The Treasury Department promotes investment in underserved communities through a number of important programs. These include:
- Community Reinvestment Act (CRA)
- Community Development Financial Institutions Fund (CDFI)
- New Markets Tax Credits Program (NMTC)
The Community Reinvestment Act (CRA) is meant to prohibit discrimination and requires banks to serve all communities. CRA:
- Evaluates how well banks and savings institutions are meeting local credit needs and creates incentives and disincentives to promote fair lending.
- Supports the Low Income Housing Tax Credit (LIHTC) program. Purchasing tax credits and loaning to tax credit projects improves institutions’ CRA scores, while also supporting creation of affordable rental properties.
The CDFI Fund promotes economic revitalization and community development by supporting community development financial institutions (CDFIs). There are 34 CDFIs in Minnesota. The CDFI Fund:
- Invests in CDFIs that provide loans and services to underserved communities.
- Created the New Markets Tax Credit (NMTC) Program (below).
- Provides incentives to banks to invest in communities, plus financial assistance and training to Native CDFIs.
- According to the CDFI Coalition, CDFI Fund awards to Minnesota total $25.7 million since 1996.
The New Markets Tax Credit Program, part of the CDFI fund, stimulates investment in low income urban neighborhoods and rural communities.
- Offers a seven-year, 39% federal income tax credit for investments made through Community Development Entities (CDE).
- In FY 2009, the NMTC Program competitively awarded $6.5 billion in NMTC allocation authority to CDEs, including both Recovery Act rounds.
Federal:
- Under a new Troubled Asset Relief Program (TARP) program introduced in February 2010, CDFI banks, thrifts and credit unions will be eligible to apply for capital investments up to 5 percent of risk-weighted assets rather than only up to 2 percent. This will allow more community financial institutions to receive CDFI funding.
- Obama recommends increasing CDFI appropriations for FY 2011 to $250 million, up from $247 million in 2010. In 2009, outside of stimulus ARRA funds, only $107 million was appropriated. The 2011 budget also includes $5 Billion in New Markets Tax Credits.
- The Community Reinvestment Modernization Act of 2009 (H.R. 1479), authored by Eddie Bernice Johnson (D-TX) proposes to expand CRA coverage to include more loans. Under this act, CRA would apply to non-bank financial institutions like credit unions, mortgage companies, and affiliates of banks such insurance companies and securities firms. It also would require credit unions to meet community needs, including the needs of minorities and low-income areas, and penalize institutions engaging in predatory lending.
Funding:
- CDFI Fund: Funding for CDFI for FY 2010 is $247 million, which is more than double the regular budget for CDFI of $107 million in 2009. This includes funding for the NMTC and Native CDFI programs, among others. The CDFI Fund also received $100 million in the American Recovery and Reinvestment Act (ARRA) in 2009.
Administration:
- Responsibility for CRA compliance shared by Federal Reserve Board, Office of the Comptroller of the Currency (OCC) (in Treasury Dept), Federal Deposit Insurance Corporation, and Office of Thrift Supervision. OCC interfaces with banks for LIHTC program.
- CDFI Fund, including the NMTC, is administered by the Treasury Department.
Updated March 16, 2010.