A whirlwind weekend mobilization in response to President Trump’s order to shut down a Treasury Department fund for low-income community lenders has produced a three-part strategy to defend the CDFI Fund’s seed capital for small businesses, affordable housing and economic development.
Community development financial institutions, or CDFIs, and their supporters are citing the “statutory” basis and legislative authority for the fund, which as recently as last week was replenished with $324 million as part of the continuing resolution passed by the Republican-controlled Congress.
Advocates are showcasing bipartisan support for the nonprofit and for-profit financial institutions, which have effectively serve as the nation’s local banking system in both urban and rural areas. In response to the executive order, Democratic Sen. Mark Warner of Virginia and Republican Sen. Mike Crapo of Idaho, who lead the Senate’s 28-member Community Development Finance Caucus, extolled CDFIs record of leveraging public funding to attract eight times the amount of private capital.
“We are proud to reaffirm our bipartisan commitment to support the CDFI Fund’s mission,” the two senators said in a statement.
And they are leaning into CDFIs broad alignment with the Trump campaign’s promises of economic mobility, and even the policy agenda of the first Trump administration.
“We can’t have America First without putting our communities first,” Harold Pettigrew, head of Opportunity Finance Network, an association of CDFIs, said in a statement. He recalled the response of local lenders in the first days of the 2020 COVID shutdown, “when the Trump Administration called upon CDFIs to help preserve jobs, keep businesses open, and stabilize communities.” CDFIs played a key role in distributing Trump-era Paycheck Protection Program loans in areas underserved by traditional banks.
After the initial shock when Trump’s executive order dropped Friday evening, the speed with which supporters mobilized gave rise to guarded optimism that that threat might provide an opportunity for the nation’s 1,342 CDFIs to flex their nationwide presence and considerable support to survive intact, if not strengthened.
“The entire movement is rallying to flood the zone on this,” John Holdsclaw IV, a board member of both the CDFI Coalition and Opportunity Finance Network, told ImpactAlpha. “We want to temper any fear that impact investors have on this.”
Statutory requirements
The weekend executive order, which seemed to take even some Trump administration officials by surprise, sent CDFIs into mobilization mode. The order gave the CDFI Fund and a half-dozen other programs seven days to comply and specified that “non-statutory components and functions of the following governmental entities shall be eliminated to the maximum extent.” The order also called for killing the United States Agency for Global Media, the parent company of Voice of America and the Commerce Department’s Minority Business Development Agency, which dates back to the Nixon administration.
The CDFI Fund was created in 1994 during the Clinton administration (the actual statute was the Riegle Community Development and Regulatory Improvement Act of 1994). It was re-funded as recently as last week, in the continuing resolution bill that passed just hours before Trump issued his executive order. The hundred or so Treasury Department employees assigned to the program are said to be continuing their work, including reviewing applications for New Market Tax Credit allocations.
Treasury Secretary Scott Bessent expressed support for CDFIs in his Senate confirmation hearings in January. Responding to a question from Warner, Bessent said, “The addition of these CDFIs into these underserved communities is very important.”
Over several decades, CDFIs have built up bipartisan support and a strong track as they have effectively become the country’s local banking system. Operating in every state, CDFIs have provided a lifeline to small businesses and communities as banks have consolidated and exited smaller markets.
Over those years, the $8 billion provided by the CDFI fund in the form of grants and NMTC have leveraged many times that amount in private capital. In general, grants from the CDFI Fund are reinvested as loans and are subject to a three-year performance period with monitoring and oversight. After that period, the grant can be treated on a CDFI balance sheet as unrestricted net assets and leveraged for further lending.
“The CDFI Fund has successfully modeled how government can catalyze investment in historically disinvested communities in a way that attracts private capital and maintains a community-first lens,” Annie Donovan and Donna Gambrell, former directors of the fund, wrote in ImpactAlpha to mark the fund’s 30-year anniversary in November.
“Our stories are powerful. So, too, are our voices. This is not the time to be silent,” Donovan and Gambrell told ImpactAlpha. “Show your support for the CDFI Fund. Let your voice be heard among our bipartisan congressional supporters.”
Under fire
The attack on the CDFI fund is part of a larger assault on lenders serving low-income communities. As part of the Environment Protection Agency’s efforts to claw back some $20 billion in Greenhouse Gas Reduction Fund awards, the FBI has launched criminal investigations against several CDFIs that are part of the coalitions that were awarded funding through a public process during the Biden administration. Last month, Denise Cheung, the head of the criminal division in the US attorney’s Washington, DC office, resigned after being asked to initiate a criminal investigation for which she said there was no basis.
Among the CDFIs that have been targeted are Community Preservation Corp and Self-Help, which are partners with Calvert Impact in Climate United. Members of Power Forward Communities, including affordable housing developers Enterprise Community Partners and Local Initiatives Support Corp., also have been targeted by the Justice Department and the FBI probe. Appalachian Community Capital, a CDFI that was awarded $500 million under the GGRF program, is also under investigation.
The EPA-provoked investigation, which has so far offered up no evidence, is seen as a pretext to freeze GGRF funds held in a custodial account at Citibank. Sen. Sheldon Whitehouse (D-R.I.) has demanded answers on what he calls “sham investigations.”
Riding high
It was not long ago that CDFIs were riding high.
Their central role in the GGRF, aimed at standing up a nationwide ‘green bank’ network, was set to give them a major capital boost. In 2022, they had received $9 billion to boost consumer credit through the Emergency Capital Investment Program, or ECIP, the largest ever infusion.
During the COVID shutdowns, CDFIs became “an overnight sensation 30 years in the making,” as ImpactAlpha put it at the time. The community-based lenders delivered PPP loans to thousands of small businesses that couldn’t get the attention of larger banks.
CDFIs such as Southern Bancorp in Little Rock extended forgivable loans as small as a few thousand dollars, compared to the six-figure loans doled out by big banks. Many of the bank-issued PPP loans went into the pockets of wealthy business owners of pass through entities such as law and private equity firms— not the typical CDFI customer.
Corporations from Netflix to Google made CDFIs the centerpiece of their pledges to racial equity in the wake of George Floyd’s murder, pledging both deposits and balance sheet assets to the nonprofit lenders (see, “Corporates emerge as new source of capital for community investment”).
Research by 60 Decibels at the time found that 82% of small businesses could not have easily found an alternative to PPP assistance. Black respondents were nearly twice as likely to report their business would have closed if not for the PPP compared to white respondents.
Opportunity Finance Network estimates that CDFIs together manage $304 billion in loans that support more than 4.3 million businesses and safe, affordable housing for nearly one million families, as well as 5,000 childcare centers, healthcare facilities, schools and other community centers.
The WOW Center in Merchantville, NJ, said it would not have been able to get a mortgage loan to purchase community facilities with the CDFI fund. Finanta, formerly Community First Fund, “made it possible for us to purchase our building,” with a food pantry, entrepreneurship and home ownership support and financial empowerment classes, the organization shared.
“Affordable homes built. Jobs created. Childcare slots available for working families. Increased revenue for small business owners. Utility bills savings,” Robert Wood Johnson Foundation’s Kimberlee Cornett wrote on LinkedIn. “ It adds up to more money for families to invest in what’s important to them — like music lessons, dental visits, fresh food or a family vacation.”
