FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon and thank you, Tony, for the kind introduction. I want to thank you for inviting me to speak here today and for asking the CDFI Fund to join forces with NCUA as a partner in helping to better serve the Colonias.

It gives me great pleasure to be here today to represent the CDFI Fund, as well as to bring you warm greetings from the Secretary of the Treasury, Paul O’Neill and yesterday I understand you heard from the Treasurer of the United States, Rosario Marin – a committed advocate for improving financial literacy across America.

We value our working relationship with NCUA and we commend NCUA for its commitment to serving low-income communities like the Colonias through its credit unions and its Community Development Revolving Loan Fund.

I have been informed that NCUA has designated 887 low-income credit unions across the country. The CDFI Fund has certified 105 of these organizations as CDFIs. Part of my message today is to the low-income designated credit unions that have yet to be certified by the Fund. I am here to invite you to the Treasury family of certified CDFIs – what are you waiting on!

Now, before I delve deeper into being certified as a CDFI can I have a show of hands of all those here that are representing an actual credit union? Of you, how many have NCUA’s Low-Income Designation? Finally, are there any credit unions that are certified CDFIs?

Thank you.

First, let me explain why you, as credit unions, are important to the CDFI Fund.

The mission of the CDFI Fund is to expand the capacity of financial institutions to provide credit, capital and financial services in economically distressed rural and urban communities. Put simply, the CDFI Fund invests in institutions that in turn provide capital and financial services to underserved people and communities.

The CDFI Fund invests in credit unions because credit unions serve low-income communities.

Information compiled from a CRA Wiz database reported that in 2000 36% of credit union institutions were located in low-income areas, compared to only 20% for banks and 19% for thrift institutions.

Secretary O’Neill has challenged the CDFI Fund to leverage the knowledge of community development expertise and advance the innovative programs that improve the lives of Americans and our communities.

We know that community development credit unions are frontline institutions. It would be a great testament to our partnership with NCUA if all 887 of its designated low-income credit unions became certified CDFIs. I am willing to accept this as a goal and work with NCUA to make this happen. Tony, what do you think?

Through 2002 (over six years), the CDFI Fund has invested almost $37 million in Credit Unions that focus on providing financial services to low-income communities and persons. We believe in the work you do to bring economic stability to our nation’s distressed communities.

Through your work, you help the Fund achieve its vision of an America in which all people have access to capital, credit and financial services.

The objectives of the CDFI Fund’s investments are simple and clear:

• Our goal is to increase financing to businesses and individuals desiring to start businesses with low wealth, limited capital and are located in underserved communities;
• We desire to expand the supply and quality of housing units for underserved communities and populations; as well as increase homeownership rates among minority groups;
• We want to expand access to affordable financial services to the unbanked, low-income persons and others in underserved communities.
• These objectives sound like a charter for a community development credit union – right!
• By providing capital to CDCUs, we plan on continuing to be an effective partner in helping credit unions "provide access to capital to all Americans."

The Fund promotes access to capital and local economic growth in three ways:

1. through our CDFI Program by directly investing in and supporting community development financial institutions (CDFIs);
2. through our Bank Enterprise Award (BEA) Program by providing an incentive to banks and thrifts (FDIC-insured depositors) to invest in their communities and in other CDFIs, and
3. through our newest program - New Markets Tax Credit (NMTC) Program by providing an allocation of tax credits to Community Development Entities (CDEs) which enable them to attract investment from the private sector and reinvest these amounts in low income communities.

CDFIs are specialized financial institutions that work in market niches that have not been adequately served by traditional lenders.

The organizations we support are able to lend in ways that are more flexible or innovative than traditionally regulated financial institutions. To date, we have certified 603 financial institutions as CDFIs across the country. The organizations we certify at the Department of the Treasury are engaged in a variety of activities.

We continue to certify and re-certify about 200 new CDFIs each year. Yet, it’s not the number of CDFIs certified that you should be impressed with. It’s the fact that these CDFIs service 98% of the nation’s most distressed urban and rural communities.

Unlike NCUA, OCC or the OTS, the CDFI Fund is not a regulator. No, we do not regulate CDFIs. I like to coin us as "determinators." The Fund is determined to see low income communities, like the Colinias, thrive.

We are determined to see CDCUs with sufficient equity capital to provide financial services to make a difference in the lives of their customers.

The new paradigm at the CDFI Fund is to view our partnership with CDFIs as a catalyst for vigorous community and economic development financing activity. In FY 2003, the Fund will introduce a newly developed concept called "Hot Zones" to help prioritize and direct the Fund’s investments.

Hot Zones are areas like the Colonias with high levels of distress (i.e., Poverty Rate of at least 20%, and income levels at or below 80% of the Area Median Income, with an Unemployment Rate that is at least 1.5 times the national average). Hot Zones will identify areas around the country with the greatest community development needs and limited availability of financial services from banks, thrifts and credit unions.

Hot Zone counties and census tracts in MSAs will be grouped by state.

CDFI Program awards will target those applicants serving Hot Zones.

By managing our resources within Hot Zones, the Fund will give an advantage to communities like the Colonias to be served by CDFIs. Our dollars will be prioritized for investments into areas with the greatest needs and among CDFIs that can produce measurable impact.

Next year, during Congressional budget hearings, I’ll be able to testify that the nation, through its network of CDFIs, reaches America’s most distressed communities.

Our communities, through compassion and community activism, have built a financial network that is dedicated to improving the lives our most economically deprived communities and citizenry. The reach of this financial network is unprecedented. The reach of this financial network is impressive.

The CDFI Fund is a lifeline and we are committed to our mission and customer service delivery to you. We are committed to building the strength and capacity of this CDFI financial network to do more by improving the economic conditions of the markets they serve.

We are Determinators!

Okay, let me stop with my sermon and give you some details about our program!

Earlier, I mentioned our three programs:

Since 1996, investments in certified CDFIs have been the cornerstone of our program. The Fund has made approximately 1,350 awards totaling over $580 million to financial institutions dedicated to community development.

Our second strategy is to provide incentives for regulated banks and thrifts to invest in CDFIs and to increase their lending and financial services in distressed communities. We do this through the Bank Enterprise Award (BEA) Program that recognizes the key role played by traditional financial institutions in community development. To date, banks and thrifts receiving awards have provided $959 million in financial support or technical assistance directly to CDFIs, $1.6 million of this went to CDCUs last year alone in the form of deposits, grants and secondary capital investments.

Our third strategy involves the use of tax credits to increase the flow of private capital in low-income areas.

On December 21, 2000, the Community Renewal Tax Relief Act of 2000 was signed into law. This law created the New Markets Tax Credit Program.

It is designed to help stimulate up to $15 billion, yes billion, of needed private sector investments in low-income communities across the country, including areas like the Colonias and other portions of El Paso, TX. NMTC offers us this tremendous chance to focus on these communities.

By making an equity investment in an eligible "community development entity" (or CDE), individual and corporate investors can receive a New Markets Tax Credit worth 39 percent of the amount invested over the seven-year life of the credit.

By offering a tax credit, the New Markets Program encourages private investment in underserved communities in an unprecedented manner. If investors embrace the program, it will be a significant source of new capital that will help to stimulate new industries and entrepreneurs, and to generate new jobs in low-income communities.

We expect to allocate up to $2.5 billion in such equity in calendar year 2002. The deadline for the first competitive round for allocations was August 29^, 2002.

We need the NMTC Program to be the impetus to increase the flow of private capital into low-income communities. Direct subsidies from the Federal government alone will not do it.

Now, you may be wondering:

Can a credit union be a CDE? Yes, it can. To be a CDE you must have a primary mission of community development and be accountable to your market. For those credit unions that are certified as CDFIs, you will be automatically deemed a CDE. For credit unions that are not CDFIs, if you have that low-income designation from NCUA, you will be automatically deemed as meeting the primary mission test by virtue of your status.

Can a credit union apply for an allocation of tax credits? No, it cannot. In order to apply for an allocation of tax credits you need to be a for-profit entity. BUT, with CDE designation you can potentially sell loans to for-profit CDEs who successfully competed for an allocation of tax credits.

Of these three strategies, the most relevant for this audience is the first – our CDFI Program. To participate in the CDFI Program you must become a certified CDFI and apply to the Fund for funding.

To be certified as a CDFI, the institution must be a legal entity and meet all of the following requirements:

• Has a Primary Mission of community development;
• Serves an eligible Target Market;
• Is predominantly a Financing Entity;
• Provides Development Services;
• Is Accountable to the target market; and
• Is a Non-Governmental Entity.

Once the Fund has certified an institution as a CDFI, the institution is eligible to compete for funding under the CDFI Program.

The Fund has been very sensitive to the needs of credit unions to raise capital. Credit unions can, and many have, assessed our programs.

Through our TA program, you can hire consultants to help refine new products, acquire needed technology or train staff. (No match requirement.)

Under our new Small Capitalization program, the Fund has increased the level of capital that CDFIs can request to $500,000, up from $150,000 under the old SECA program. Additionally, we have increased the eligibility for this program so that credit unions up to $25 million in assets are able to apply for these funds.

The Core Component of our CDFI Program allows greater sums of money to larger CDFIs, often to build their capital and loan loss reserves. Annual awards in this category are capped at $3 million.

It is important to note here, that one of the greatest single limitations on our funding to Community Development Credit Unions is the availability of appropriate matching funds.

In order to participate in the (financial assistance component) CDFI Program, you must have $1 in matching funds for every dollar of financial assistance that you request from the Fund.

If you are considering partnering with the Fund, any concern as to the financial viability or a potential merger of organizations (based on information provided by NCUA) could be a cause for denial if you get through the competitive review.

We cannot be seen as a source of funds for failing credit unions. If you are in a turn-around position, the Fund will consider supporting you, if you can show that you are also bringing other sources of support to the table and you are undertaking system changes to ensure future financial stability.

So I strongly encourage you to consider utilizing the CDFI Fund and its programs as part of your strategy to serve the Colonias.

In conclusion, I believe that the CDFI Fund has been a valuable program of matching the capital raised by local communities to serve the credit needs of underserved populations. We will continue to work with NCUA and others across the country to develop the best tools to meet the needs of our nation’s low-income communities and to help make the CDFI Fund even more impact to your capital fund raising needs.

President Bush expressed that his vision for the country is to provide economic prosperity and security for America’s citizens.

At the CDFI Fund, we play an active role in the President’s vision for a more prosperous America.

We believe that ALL Americans should have access to capital, credit and financial services.

We believe that communities in need, can be improved.

We believe in you and the potential that you can make in the lives of your customers and the communities you serve, or plan to serve, in the Colonias.

It has been an honor to join you today and I look forward to working with you in the months to come.

Thank you very much.