FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, members of the Subcommittee, it is a pleasure to speak with you today about our Fiscal Year 1999 budget request for the Community Development Financial Institutions Fund. I am pleased to be joined today by Ellen Lazar, the new Director of the CDFI Fund.

The President's budget for FY99 includes $125 million for the CDFI Fund. This funding is a critical component of our strategy to promote private sector-led economic growth in economically distressed areas.

As Secretary Rubin has often said, this is an issue of vital importance to all of us -- no matter where we live or what our incomes may be. It is a fundamental national economic issue, because our country will never reach its full economic potential, unless we succeed in bringing all Americans into the economic mainstream.

The Administration's strategy has three components: investing in people, through education and training; strengthening public safety; and encouraging business investment with improved access to capital to create jobs and foster growth. At Treasury, we are energetically involved in this effort by bringing our broad expertise in financial institutions and tax policy to bear on these issues, from tax incentives for investment to strengthened regulations under the Community Reinvestment Act. One of the most important components of our strategy is the CDFI Fund.

The CDFI Fund's aim is to expand access to credit and financial services in lower income urban, rural, and Native American communities, areas where one of the biggest obstacles to economic growth is a lack of access to private sector capital. With CDFI, I believe we have a new, more market-driven approach to community development. CDFIs around the country, with the Fund's support, are helping to open up new markets, demonstrate the viability of lending to low income communities, partner with mainstream financial institutions in innovative ways, and mentor and grow small businesses. By filling market niches and drawing mainstream financial institutions into low income communities through partnerships, CDFIs help to make our financial system work for more Americans. In many respects, we are witnessing a quiet revolution in the approach taken to community development, with CDFIs helping to prime the pump.

The CDFI Fund has two main programs: the CDFI program, which is designed to assist specialized community development financial institutions, and the Bank Enterprise Award program, which rewards financial institutions that are increasing their lending and providing more financial services in distressed communities. The two programs are complementary, and both pursue strategies designed to meet unique local needs, whether it is helping families to buy a house, or a budding entrepreneur to start a business, or a community to provide the child care facilities working families need.

The program is still young, but we are already seeing signs of success. Thus far, the Fund has awarded $75 million to nearly 80 CDFIs around the country. These dollars are required to be matched at least one-to-one with non-Federal dollars by CDFI award recipients. Moreover, the Fund's investments become part of the capital base of the CDFIs, further leveraging federal dollars. Finally, the federal dollars are leveraged again, as the CDFIs, often with other financial participants, make investments or loans for individual projects.

These investments are making a difference. For example, Bethex Federal Credit Union in the South Bronx, a small financial institution originally founded in 1970 by former welfare recipients, received a $100,000 grant from the CDFI Fund to expand its financial services and increase its business lending. Over the past 18 months, Bethex's membership has grown from 1,270 to 3,000 and its assets have increased from $1.6 million to $3 million.

In addition, Bethex has launched "School Banking," to encourage savings among students.

Let me describe the impact that the Fund had on one individual. Andrew Fuentes of San Antonio was too ill to return to his construction job. At his wife's suggestion, he made a table and set of chairs for their empty kitchen out of some old wood. Soon afterward, Mr. Fuentes was selling his rustic furniture to friends, and he began making furniture full time. Fuentes approached several banks for a loan to expand his business, but was turned down because of his credit history. He eventually applied for and obtained a $3,000 loan from ACCION Texas, a local 1996 CDFI awardee. This loan has already allowed him to expand his inventory and double his sales.

With respect to the BEA program, more banks and thrifts than ever before are reaching out to their communities and are investing in CDFIs. This year, the Fund received 104 applications, a 40 percent increase over last year's applications. The Fund's $30 million in BEA investments have already leveraged $273 million in bank activities. Moreover, many of the awardees are choosing to reinvest the awards they receive for past performance back into community development projects. In this way, the CDFI Fund is getting increased private sector leverage for federal dollars.

Central Bank of Kansas City, Missouri, for example, was awarded $99,869 for increasing its loans and services in distressed neighborhoods by more than $8.3 million during the first half of 1996. In addition to loans for housing and other purposes, the bank made a significant loan to help a major manufacturer and employer remain in the community.

As with any new organization, there have been some growing pains. Let me emphasize that congressional oversight has been useful in helping the Fund strengthen its internal controls and procedures. I believe that we have dealt with those problems effectively, and we will continue to improve procedures as this program grows and matures. In fact, the Fund was recently given an unqualified audit for its activities since inception. The audit also confirmed the findings of the Fund's management that material weaknesses had existed in the past, and that the Fund had corrected or was in the process of correcting each of those weaknesses. We are moving this program forward with the new leadership of Ellen Lazar, who I believe brings to the job the dedication, the many years of experience in community development, and the energy needed to implement the CDFI Fund's important work in the years ahead.

Mr. Chairman, the Fund's vision makes sense, it has strengthened its internal controls, and the Fund's investments are beginning to make a difference in people's lives. Since its inception, CDFI has enjoyed bipartisan support. I look forward to working with all of you to secure the President's request for $125 million in funding for Fiscal Year 1999, so that CDFI can help more local communities across the country rebuild neighborhoods, create jobs, and restore hope. CDFI is a solid investment in the long-term economic well being of not only those communities, but all of us. Thank you very much.