CDFI Fund Speeches: Director Donna Gambrell Addresses CDVCA's Annual Conference
Director Gambrell Addresses CDVCA's Annual Conference Remarks by Donna J. Gambrell Introduction Thank you very much for that kind introduction, Kerwin. It’s a pleasure to be here today. This is my first opportunity to address the Community Development Venture Capital Alliance (CDVCA) since becoming Director of the Community Development Financial Institutions (CDFI) Fund at the U.S. Department of the Treasury a little over a year ago. It’s been a year defined by change, and we’ve seen a lot of it here in Washington and across the nation. We have welcomed a new Administration, while facing an economy that is in recession. As the economic crisis has unfolded, the CDFI Fund has taken on more responsibilities, proving itself capable, as traditional lenders have been unable or unwilling to lend to individuals and small businesses. As our industry continues to grow, policy makers, government officials and business professionals will be looking to us for insight on how to revitalize and invest in those communities most in need. This means we must continue to lend with sound underwriting practices and homeownership counseling services. Millinocket, Maine Part of my role as Director is to visit communities that have benefitted or could benefit from the CDFI Fund’s work to gain a better understanding of our program’s strengths and weaknesses. Last week, I had the opportunity to visit Millinocket, Maine. I was invited by Ron Phillips, President and CEO of Coastal Enterprises, Inc., to speak at the annual meeting of his organization, which is a certified CDFI and Community Development Entity (CDE). Every so often, I think it’s important to venture beyond the beltway and meet with those people who are benefiting from the CDFI’s programs, as it puts a human face on all that we do. I’m always delighted to see the enthusiastic support I witness from those whom we serve, but as I flew up to Maine I was anxious to see how the current economic conditions had impacted this rural community. Millinocket’s economy was in dire straits long before the recession began last year. The community has been constrained by the fact that its local economy is dependent on the paper mill industry as its sole economic driver. For generations, the people of Millinocket relied on the paper mill industry to support their community. It was not uncommon for high school seniors to go straight to work at the mills after graduation. But all this has changed as the demand for paper goods decreased and the mills started to close. One of my goals for making this trip was to discuss how, in the absence of the mill, we could help bring about new business ventures to an area that never previously had to rely upon entrepreneurial enterprises as an economic engine. Another goal of mine was to better understand how the CDFI Fund’s programs could be used in conjunction with outside venture capital funds in order to allow the mill to re-open. As you all know, the New Markets Tax Credit (NMTC) Program is a great tool to raise outside investments. What I observed was very positive. Through the use of NMTC Program, one of the plants was able to successfully re-open, and plans are currently in motion to bring the second mill back online in the near future. This combined effort will restore more than 600 jobs. Looking forward, they plan to make the mill more competitive by using biomass from the plant to cogenerate electricity for the plant and for sale onto the local electric grid. Seeing this for myself reminded me of how vital our mission is, and how we must strive to continue helping underserved communities, not just during this recession, but even after we’ve braved the storm. CDVCA’s members provide equity capital to businesses in those markets that are traditionally underserved by mainstream lending practitioners. In so doing this, they are not just providing equity capital to small-end businesses, they are also building community wealth. At the CDFI Fund, we feel that this is an intelligent way to invest capital as these investments look at the whole community. Responsible, social venture capital attempts to build the long-term wealth of communities, and creates self-sustaining communities through the creation of good jobs and the strengthening of the entrepreneurial spirit. The CDFI Fund will continue to assist CDVCA members through our CDFI Program, as well as with the allocation of tax credits to CDEs through our NMTC Program. The 2010 Budget and the Stimulus Legislation The CDFI Fund has had nothing but good news over the past few weeks. First, I’d like to discuss the 2010 budget request President Obama sent to Congress just last week, entitled A New Era of Responsibility – Renewing America’s Promise. I think you’ll agree with me – what a great way to recognize the important work of the CDFI Fund! The President views the CDFI Fund and the programs we administer as a key part of his strategy to address the economic crisis. To that end, his funding request doubles our current budget. We greatly appreciate the Administration’s respect for our mission and for the work that we do.. The stimulus legislation, also known as American Recovery and Reinvestment Act of 2009, provides an additional $3 billion of New Markets Tax Credit allocation authority. This funding will be divided equally between fiscal year 2008 and fiscal year 2009. In addition to the CDFI Fund’s annual appropriation for fiscal year 2009, the legislation appropriates an additional $100 million. Of this, $90 million will apply to the CDFI Program, $8 million will be used to fund Native Initiatives, and the final $2 million will be used to cover administrative expenses. Please stay tuned as the CDFI Fund will be releasing its plan to deploy these additional resources in the near future. The Partnership As you can see, the CDFI Fund is now in a much better position to help organizations that invest in community development activities in our nation’s low-income communities. Forums such as this give us an opportunity to be open with one another. We have listened to your comments and we understand, and if there is one point that I can’t stress enough today, it is that we want to work with you. This is a partnership, and we want for you to be successful. We are aware that it has been difficult for community development venture capital (CDVC) funds to access our awards and we are beginning to address this. To start, the CDFI Fund plans to aggressively increase its level of community outreach, provide greater technical assistance and training, and create stronger community partnerships. I look forward to collaborating with CDVCA and working together to usher in our country’s economic recovery. As you may know, last fall we created a new Subcommittee under the CDFI Fund’s Advisory Board. Its mission – to determine the impact of the financial crisis on the institutions that the CDFI Fund supports and the communities these institutions serve, and to offer policy and programmatic recommendations to increase that support. In a recent letter to this Subcommittee, CDVCA said it best. “CDFIs were not part of the problem that caused the financial crisis, but we can be an important and necessary part of the solution.” I agree. This past December, the Subcommittee convened a summit at the Treasury Department in Washington with industry leaders. After a morning panel of industry experts, two panels representing the CDFI Coalition and the NMTC Coalition presented to the Subcommittee. These panels represented all perspectives of our industry, including community development venture capital firms and several of the panelists are members of CDVCA. In addition, CDVCA submitted a letter to the Subcommittee in which it offered many recommendations for how the CDFI Fund can make funding more readily available to CDVCs. For example, CDVCA’s letter proposed a revision to our applications and our application review process, in order to make them friendlier to CDVC firms. We couldn’t agree more. Earlier this week, the CDFI Fund released a request for public comment in the Federal Register. It requested recommendations on how to improve the CDFI Program application. We view this as the perfect opportunity to incorporate your interests into future applications, and I encourage everyone here to let their voices be heard. The Advisory Board listened to and agreed with many of the recommendations made by CDVCA, adapting them into recommendations of their own. The Subcommittee formally presented its final recommendations to the full Advisory Board this past Thursday when it was approved by the Board and now sitting on my desk for consideration and implementation. Several recommendations encourage the CDFI Fund to explore potential enhancements that would allow the New Markets Tax Credit Program to be better utilized by CDVCs, in particular to foster the creation or expansion of small businesses through equity investments made in and by community development venture capital funds. I’d like to publicly thank Kerwin and CDVCA for your role in this important process. Impact Data What effect will this have? These newly created positions, along with the increase in residential housing and commercial real estate, will result in greater tax revenue, a reduction in the amount of state unemployment benefits paid out, and an increase in local property tax revenue. This is important for two reasons. First, it shows we are effectively deploying much needed Federal resources in these low-income communities. Additionally, we are tracking the impact by our awarded CDFIs in these low-income communities, which fulfills our obligation as steward of federal taxpayer dollars. In addition to the CDFI Program, the NMTC Program has also had a positive impact on low-income communities. As you well know, the NMTC Program allows taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated CDEs. The 2008 allocation round of the NMTC Program illustrates its popularity and success. A total of 239 CDEs applied for allocations, requesting $21.3 billion in tax credit authority. The CDFI Fund made awards to 70 CDEs, or roughly 29 percent of the application pool, totaling $3.5 billion. The average allocation was approximately $50 million, ranging from $6.25 million to $112 million. Sixty-four percent of those receiving allocations were CDFIs, non-profit organizations or governmentally controlled organizations. Altogether, they received $2.16 billion in tax credit authority. Banks and bank-holding companies received allocations totaling $828 million, and real estate development companies received allocations totaling $297 million. All 70 of the allocatees indicated that at least 85 percent of their activities will be provided in areas of higher economic distress than are minimally required under NMTC Program rules and/or in areas targeted for development by other government programs, including 60 that indicated that 100 percent of their activities would be provided in such areas. As an incentive program, it has been remarkable to see the amount of capital going into low-income communities, and we are also pleased to see that investors have quickly embracing the program. The pace of investment under NMTC Program is encouraging, but equally as encouraging is the private equity being pooled with government incentives to achieve a greater benefit that would otherwise not be there. Success Story At the CDFI Fund, we appreciate the work you are all doing to helping underserved communities through innovative and efficient initiatives. CDVCA shares this philosophy. Through the years, Pacific Community Ventures, a non-profit organization located in San Francisco has received several awards from the CDFI Fund. PCV offers entrepreneurs access to the valuable business development resources that they need. While PCV has achieved its core financial objective, its success can also be measured through its return to the community. PCV’s investments have led to conditions favorable to the market, such as the number and quality of jobs provided to low- and moderate-income individuals. Among those organizations within its portfolio, PCV is proud to sponsor Evergreen Lodge at Yosemite, a historic recreational facility in operation since 1921. While offering leisure opportunities in the great outdoors, Evergreen Lodge is also in the business of giving back to the community, through its youth programs and its respect for the environment. Staff members include young adults from urban areas of the country, who come to the lodge as seasonal interns. During their service, they learn a valuable trade, while at the same time receive community support that previously might have been unavailable to them. They gain an appreciation for the outdoors, and are encouraged to reach their maximum potential. Evergreen is also committed to preserving its historic environment. Today, the site looks very much as it did in 1921, and it’s truly breathtaking. By supporting worthy organizations such as these, CDVCA is proving its commitment to venture capital funds, and they have shown us in Washington just how effective these institutions can be. It’s important for us during this recession to involve everyone in the country’s economic recovery. Conclusion Thank you for inviting me here today. I look forward to working with you all in the future.
March 6, 2009
[Gambrell-2009-02]
Director, CDFI Fund
Community Development Venture Capital Alliance Annual Conference
Washington, DC
March 6, 2009
In fiscal year 2007, the most recent year for which complete data is available, 212 CDFI Program awardees reported leveraging their awards with $621 million in private and non-CDFI Fund dollars. These CDFIs reported that their financing helped to:
It’s an exciting time for the CDFI Fund and I greatly appreciate the positive role CDVCA and its members have played to improve the lives and economic conditions within America’s neediest communities.
