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We admit the title isn’t flashy: the CDFI Bond Guarantee Program. It sounds as if it’s designed more for Wall Street than Main Street.
For the first time we, community development lenders, have access to long-term, fixed-rate capital that can help breathe new life into economically devastated neighborhoods. And this program brings together two long-time partners and sometimes competitors to make it happen.
After all, it’s not as if community development capital is a new idea. There are nearly 1,000 Community Development Financial Institutions (CDFIs) supporting work all over the country. The Local Initiatives Support Corporation (LISC) and Enterprise Community Partners, Inc. (Enterprise), for instance, have raised and invested a combined $27 billion to help revitalize disadvantaged areas over the last three decades. Significant progress is already being made.
The big news, here, is that until now we’ve never really had access to predictable, affordable 30-year capital—the kind of financing that is pretty common for development projects in more affluent areas. That distinction matters for a whole host of reasons. Without it some projects never leave the drawing board. Others are left to cobble together multiple short-term debt products, which is both expensive and financially unstable. Without a source of long-term capital, CDFIs like Enterprise and LISC simply can’t be as effective as they might otherwise be in helping to lift up low-income communities.
The CDFI Bond Program begins to change that. Treasury is making capital available in a way that costs taxpayers next to nothing, while reducing the risk of long-term lending in troubled urban and rural areas.
With it, affordable housing developers can take on tough challenges: Toxic, crime-ridden neighborhoods can be revived with beautiful new rental and homeowner housing that even very low-income families can afford. Top-quality charter schools can make space for thousands of children languishing on waiting lists. New and expanded community health centers can make sure crowded emergency rooms are no longer the only primary care option available in distressed areas. Overall, people who struggle to get by will have access to more opportunities, and their communities will enjoy renewed economic life.
Here’s an example of how it works: Bank of America has been authorized to issue $100 million in bonds under the program and is working with LISC and Enterprise Community Loan Fund, Inc. to each invest $50 million of the proceeds. The bonds are purchased by the Federal Financing Bank, which is itself part of the Treasury Department, and fully guaranteed by the federal government.
The risk to taxpayers is mitigated by the focused design of the program and the healthy balance sheets of Enterprise and LISC. Treasury extensively evaluates the organizations making the on-the-ground loans, with an eye toward ensuring high-impact investments and limiting losses. Enterprise and LISC have strong track records in this line of work, even in places that many conventional lenders avoid. Community development isn’t a sideline business for us; it’s what we do everyday.
This program has sparked collaboration among the largest, most experienced community development intermediaries in the country. And in the process, it is helping us build a performance history for long-term lending that hopefully will encourage the private market to join us in this effort.
The impact is pretty clear: more commercial and residential development is coming to neighborhoods in need. And with it, new jobs, bigger tax receipts, safer streets, healthier families and—over time—a better quality of life.
It turns out bond guarantees are newsworthy after all.