On Wed., April 21, we proudly hosted several state legislators, community leaders and Finance Fund project partners at the Capital Club in downtown Columbus. It was an excellent opportunity to share how Finance Fund has positively impacted some of the state’s most distressed communities.

We highlighted four partnership “success stories,” including Ohio Basic Minerals in Jackson; Save-a-Lot grocery store in Columbus; Noble Learning Center in Caldwell; and Miami Valley Child Development Centers (MVCDC) in Dayton. Each project touted key Finance Fund goals – job creation, safe childcare access and neighborhood revitalization.

We shared important information about the New Markets Tax Credits (NMTC) program. Last October, we were awarded $50 million in NMTC funding, with $30 million designated specifically for non-metropolitan, rural areas in Ohio. Funding is still available for qualifying projects – we strongly urge those interested to contact us for more information on a possible partnership with us.

We thank our distinguished guests for their presence, and look forward to new partnerships that will lead to more jobs, revitalized communities and safer access to care.

1. Funding authority to catalyze high levels of private investment in distressed communities. The Administration proposes to authorize NMTC at $5 billion in 2010 and 2011.
2. Improving overall competitiveness, attractiveness and effectiveness of the NMTC.
   1. Allowing Alternative Minimum Tax (AMT) taxpayers to claim NMTC.
   2. Review passive activity rules, which is a rule that limits the use of losses and credits for business in which a taxpayer does not materially participate.
   3. Qualification of certain types of investments for the credit, which seeks to clarify what types of loans constitute a qualified investment.
   4. Improvement of NMTC rules to spur additional investment in small business.
      1. Re-examining “substantially all” requirements, which requires an awardee (CDE) to have a specific portion of their funds invested at all times.
      2. Supporting greater investment in institutions that invest in small businesses by supporting new rules to promote more investment in Community Development Financial Institutions (CDFIs).

In addition to the “formal” proclamation of the press release, on the conference call Treasury officials made concerted effort to point out that NMTC has Secretary Geithner’s support and is a high priority for the Administration. Bob Rapoza, representing the NMTC Coalition, expressed the industries appreciation that Treasury is moving aggressively on these issues that will strengthen the program.

It’s good to hear good news once in a while.

PRESS RELEASE and FACT SHEET:

http://treas.gov/press/releases/reports/nmtc%20fact%20sheet.pdf

Mark Pinsky, President & CEO of Opportunity Finance Network, the nation’s CDFI network, hailed this move as a step in the right direction, but stressed that CDFI loan funds should share in this money, too:
Community development banks and credit unions deliver capital and services where other financial institutions don’t. This program is a capital lever that can lift up thousands of businesses that need credit to thrive. The CDFIs that participate will make capital flow where it’s not flowing today. Last October, the President expressed a desire to support non-depository as well as depository CDFIs. The next step is clear: extend support to CDFI loan funds and venture funds.

At Finance Fund, we echo this position and advocate for a similar program for non-regulated CDFI loan funds. Why? Because Finance Fund is a certified CDFI, which provides us with access to financial and technical award assistance from the federal CDFI Fund. Since its inception in 1994, assistance has totaled more than $500 million for community development. As a CDFI, we’re recognized as a financial organization with a primary mission of promoting community development in under-served communities in the United States, through credit, capital, and financial services.

CDFIs are a vital way that under-served communities achieve economic development and neighborhood revitalization. And considering the recessionary climate we’re in today, now is the time to bolster business and economic development by providing CDFIs (like Finance Fund) with the resources to leverage more capital to resurrect strong businesses and communities. This ruling is positive, but CDFIs need the financial covering of T.A.R.P. funds, too.

In the midst of clamor, distress, insecurity, and despair, 2009 was a good year for Finance Fund though it was, by most accounts, unique and demanding. William Shakespeare said “Is it not strange that desire should so many years outlive performance?” If 2009 were to judge us by performance and not desire my characterization might not stand. From investor fatigue, credit anxiety, client frustration, and employment turmoil there wasn’t much that the year didn’t throw at us. But, despite the challenges confronted I stand by my declaration. “What doesn’t kill you makes you stronger.”

This was a year of staging for the next step. Though not necessarily sought, it provided and opportunity to examine, scrutinize, and calibrate a response to the dramatically changed market conditions. This realignment of staff and strategy has resulted in a stronger staff, new approaches at deploying resources, renewed enthusiasm for engaging staff and board, and an invigorated passion for new initiatives that help distressed communities. We’ve gone back to check our values, vision and mission, held them up against our strategies and recharged our batteries. Finance Fund’s renewed circumstance is due primarily to the growing strength of our people and their ability to embrace change by making it work for us not against us.

2009 has positioned us to explode into 2010 with a new fervor for mission and accomplishment as yet un-experienced by Finance Fund.  We have more than $75 million in loan funds and nearly $3 million in grants and linked deposits to place into Ohio’s distressed communities in the next 12 months. This is five times more resources than ever before. We have a number of initiatives that are moving forward with deliberate speed; i.e. “Wisely, and slow. They stumble that run fast.” (William Shakespeare) These, like the bank initiative and the CDFI funding initiative, will be “blossoming” in 2010. To say we are excited is to significantly underestimate our sense of expectancy.

One man’s remorse is another man’s reminiscence. (Ogden Nash)

Finance Fund’s vision and mission are quite straight forward yet allude to a dramatically different approach, a strategic construct in which systems not symptoms are targeted. This approach births a philosophy that puts emphasis on growing sustainable resources appropriately scaled for the demands of the market. It precipitates a strategy that demands innovation to tackle the challenges of economically distressed communities beyond the inadequate resources offered by public programs or the yield incentives that drive private sector investment.

Our “trademark” has been innovation, looking at things differently and responding “why not” instead of just “why.” From inception our legacy has evidenced this entrepreneurial approach. The Linked Deposit Fund was a groundbreaking innovation inciting bank participation in local projects. The Predevelopment and Economic Development grants have proved to be an innovative model for facilitating leveraged investment into local markets. The New Markets Tax Credit program, Intermediary Relending Program, the creation of Finance Fund Capital Corporation, CDFI certification, and a covey of innovative products are vivid evidence of our movement to fulfill our vision and mission for low-income people.

And now it is time to innovate again. At the September meeting Finance Fund’s Board of Directors approved a resolution authorizing the establishment and funding for the Bank Acquisition Steering Committee (BISC). BISC will implement a process to bring about the acquisition of a bank charter. This means we are moving toward being the majority stockholder of a commercial bank and as such become a bank holding company. This will mean we have to do some changing, some evolving. There will be some challenges, however we have decided we will not back away just because it is hard to do. The benefits to our clients will far out weight the difficulties. An affiliated commercial lender will allow us to bring some stability into the generation of capital, give us access to public sector guarantee programs, provide more flexibility in development of products, and expand growth potential and deployment opportunity not previously possible for Finance Fund. Notice I did not say it will allow us to change our purpose, our vision, or our mission. We will still be providing the same type of products and services to the same market and clients. With a very natural and intuitive repositioning we will be able to offer clients more without much change at all.

Over the next couple of years you can follow the progress of this and other Finance Fund initiatives right here.

This round of New Markets Tax Credit funding enables us to continue to invest in projects that support Ohio’s distressed communities. These projects help stimulate local economies through capital investment, job creation, and community development. You can read more about some of those projects here and here.

Join me in congratulating our team that has spent endless days and nights working on our NMTC application. Kudos to all of them in this successful effort that will benefit all Ohioans.

We have all heard how market conditions and increased competition have affected the health of Ohio’s community banking sector and the quality and availability of banking products and services. But in this economy, it’s imperative to find new ways to do business. Investing in Finance Fund’s New Markets Tax Credit (NMTC) program is one way to add to your bottom line, increase your CRA benefit and create economic development in your community.

Finance Fund works to enable progress and inspire change within Ohio’s low-income communities. Our clients include nonprofit organizations and for-profit businesses. The NMTC program is in line with Finance Fund’s mission to “…build bridges between resources and the low-income community.”  We do that by partnering with banks to provide credit to business borrowers (for-profit & nonprofit) for fixed assets in qualifying low-income census tracks. As our bank partner, your clients have access to capital with lower payments, you have a tool to share or lower risk, and your investment in the community builds assets giving rise to stronger businesses.

It’s simple really. The NMTC program permits taxpayers (that would be you) to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDE: that would be Finance Fund). These investments are then used by Finance Fund to provide credit for in development projects low-income communities.

These investments are used in low income census tract communities for business, real estate and community facility projects that create or retain jobs, stabilize neighborhoods and spurn further economic development, such as the Heritage Square Marketplace and Noble Learning Center.

Finance Fund has been using this program since 2004, and at the close of 2008 has leveraged $212 million on an investment of $44.5 million for 25 projects creating 1,249 full-time jobs and serving 536 children within Ohio’s low income communities.
We invite you to contact us today to find out more about how your community bank can invest with Finance Fund’s New Markets Tax Credit program.

Stimulus money gives a boost to small start-ups

A little-known provision of the massive $787 billion stimulus law recently passed by Congress doubles federal funding for so-called Community Development Financial Institutions (CDFIs) such as Community First Fund. That includes local thrifts, banks and non-profits that serve low-income neighborhoods often ignored by large institutions or exploited by high-cost predatory lenders. President Obama’s 2010 budget includes more money for the financiers, to help distressed areas hit hardest by the recession.

Overall, the stimulus law and budget plan allocate about $400 million over two years to community lenders, a huge increase from the roughly $50 million the Bush administration proposed in 2008.

That may seem like chump change compared with the trillions the Treasury Department and Federal Reserve have poured into large financial firms. But every dollar of CDFI funding should leverage $14 to $20 in economic activity, providing vital activity in low-income areas that were reeling even before the downturn.

“We are an organization that is not capitalized because our community is not capitalized. We have to try to negotiate money from the other part of town and bring it to this part of town,” says Carlos Graupera, executive director of the Spanish American Civic Association, surveying a block of tidy row houses built with a loan from Community First Fund. Across the street, 12 older homes are being renovated, also with CDFI dollars. Most are presold, bringing new life into what was once a notorious drug market.

Despite the bleak economy, Graupera and Community First Fund are pressing ahead with their most ambitious undertaking: a 5-acre commercial site with riverfront access — and toxic waste issues that have scared away private developers. They will bear the cost and risk of cleanup, on the bet it will make the site attractive enough that private funding will flow in to build housing and stores.

Because CDFIs see their primary role as stabilizing local economies, rather than generating big profits, they are eager to expand lending using stimulus funds. Some big banks, by contrast, have remained tight-fisted even with federal bailout dollars. Business lending at the largest U.S. banks plunged in February, the Treasury Department said. Demand has doubled at some of the nation’s 800-plus CDFIs as anxious borrowers seek financing.

“The federal money is more needed than ever because other sources of capital are in so much trouble,” says Julia Sass Rubin, assistant professor at Rutgers’ Bloustein School of Planning and Public Policy. With foundation money, state and local funding and capital from bigger banks drying up, the stimulus is “a multiple benefit. …You’re helping poor communities. You’re funding (lenders) that otherwise would have a challenging time finding capital, and it’s a time when banks are not lending like they were.”

Tightened lending standards

Community First Fund CEO Daniel Betancourt and his staff have seen a surge in calls from traditional clients and established businesses that haven’t been able to get loans as regular banks tighten standards or have less capital to lend against.

“We’re going to use this (money) to take more risks for our clients in this tough time,” says Betancourt, who is applying for $2 million in stimulus funding to supplement the $15 million fund. “People are coming up to us with sales that have gone down, with business that is eroding.”

Betancourt hopes to use the stimulus dollars to bolster the CDFI’s small-business and affordable-housing portfolio.

Community First Fund offers loans to underserved borrowers, mainly minorities and women, often with low credit scores or limited experience. It also finances affordable housing and commercial real estate loans to tonier projects, such as the high-end Lancaster Arts Hotel, if they fit its overall strategy for reviving urban neighborhoods and attacking concentrated poverty in 13 Pennsylvania counties.

Even with its riskier portfolio, Community First Fund held loan charge-offs to less than 2% in 2008, while some big, sophisticated banks took enormous financial hits and a slew of subprime lenders failed. Nationwide, loan losses at other CDFIs are comparable or even lower. But if the downturn is deeper than expected, community lenders could face wrenching choices.

“We have more demand than capital,” says Mark Pinsky, CEO of the Opportunity Finance Network, a consortium of CDFIs around the country. In the past 30 years, the so-called opportunity finance industry has lent more than $25 billion with net charge-offs of less than 1%.

“We have to make some hard choices,” Pinsky says. “We have to decide if we’re going to lend money to a struggling minority entrepreneur … or a more established business that’s important to the community, important to jobs, but that we think a bank should be doing. We can’t help everybody as much as we want.”

For now, Community First Fund is doing both.

Champ Hall turned to Community First Fund a decade ago after several banks turned down his request for a small loan to buy equipment for a barbershop. Hall, who also received help developing a business plan, now owns several shops and Champ’s Barber School in Lancaster. His former students have gone on to open more than 20 barbershops in Pennsylvania and other states — several financed by Community First Fund. Hall has stayed with the CDFI as he has expanded.

“I got denied. No bank would help with my project,” says Hall, whose office wall is covered with plaques and newspaper clippings attesting to his success and his community involvement.

Business remains busy in the midst of the downturn, and Hall plans further expansion, saying, “In spite of the economy, people still want to look good.”

John Painter and his partners recently turned to Community First Fund after trying for months to get conventional banks to finance their purchase of Kegel’s Seafood Restaurant, an eatery that has been a Lancaster landmark since 1941. They found the CDFI through the local Chamber of Commerce. The loan was approved after a thorough review of the partners’ equity and business plan, even though the dicey economy is hurting restaurants.

“We thought (financing) would be a snap, but it was one roadblock after another,” Painter says.

Back to basics

The community lenders are both old school and new wave. Their emphasis on character lending, credit counseling and holding loans in a portfolio seemed quaint during the past decade as subprime lenders and big banks loosened standards. Now many are returning to the basics.

“The mortgage broker that was across the street from the CDFI is no longer there,” says James Ballantine, vice president of the American Bankers Association, who sees the lenders as complementing mainstream banks. “The financial institution remains that was there all along, providing a good source and a traditional source of banking.”

Among other Community First Fund projects: Chestnut Hill Café, a Lancaster coffee shop run by two female first-time business owners, and a loan to architect Gene Aleci to renovate two historic buildings downtown. One of the more dynamic is House of Clarendon, a high-end bakery selling wedding and other special occasion cakes designed by Martine Cajas, a former model who says, “These cakes are my models. I put them on the catwalk.”

To be eligible for federal aid under the CDFI program, started in 1994, lenders must meet stringent criteria, including making community development a primary mission, providing financial counseling and remaining accountable to local areas. A separate program is aimed at Native Americans. The Treasury Department’s CDFI Fund also runs the New Markets Tax Credit Program, created in 2000, which has generated $12.6 billion in investments in underserved areas.

Most CDFIs are loan funds, like Community First Fund, that also get capital from foundations and charities. About a fifth are credit unions. Big banks can invest in local lenders to comply with the Community Reinvestment Act, requiring certain banks to invest in underserved areas.

Ellen Seidman, a senior fellow at the New America Foundation, says local lenders have been having a tougher time getting funding under the Community Reinvestment Act as big lenders have merged or pulled back.

Though CDFIs must normally raise private capital to match federal dollars, that provision was waived in the stimulus bill in recognition of the tough economy.

Seidman suggests that as CDFIs become larger and more important, the Treasury Department should consider closer regulation. Many CDFIs are already regulated by the government as banks or thrifts. The industry has developed oversight standards.

Donna Gambrell, director of the Treasury Department’s CDFI Fund, sees the proposed expansion not only as a way to help stabilize low-income areas during this deep recession, but as a tool to help rebuild ravaged neighborhoods in coming years. The Treasury program now reaches just a sliver of eligible CDFIs.

“Even after the water is calm, there’s a lot more work for us to do,” says Gambrell. “This program fills a void for at-risk borrowers in the financial mainstream.”

The stimulus funding will soon wend its way to local communities, with Betancourt’s application due in a few weeks. Obama’s 2010 funding proposal is still in the first stages of congressional debate.

“In the last two to three weeks, we have started to see a surge in calls. I don’t know if it’s (the improving) stock market, but people are getting confidence back again,” Betancourt says, but adds that the economy and financial sector are not out of the woods. “Credit is still tight. While there’s some indication of things improving, nobody really knows.”

Just like my chair, Finance Fund has been trying to find the right fit for gaining CDFI certification for almost a decade but have not been able to find that perfect connection until now. This month we have received word from the CDFI Fund that our Finance Fund Capital Corporation (FCAP) has been certified as a CDFI, and just like my chair this seems to be a perfect fit.

We have received an assortment of honors and certifications for meeting various standards of excellence, but this one brings with it potential unique to our needs. In addition to the honor of being recognized as meeting the criteria and standards of a community development financial institution, this award allows us to annually request federal resources to fund community partner’s projects and to apply for membership in the Federal Home Loan Bank. The latter, for reasons of scale and sustainability, brings with it exceptional opportunity for expansion of service to our community based clients. As an active FHLB member we, like other financial institutions, can access lending capital to match equity for investment in community projects.

Now, just like my chair, we look forward to a good and comfortable fit helping us to further the mission of helping people.

With the implementation of our CDFI strategy, which confers CDFI characteristics to one of our affiliates (Finance Fund Capital Corporation or FCAP), there was an opportunity for some funding to do a more in depth study of this market enabling us to frame, more definitively, our lending strategy. As part of moving toward CDFI certification for FCAP, the CDFI fund awarded funding to do a study of community lending.

In March the study, Financial Intermediaries For Community And Economic Development In Ohio: Market Assessment, was released by The Center for Economic Development & The Center for Housing Policy Research of the Maxine Goodman Levin College of Urban Affairs, Cleveland State University. The purpose of this research is to describe and quantify the needs of Finance Fund’s current and potential clients, identify the role the Fund’s partners play, and understand the market potential for the services provided by Finance Fund.  There weren’t a lot of surprises, but there were some impactful affirmations.

1.    The type of projects funded by partners includes commercial revitalization, community facilities, homeownership, and small business entrepreneurship.
2.    The study indicates that financial intermediaries seeking to expand their services can play a vital role in providing funding assistance to the organizations that need to fund projects in their respective communities.
3.    Some organizations that had used or attempted to use financial intermediaries in the past had difficulty in navigating through the application process, whereas other organizations were not sure how financial intermediaries could benefit them.
4.    The responding partners indicated a low level of collaboration with funding partners and intermediaries.  One reason may be unfamiliarity with financial intermediaries. Other reasons include staffing constraints, types of projects, geographic criteria, and real or perceived difficulty of partnering and constraints imposed by the intermediary.
5.    The study identifies a gap between the balance of activities revealed in the client survey and the available funding resources identified in the inventory. The inventory also offers possible funding avenues in new project areas where funding relationships have not yet been established. For example, the inventory identifies 25 sources for funding in the area of environmental programs and green communities.

The study’s overall conclusion is that there is room for financial intermediaries such as Finance Fund to do more marketing and provide more information to partners and organizations that may need their services. This was not a surprise but an affirmation, and is part of the reason you are reading about it in this forum. The complete market assessment will be published to our Web site, www.financefund.org in the next couple of months.