wlm4 at cornell.edu (Will
01-18-1995, 06:33 AM
Cliff Rosenthal of The National Federation of Community Development Credit
Unions (NFDCDCU) has prepared this line by line analysis of the Key
Regulatory Issues in The CDFI Act. You may address comments to this list
of to NFCDCU at 120 Wall Street, NYC. 212-890-3274, (FAX) 212-513-7191,
70156.1074@compuserve.com
Introduction
Over the course of the next four years, the Community Development Financial
Institutions Fund will receive as much as $500 million in Congressional
appropriations, to be used to make investments in "community development
financial institutions." However, the amount could be much smaller (or the
CDFI Fund could even be abolished altogether), depending on Congressional
actions over the next months.
Community development credit unions (CDCUs) will be eligible to apply for a
portion of these funds--specifically, for up to $5 million each. In order
to obtain funds, they will have to succeed in a very competitive application
process. For most CDCUs, the greatest hurdles will probably include: (1)
preparing comprehensive, five-year strategic plans, and (2) obtaining one
dollar in non-federal money for every one dollar in federal CDFI money that
they obtain.
While the law creating the CDFI Fund was signed on September 23, 1994, the
regulations have not yet been written. A group of "transition" staff
members of the CDFI Fund are now preparing background papers that may be
used as an aid in drafting the regulations. But the regulations cannot be
issued until an Administrator for the CDFI Fund is named and confirmed. And
no name for the Administrator has yet been put forth by President Clinton.
Optimistically, it will probably be March or April at the earliest before an
Administrator is in place and the regulations are published.
One way to maximize the chances for success by CDCUs is to influence the
regulations. Credit unions are familiar with this process, since the
National Credit Union Administration regularly issues regulations for public
comment. We are now at the earliest stages of the process. Your input can
make a difference now!
How this Document is Structured
This document follows the CDFI Act (the actual law), section by section.
Wherever necessary, we have quoted extensively from relevant passages of the
Act. We think this will give you what you need to draw your own
conclusions. But if you need or want a complete copy of the legislation,
please call NFCDCU's offices immediately.
We also have drawn on another source for this document: the "Conference
Report." The House and the Senate voted two slightly different versions of
the CDFI bill. This is often the case with federal legislation. And when it
happens, committee members from the House and Senate must get together in a
"Conference Committee" to work out their differences and prepare the final
law. The "conferees," as they are known, prepare a "Conference Report."
The Conference Report provides explanations as to how and why the House or
Senate version for any particular section of the bill, and--to some
degree--what the drafters of the bill had in mind. The Conference Report
does not carry the same weight as the Act itself. But it provides useful
insight and guidance on key provisions of the Act. And this Conference
Report, in particular, includes language on the use of "retained earnings"
as matching funds that could be absolutely critical to the success of CDCUs
in applying for CDFI funds.
So, in the document that follows, you will find:
1. Exact language or summaries from the CDFI Act itself
2. Quotations or summaries from the Conference Report ("report language"),
where relevant language exists.
3. NFCDCU staff "COMMENTS" on aspects that we believe are especially
important.
4. NFCDCU staff "QUESTIONS" on issues that we especially need to hear from
you about.
The document is long--but time is short. TO HAVE OUR BEST OPPORTUNITY TO
INFLUENCE THE REGULATORY PROCESS, WE'D LIKE TO HEAR FROM YOU--BY PHONE OR
FAX--NO LATER THAN
****JANUARY 18, 1995***
There will be later opportunities, when the official regulations are
published. But our best chance is to make our voices heard now.
Please communicate your questions and comments to NFCDCU. In turn, we will
communicate these concerns to the CDFI Fund directly, as well as to the CDFI
Coalition, which includes NFCDCU and the associations for community
development loan funds, microenterprise funds, community development banks,
and lenders which are based in community development corporations.
Major Issues
Here are a few points which deserve your special attention as you read the
document.
Please note that the "NFCDCU position" is only preliminary: if you feel
differently about these issues, please let us know, so that we can draft a
final position that incorporates members' concerns.
1. The law does not clarify whether CDFIs may apply for a combination of
various forms of assistance--i.e., equity and debt, equity and deposits.
NFCDCU Position: Applicants should be able to apply for assistance in any
combination of forms and, and in any respective proportions, that they see fit.
2. The law allows the Administrator substantial discretion in assigning the
weights to the various selection criteria. How heavily should economic need
of a community be weighed by the CDFI Fund--especially when compared to the
capacity of an institution--which might favor larger institutions in larger
cities?
NFCDCU Position: We believe the level of community need should weigh
heavily among the various criteria. Capacity is important--but many of the
poorest areas, especially in rural areas, lack institutional capacity,
because resources are so scarce.
We realize that the CDFI Fund will be under great pressure to justify its
existence by showing impressive statistics for housing units produced, jobs
created, and private capital leveraged. But we would not like to see the
Fund take the path of least resistance by focusing its resources on the
large, sophisticated, and well-known urban community development players,
while excluding the neediest communities.
3. The issue of "retained earnings" is a crucial one for CDCUs. It is
addressed in the Conference Report, which allow retained earnings to be used
as "matching funds"--but it is not addressed in the CDFI Act itself. The
issue of retained earnings, especially as regards credit unions, needs
further clarification.
NFCDCU Position: CDCUs should be able to count all their net worth--regular
reserves, special reserves, undivided earnings, and allowance for loan
losses--as retained earnings. This would mean that a CDCU that had built
up, say, $100,000 in these accounts over 10 or 20 years would be able to use
these accounts as matching funds to request $100,000 from the CDFI Fund
(probably in the form of a grant). That would strengthen the capital
position of the CDCU enormously.
4. Please pay careful attention to Section 105, which has the basic
elements of an application to the CDFI Fund, and Section 107, which
addresses "Selection of Institutions." Many of the points raised will favor
CDCUs, some may not. We need to hear your arguments and questions about
these issues.
5. What is meant by "equity" and equity investments? (See especially Secs.
. . 108 and 114.) The CDFI Fund is clearly able to make "equity
investments," but the drafters of the law probably were thinking more about
equity investments (e.g., stock purchases) in banks. What does "equity"
mean for a credit union? What form of equity investment could, or should,
the CDFI Fund make in a CDCU--should it simply make an equity donation?
Should there be some sort of "equity share" in a CDCU on which a CDCU could
pay dividends to the CDFI Fund?
6. What are reasonable "performance goals?" Should the goals take into
account the number of low-income and very-low-income individuals served,
equally with standards like the number of housing units or jobs created?
7. The CDFI Fund is supposed to seek geographic diversity and diversity in
kinds of institutions, as it makes its investments. Should there be some
sort of quota? Should the CDFI Fund try to make as many individual
investments as possible, even those these would be smaller, rather than
making larger investments to fewer CDFIs?
8. Section 114 provides cash awards for depository institutions which open
"lifeline" accounts for depositors, which invest in community development,
or which make equity investments in CDFIs, including CDCUs. It seems clear
that a bank could compete for an award by making an "equity investments" in
a CDCU (if we get a workable definition of equity). But can CDCUs and other
credit unions--as well as banks--qualify for cash awards by participating in
these activities? This matter has not yet been determined by CDFI Fund
staff, but will be addressed in the weeks ahead.
9. The CDFI Act permits the Administrator to decrease matching requirements
by half for those areas and applicants that suffer from "severe constraints"
on their ability to raise matching funds. However, no more than one-fourth
of all the money that the CDFI Fund puts out each year may benefit from this
reduced matching requirement.
NFCDCU Position: The CDFI Fund should commit the full 25% that is
permissible for funding on a decreased-match basis. The lowest-income areas
and smallest institutions should benefit from the decreased-match funds.
This post transferred from the cdb-l mailing list
Unions (NFDCDCU) has prepared this line by line analysis of the Key
Regulatory Issues in The CDFI Act. You may address comments to this list
of to NFCDCU at 120 Wall Street, NYC. 212-890-3274, (FAX) 212-513-7191,
70156.1074@compuserve.com
Introduction
Over the course of the next four years, the Community Development Financial
Institutions Fund will receive as much as $500 million in Congressional
appropriations, to be used to make investments in "community development
financial institutions." However, the amount could be much smaller (or the
CDFI Fund could even be abolished altogether), depending on Congressional
actions over the next months.
Community development credit unions (CDCUs) will be eligible to apply for a
portion of these funds--specifically, for up to $5 million each. In order
to obtain funds, they will have to succeed in a very competitive application
process. For most CDCUs, the greatest hurdles will probably include: (1)
preparing comprehensive, five-year strategic plans, and (2) obtaining one
dollar in non-federal money for every one dollar in federal CDFI money that
they obtain.
While the law creating the CDFI Fund was signed on September 23, 1994, the
regulations have not yet been written. A group of "transition" staff
members of the CDFI Fund are now preparing background papers that may be
used as an aid in drafting the regulations. But the regulations cannot be
issued until an Administrator for the CDFI Fund is named and confirmed. And
no name for the Administrator has yet been put forth by President Clinton.
Optimistically, it will probably be March or April at the earliest before an
Administrator is in place and the regulations are published.
One way to maximize the chances for success by CDCUs is to influence the
regulations. Credit unions are familiar with this process, since the
National Credit Union Administration regularly issues regulations for public
comment. We are now at the earliest stages of the process. Your input can
make a difference now!
How this Document is Structured
This document follows the CDFI Act (the actual law), section by section.
Wherever necessary, we have quoted extensively from relevant passages of the
Act. We think this will give you what you need to draw your own
conclusions. But if you need or want a complete copy of the legislation,
please call NFCDCU's offices immediately.
We also have drawn on another source for this document: the "Conference
Report." The House and the Senate voted two slightly different versions of
the CDFI bill. This is often the case with federal legislation. And when it
happens, committee members from the House and Senate must get together in a
"Conference Committee" to work out their differences and prepare the final
law. The "conferees," as they are known, prepare a "Conference Report."
The Conference Report provides explanations as to how and why the House or
Senate version for any particular section of the bill, and--to some
degree--what the drafters of the bill had in mind. The Conference Report
does not carry the same weight as the Act itself. But it provides useful
insight and guidance on key provisions of the Act. And this Conference
Report, in particular, includes language on the use of "retained earnings"
as matching funds that could be absolutely critical to the success of CDCUs
in applying for CDFI funds.
So, in the document that follows, you will find:
1. Exact language or summaries from the CDFI Act itself
2. Quotations or summaries from the Conference Report ("report language"),
where relevant language exists.
3. NFCDCU staff "COMMENTS" on aspects that we believe are especially
important.
4. NFCDCU staff "QUESTIONS" on issues that we especially need to hear from
you about.
The document is long--but time is short. TO HAVE OUR BEST OPPORTUNITY TO
INFLUENCE THE REGULATORY PROCESS, WE'D LIKE TO HEAR FROM YOU--BY PHONE OR
FAX--NO LATER THAN
****JANUARY 18, 1995***
There will be later opportunities, when the official regulations are
published. But our best chance is to make our voices heard now.
Please communicate your questions and comments to NFCDCU. In turn, we will
communicate these concerns to the CDFI Fund directly, as well as to the CDFI
Coalition, which includes NFCDCU and the associations for community
development loan funds, microenterprise funds, community development banks,
and lenders which are based in community development corporations.
Major Issues
Here are a few points which deserve your special attention as you read the
document.
Please note that the "NFCDCU position" is only preliminary: if you feel
differently about these issues, please let us know, so that we can draft a
final position that incorporates members' concerns.
1. The law does not clarify whether CDFIs may apply for a combination of
various forms of assistance--i.e., equity and debt, equity and deposits.
NFCDCU Position: Applicants should be able to apply for assistance in any
combination of forms and, and in any respective proportions, that they see fit.
2. The law allows the Administrator substantial discretion in assigning the
weights to the various selection criteria. How heavily should economic need
of a community be weighed by the CDFI Fund--especially when compared to the
capacity of an institution--which might favor larger institutions in larger
cities?
NFCDCU Position: We believe the level of community need should weigh
heavily among the various criteria. Capacity is important--but many of the
poorest areas, especially in rural areas, lack institutional capacity,
because resources are so scarce.
We realize that the CDFI Fund will be under great pressure to justify its
existence by showing impressive statistics for housing units produced, jobs
created, and private capital leveraged. But we would not like to see the
Fund take the path of least resistance by focusing its resources on the
large, sophisticated, and well-known urban community development players,
while excluding the neediest communities.
3. The issue of "retained earnings" is a crucial one for CDCUs. It is
addressed in the Conference Report, which allow retained earnings to be used
as "matching funds"--but it is not addressed in the CDFI Act itself. The
issue of retained earnings, especially as regards credit unions, needs
further clarification.
NFCDCU Position: CDCUs should be able to count all their net worth--regular
reserves, special reserves, undivided earnings, and allowance for loan
losses--as retained earnings. This would mean that a CDCU that had built
up, say, $100,000 in these accounts over 10 or 20 years would be able to use
these accounts as matching funds to request $100,000 from the CDFI Fund
(probably in the form of a grant). That would strengthen the capital
position of the CDCU enormously.
4. Please pay careful attention to Section 105, which has the basic
elements of an application to the CDFI Fund, and Section 107, which
addresses "Selection of Institutions." Many of the points raised will favor
CDCUs, some may not. We need to hear your arguments and questions about
these issues.
5. What is meant by "equity" and equity investments? (See especially Secs.
. . 108 and 114.) The CDFI Fund is clearly able to make "equity
investments," but the drafters of the law probably were thinking more about
equity investments (e.g., stock purchases) in banks. What does "equity"
mean for a credit union? What form of equity investment could, or should,
the CDFI Fund make in a CDCU--should it simply make an equity donation?
Should there be some sort of "equity share" in a CDCU on which a CDCU could
pay dividends to the CDFI Fund?
6. What are reasonable "performance goals?" Should the goals take into
account the number of low-income and very-low-income individuals served,
equally with standards like the number of housing units or jobs created?
7. The CDFI Fund is supposed to seek geographic diversity and diversity in
kinds of institutions, as it makes its investments. Should there be some
sort of quota? Should the CDFI Fund try to make as many individual
investments as possible, even those these would be smaller, rather than
making larger investments to fewer CDFIs?
8. Section 114 provides cash awards for depository institutions which open
"lifeline" accounts for depositors, which invest in community development,
or which make equity investments in CDFIs, including CDCUs. It seems clear
that a bank could compete for an award by making an "equity investments" in
a CDCU (if we get a workable definition of equity). But can CDCUs and other
credit unions--as well as banks--qualify for cash awards by participating in
these activities? This matter has not yet been determined by CDFI Fund
staff, but will be addressed in the weeks ahead.
9. The CDFI Act permits the Administrator to decrease matching requirements
by half for those areas and applicants that suffer from "severe constraints"
on their ability to raise matching funds. However, no more than one-fourth
of all the money that the CDFI Fund puts out each year may benefit from this
reduced matching requirement.
NFCDCU Position: The CDFI Fund should commit the full 25% that is
permissible for funding on a decreased-match basis. The lowest-income areas
and smallest institutions should benefit from the decreased-match funds.
This post transferred from the cdb-l mailing list