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 Institution 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.

Since taking office, one of President Clinton's highest priorities has been to foster growth in economically distressed communities. I have long thought -- and I know President Clinton shares this belief -- that 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 deal with the problems of the inner city and other economically distressed communities. Just think of the difference it would make in terms of increasing productivity and standards of living while reducing the costs connected with social problems if we can bring the residents of these areas into the economic mainstream.

The Administration's strategy has three components: investing in people, through education, and training; strengthening public safety; and fostering economic and community development. At Treasury, we are energetically involved in this effort by bringing our broad expertise in the capital markets to bear on these issues. One of the most important components of our strategy is the CDFI Fund, which made its first round of awards in July 1996.

In CDFI, I believe we have a new, more market-driven approach in fostering economic growth in economically distressed areas. In many respects, we are witnessing a quiet revolution in the approach taken to these issues by helping the public sector and non-profit organizations work with mainstream banks and other financial institutions to create jobs and promote growth. The 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 development is a lack of access to mainstream sources of private sector capital for jobs and growth because residents are turned down by financial institutions. In short, the CDFI Fund is helping to provide capital to promote private sector activity in communities across the country.

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. Both programs pursue strategies designed to meet unique local needs to help each community deal with its particular circumstances, whether it is helping people buy a house, or start a business, with the goal of moving all Americans into the economic mainstream.

The program is still young, but we are already seeing signs of success. Thus far we have awarded $75 million to nearly 80 CDFIs around the country. As required by law, these dollars are matched one-to-one with non-Federal dollars by CDFI award recipients. As a result, these investments will leverage at least twice the amount of capital awarded and sometimes more.

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 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' 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 a "School Banking" program 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 furniture to friends and began making furniture full time. Andrew 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 and this loan 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 investing in CDFIs. This year we received 104 applications, a 40 percent increase over last year's applications. Moreover, many of the awardees are choosing to reinvest the awards they receive for past performance back into community development projects. They are by no means required to do so. The Fund's $30 million in BEA investments have already leveraged $273 million in bank activities. In this way, the CDFI Fund is getting increased private sector leverage for federal dollars.

Citibank, for example, which was awarded $227,250 for providing investments of $1.5 million to 13 organizations serving distressed communities throughout the United States, is using its award to help build the capacity and skills of CDFIs.

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 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. We are moving this program forward with the new leadership of Ellen Lazar, who I believe brings to the job the dedication, experience and energy needed to implement the CDFI Fund's important work in the years ahead.

Mr. Chairman, we now have a vision that makes sense, a program that is up and running, and money that has begun to flow to communities and make a difference in people's lives. Since its inception, CDFI has enjoyed bipartisan support and I look forward to working with all of you to reauthorize it next year and secure stable and adequate funding going forward so that communities across the country can continue to benefit from the Fund's work. And that is a very good investment in the long-term economic well being of not only the people who live in those areas, but all of us. Thank you very much.