase of 127 percent.
The 2010 budget also provides $113.6 million - a 90 percent increase - for the CDFI Program, and $80 million for the Capital Magnet Fund, a new program to increase capital investment for affordable housing for low-income families.
President Obama's budget is also the first Administration budget to specifically include funding - $10 million - for the CDFI Fund's Native Initiatives, which assist Native American, Alaskan Native, and Native Hawaiian communities to overcome certain barriers to financial services.
Finally, on October 21, the President took a third important step, announcing a series of new initiatives to help small businesses access credit and create jobs. The Administration had already launched several initiatives to restore the flow of credit to small businesses, and these have been quite effective.
Still, the Administration recognizes that much work remains to be done, and so it has designed these new initiatives to provide even more support for America's small businesses. One initiative in particular will provide lower-cost capital to CDFIs that lend to small businesses in rural and urban areas hardest hit by the recession. Capital will be available to CDFI banks, thrifts and credit unions at a two-percent rate for up to eight years.
In addition, the Administration will actively explore ways to increase access to liquidity for CDFI loan funds. For those here today that are loan funds, I want to assure you that Treasury is very committed to actively exploring all ways in which your institutions might receive assistance in increasing liquidity for lending activities. The discussions are ongoing and I'm confident that we are making progress.
And the work on this continues. Three weeks ago, on November 18th the Treasury Department and the Small Business Administration held a Small Business Finance Forum here in Washington that several of you here in the room participated in. Secretary Geithner and Administrator Mills heard first-hand of the difficulties you face today financing businesses. And they heard practitioners on the frontlines make recommendations such as the importance of allowing New Markets Tax Credit investments to offset the Alternative Minimum Tax and the need for greater focus on supporting small business investment through the NMTC Program. I can tell you, based on the many meetings and conference calls that I and my staff have been on, you were heard.
These three steps - the Recovery Act, the President's 2010 budget, and the developing small business lending initiatives - represent a strong acknowledgment by Congress and the Obama Administration of the CDFI Fund, and thus your role in promoting economic revitalization in the most underserved communities across our nation.
CDFI Fund Update
At the CDFI Fund, we have been mindful of both the tremendous opportunity and the tremendous responsibility that we have been given in the midst of the economic crisis, and we have been committed to moving as quickly and effectively as possible to implement the new Administration's agenda.
We re-opened the 2008 New Markets Tax Credit Program application round to award the first $1.5 billion of Recovery Act allocation authority and within 100 days of the Recovery Act being enacted we announced the 32 CDEs receiving awards. For the first time, the CDFI Fund sent the Allocation Agreements to the awardees on the day the awards were announced and all of these Allocation Agreements were closed within 30 days of the award announcement.
On October 30th we announced $5 billion in New Markets Tax Credits awards to 99 CDEs under the 2009 round, including the last $1.5 billion of Recovery Act allocation authority. We, again, had the Allocation Agreements in the hands of the awardees the day of the announcement and I am happy to report that the CDFI Fund has closed 85 out of the 99 Allocation Agreements.
With our monetary programs, within just four and a half months of its enactment in February, we announced the financial assistance awards through the Recovery Act to 59 CDFIs and to 10 Native CDFIs. Just two months later - in record time - we disbursed all $98 million to these CDFIs. Today, 100 percent of the funds awarded to CDFIs through the Recovery Act have been disbursed, and the money is hard at work, helping to generate capital for small businesses in San Francisco, grocery stores in North Philadelphia, mortgage loans for homebuyers, and funding for affordable housing projects and other community facilities across the nation.
All this in addition to the normal annual rounds of each of our programs which all saw increased demand.
But making awards under our various programs is not the only way we have been helping to address the economic crisis. Last fall, as the crisis deepened, I spoke with Bill Bynum, Chairman of the Community Development Advisory Board, to explore how the CDFI Fund could respond. We agreed to form a new Advisory Board Subcommittee to determine the impact of the crisis on the institutions that the CDFI Fund supports, including CDEs, and to offer policy recommendations to increase that support.
After gathering information from a broad spectrum of our industry, the Subcommittee formulated a wide range of policy recommendations and on March 5, 2009, presented them to the full Advisory Board and the CDFI Fund.
I am pleased to report that the CDFI Fund has made significant progress implementing the Subcommittee's recommendations. For example:
- In July we created a new Office of Training and Outreach that will focus on expanding training and outreach by coordinating activities with government and non-governmental organizations interested in improving conditions in low-income communities. The staff of this new office within the CDFI Fund has already met with our New Markets team and is at work developing a strategy that will include outreach to potential new investors.
- As I mentioned, we also succeeded in securing direct funding - $80 million - for the Capital Magnet Fund in the President's 2010 budget. For those CDEs here that are also CDFIs, the Capital Magnet Fund will provide grants to CDFIs and qualified nonprofit housing organizations to finance affordable housing and related community development projects. We are now in the process of developing the program, with plans to implement it in FY 2010.
These are just a few examples of some of the Subcommittee's recommendations that the CDFI Fund has already implemented. And in a moment I will share with you our current work on these recommendations specific to the New Markets Tax Credit Program.
So, we are very proud of the role that the CDFI Fund has been called upon to play in helping to revitalize our nation's economy. And we are pleased that our efforts - in particular, our efforts to implement the President's Recovery Act agenda - have not gone unnoticed. Upon release of our implementation plan, Vice President Biden commented, I commend Secretary Geithner and the Treasury Department for moving quickly to implement these innovative programs to help underserved communities. They are exactly what the President and I had in mind when we put forth the American Recovery and Reinvestment Act."
Moving the NMTC Program Forward
Despite all the progress the CDFI Fund has made, we remember that many challenges still remain.
For example, there are real concerns about investor willingness to make Qualified Equity Investments for available NMTCs. Since the start of the recession and the credit crisis, New Markets Tax Credits have continued to serve an important role in making credit available in low-income communities. But there are some worrisome trends.
The CDFI Fund has been closely monitoring the investment market for New Markets Tax Credits during this time, and we can report that:
- During the one-year period ending November 30, 2009, Community Development Entities have raised 27 percent less capital than in same one-year period the year before.
2009 will almost certainly be the first year in which investments into CDEs declines from the prior year. - And, 2008 awardees are raising capital at a much slower pace than awardees of past rounds.
Within one year of the first QEI investment, 2008 awardees raised just over 25 percent of the $3.5 billion in authority awarded under that round. In comparison, 2007 and 2006 awardees raised in excess of 45 percent of the authority issued over the same amount of time.
The CDFI Fund is responding to these trends in a few ways:
- First, through our new Office of Training and Outreach and through the NMTC team, we are reaching out to potential investors who have not been active in New Markets investing. For example, the CDFI Fund has recently made presentations to banks affiliated with the Federal Home Loan Bank of Atlanta.
The CDFI Fund is also exploring possible larger scale investor outreach initiatives, and we will certainly keep you all informed on this front as it develops. - Second, the CDFI Fund is actively working within the Treasury Department and with the IRS on regulatory changes and clarifications that would result in greater investor confidence.
Specifically, we are currently working with Treasury's Office of Tax Policy and the IRS on allowing NMTC investments to be used as an offset against the Alternative Minimum Tax (AMT). As Assistant Secretary Michael Barr mentioned yesterday, we sincerely understand the importance of this issue since investors could further withdraw from investing in NMTC because of AMT limitations and we definitely do not want that to happen.
By putting the New Markets Tax Credit Program on par with the Low Income Housing Tax Credit and Historic Tax Credit programs, we know we could definitely attract new investors to the program. - We are also working on changes to the Allocation Application that will be in place before the 2010 round opens. Specifically, we are concerned, as many of you are, with the Related Party rules and that how these rules are currently applied tends to discourage equity investments and complicate transactions - particularly transactions that twin NMTCs and other tax credits. We are hoping to be able to come up with a different approach that will address these very real concerns.
- In addition, we continue to work with the administration on reauthorizing the program further into the future which would also yield more investor confidence.
The road to economic recovery will be long and increasing NMTC investor confidence is a critical part of this recovery for low-income communities. But as I look down that road, I know that we, together, will find the right path and make this work. I am truly fortunate to work with people like you who are extraordinarily committed to the communities you serve and to creating innovative solutions that will have lasting impact.
As we look to that future, I'd also like to update you on what to expect for the 2010 round of the program.
Related to changes we are considering to the Allocation Application: yesterday, I believe you all had a panel at this conference to discuss the public comments that were submitted to the CDFI Fund regarding the NMTC application. As you may be aware, we received comments from 21 different organizations, trade associations and individual commentators - including comments submitted by the NMTC Coalition. We have been reviewing these comments diligently, with a goal of including what we can as part of the 2010 application round.
In addition to the Related Party rules I just mentioned, we are also carefully considering addressing:
- Community Impact - We are carefully examining this section of the application, to ensure that the broad range of community impacts proposed by applicants are given fair consideration by reviewers, and that no single type of strategy or outcome is given undue preference; and
- Streamlining - As always, we are going to be considering ways that we can streamline the collection of information.
I also want you to know that due to the CDFI Fund's launching of the new Capital Magnet Fund and a new Financial Education and Counseling Pilot Program in FY 2010, the timing of the next round of the NMTC Program will have to be modified. We anticipate that the 2010 round will open in the spring of 2010 and that we will announce the awards before the end of the calendar year, most likely in December.
Closing
In closing, I have witnessed your commitment so many times in the past few months as I have seen the impact of the New Markets Tax Credit Program on my visits to communities around the country.
I have seen it in Los Angeles, at the grand opening of the ÃÃÃ¥_nimo Watts Charter High School, an innovative college-preparatory charter school located in a neighborhood where such signs of hope are desperately needed.
I have seen it in Chicago at the Greater West Town Community Development Project which provides job training and placement services to local residents, and educational and career development services targeted to former Chicago public high school drop-outs.
And I have seen it in my own back yard, here in Washington, DC where the New Markets program enabled the redevelopment of the 85-year-old Ontario Court Apartments building into affordable homes and a new early childhood development center.
I thank each of you for your commitment to the communities you serve and your perseverance during these times.
The road to recovery before us may seem daunting at times, but please remember that the CDFI Fund is a partner that you can count on every step of the way.
Thank you.
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