Earlier this month, the entire staff of the Treasury Department's Community Development Financial Institutions (CDFI) Fund was terminated as part of a large-scale reduction in force. The move has sent shockwaves through the community development sector, effectively shuttering the agency and raising concerns about the future of capital flow to the nation's most underserved communities. For the past 30 years, the CDFI Fund has been instrumental in providing financial support to CDFIs, which in turn deliver over $300 billion in financial services each year through responsible, affordable lending and investment capital to individuals, businesses, and projects that are typically overlooked by mainstream finance.
With the future of federal support for CDFIs in question, now is the time for local leaders to establish state-level ecosystems that can unlock new capital and create operational efficiencies for these critical community finance organizations.
In recent years, state-level coalitions and networks of CDFIs have emerged across the nation. They operate on lean budgets that are typically funded by a mix of grant capital, membership dues, and in some cases, state support, and have taken many forms. For example, the Ohio CDFI Network operates as an initiative of its fiscal sponsor, the Greater Ohio Policy Center, while the New York State CDFI Coalition is an independently operated membership association registered as a 501(c)(3) nonprofit organization. Each collaborative tailors its activities to meet the unique needs of community finance organizations within each state.
While many CDFI networks and coalitions were originally formed to provide a unified voice in local policy and government affairs, most have expanded to offer some or all of the following services:
The move to terminate the staff at the CDFI Fund leaves no one to carry out its statutory mission or deploy congressionally appropriated funds, including those for the New Markets Tax Credit Program and the Capital Magnet Fund, programs that have successfully driven housing production and economic development. The elimination of federal support poses an existential threat to many CDFIs. State leaders must create new dedicated funding to ensure that CDFIs have the resources required to catalyze economic growth and opportunity in their state’s most underserved communities.
CDFI networks and coalitions engage in multifaceted approaches to policy activities, ranging from research and policy development to regulatory monitoring and public education. These organizations have successfully secured dedicated state funding, created a more favorable regulatory environment, and ensured that state resources are effectively channeled to communities that need them most.
A major focus of these legislative efforts has been the creation and funding of state-level CDFI funds and the administration of state financing programs. For example:
Now is the time for state leaders to champion their local community finance industry and to create sustainable networks of organizations and service providers that can serve as a counterforce to the elimination of federal funding through the CDFI Fund. By building state-level coalitions and networks of CDFIs, leaders can foster a unified voice to advance the collective goals of member organizations. By banding together, these CDFIs can more effectively advocate for supportive public policies, share best practices, and increase their overall impact on economic development within the state.
