It was September 15th, 2008. Melanie Stern was the point-person for the New York State Coalition of CDFIs (community development financial institutions). She and a few other coalition representatives were meeting in Albany, New York, with Michael Skrebutenas, then deputy secretary for economic development and housing under Governor David Patterson. They were there to discuss funding for the New York State CDFI Fund.
The coalition had celebrated the fund’s creation a year before, a result of years of advocacy.
“I came in right at the time when the fund was created. It had bipartisan support,” Stern says.
The New York State CDFI Fund would be modeled after the federal CDFI Fund, created in 1994. Through grants, loans, loan guarantees, tax credits and other forms of support to CDFIs, the federal CDFI Fund has supported greater access to capital and financial services in the low- to moderate-income communities that CDFIs exist to serve.
Unfortunately, due to legislative timing and political turmoil related to Governor Eliot Spitzer’s sudden resignation in March 2008, the New York State CDFI Fund had not yet received any actual funding. And worse was about to come.
Stern’s meeting got cut short. Skrebutenas was abruptly called away mid-conversation. It was the day that Lehman Brothers collapsed, when the former fourth largest investment bank in the country filed for the largest bankruptcy in U.S. history. The global economy was going into turmoil. New York’s CDFI Fund would have to wait.
Seven years later, the wait continues.
“It’s been a long process. I think we’re getting close to the point where there’s support within the legislature and the governor’s office,” says Stern, now director of consumer lending at Spring Bank, a federally-certified CDFI based in the South Bronx, with customers all over NYC except for Staten Island. A majority of their customers are Hispanic.
The Coalition has been advocating for an appropriation of $15 million for the New York State CDFI Fund. They are also asking to maintain a separate $1.5 million appropriation to the Empire State Development Corporation (ESDC) for a grantmaking program that supports CDFI lending to minority- and women-owned businesses. About 20-30 CDFIs a year have been benefiting from ESDC’s CDFI program. The prospective New York State CDFI Fund would include support for consumer lending and housing as well as small business lending.
While none of them believe the fund would be a silver bullet, the fund would provide a healthy boost for the 73 federally-certified CDFIs in New York, of which 46 are in NYC (32 in Manhattan alone). Some do work on a national scale, but all have at least some clients or investments in New York state, and the vast majority focus directly on the communities or cities where they are located. In FY2014, CDFIs based in New York made over 28,000 loans or investments totaling nearly $3 billion, financing more than 12,000 small businesses and 25,000 affordable housing units.
In NYC, city agencies partner with many CDFIs to support everything from loans to support minority- and women-owned business growth to loans for getting through the immigration and naturalization process.
Like the federal CDFI Fund, the New York State CDFI Fund would provide most of its support in the form of grants, distributed through an annual competitive process. If the New York State CDFI Fund had funding today, Stern says support for Spring Bank’s small dollar consumer lending program would be their priority. Spring Bank had around 150 consumer loans outstanding as of December 2015 (as well as 175 business loans outstanding).
Spring Bank’s consumer loans include products like a credit-builder loan that covers some short-term costs while helping clients start or rehabilitate credit history. There’s also an employee loan, where as a job perk an employee can get a loan of up to $2,500, and have the repayments conveniently deducted directly from their paychecks. An innovative Borrow-and-Save loan sets aside 25 percent of the loan value ($500-$1,500) into a savings account at the beginning of the loan, which can’t be accessed until the loan gets paid off. There are no credit minimums for any of Spring Bank’s consumer loans.
“We’d seek support for loan loss reserves, to mitigate some of the risks and defray some of the costs of our small dollar loan program. As you can imagine it’s a pretty high touch product, and we want it to be,” Stern explains. “We also want to make the case to the industry. We feel we’re not just doing it for us or for our customer base. We’re trying to do it to make a broader case for other, perhaps larger institutions to offer these kinds of products.”
For the record, Spring Bank has received a federal CDFI Fund award every year since it was certified in 2012, totaling $1.36 million, which has gone to support commercial real estate loans and project investments, small dollar consumer loans and affordable housing development.
But not every CDFI in New York has experienced Spring Bank’s success at the federal level. Nor is a federal program always interested in issues facing a specific state, according to Pamela Owens, vice president for programs at the National Federation of Community Development Credit Unions. The Federation has hosted the New York State Coalition of CDFIs since it first emerged (there are plans to spin it off as an independent organization, hopefully this year).
“When CDFIs from all over the country can apply, and so many are doing great things, it’s exciting to see what they’re doing but it’s also tremendously competitive,” Owens says. “Many of the projects that would be funded under a state CDFI fund may not be funded under the federal fund.”
Adding up all grant proposals, demand for federal CDFI Fund support typically exceeds available funding in any given year. A state CDFI fund, advocates say, would be able to pick up what gets left out. In addition, most federal CDFI Fund programs require match funding from a non-federal source; a state CDFI grant could also potentially serve as match funding on an application to the federal CDFI Fund.
“The New York State CDFI Fund remains this sort of unfired cannon that I think could make a difference in terms of access to capital and financial services throughout the state,” says Tristram Coffin, chair and CEO of Alternatives Federal Credit Union, based in Ithaca, New York. About three quarters of Alternatives’ members are low-income or very-low-income.
“The state has long struggled with how to take services at the scale of state government and have them really make a difference on the ground,” Coffin adds. “CDFIs by their very structure offer services at community scale and make person-to-person impact in ways that a more bureaucratic approach wouldn’t be able to duplicate.”
The Equity Factor is made possible with the support of the Surdna Foundation.
Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.