Van Hollen, Schatz Introduce New Bill to Create CDFI Crisis Fund
Crisis Fund Would Automatically Provide Aid During Natural Disasters and Economic Crises, Including the Current Pandemic
U.S. Senators Chris Van Hollen (D-Md.) and Brian Schatz (D-Hawai’i) have introduced legislation to create a new $2 billion fund for Community Development Financial Institutions (CDFIs) that would automatically provide capital during a natural disaster or economic crisis, giving impacted communities the support they need for a faster and fuller recovery.
“CDFIs are a key vehicle for funding businesses and projects in economically underserved communities, and the recession caused by the COVID-19 pandemic has hit these communities hardest. While we work on getting emergency funds to these neighborhoods, we must invest in keeping businesses and families afloat during both this and future crises by creating an automatic boost for this resource,” said Senator Van Hollen.
Senator Van Hollen has introduced legislation to inject $1 billion into the existing CDFI fund to jumpstart economic activity in these hard-hit communities.
“This pandemic has shown us that when a crisis or a disaster strikes, families and communities need immediate support,” said Senator Schatz. “By creating a crisis fund for CDFIs with automatic triggers, we can quickly provide aid to the people and small businesses that need it most.”
Natural disasters can wreak havoc on personal finances. They lower credit scores and increase debt collections, bankruptcies, credit card debt, and mortgage delinquencies and foreclosures. These impacts are more acute for low-income communities and communities of color. Economic crises also cause lasting damage. The 2008 financial crisis and resulting recession caused median household wealth to drop 39 percent between 2007 and 2010. This loss of wealth and increase in poverty disproportionately impacted younger, lower income, and minority households.
CDFIs are well positioned to help underserved areas recover from natural disasters and severe economic crises. Mission-driven and integrated into their communities, CDFIs offer flexible financial products and services and advising and other wrap-around services to individual and small business borrowers in underserved communities.
They are more likely to provide financial services to low-income, rural, and other underserved communities than mainstream financial institutions. In 2019, 75 percent of CDFI lending went to low-income populations, 20 percent of total lending went to rural areas, and 19 percent went to persistent poverty areas.
The bill creates a new $2 billion CDFI Crisis Fund that serves as a complement to the general CDFI Fund. Like FEMA’s Disaster Relief Fund, the CDFI Crisis Fund will be refilled as funds are deployed each year. The CDFI Crisis Fund can be activated nationally or state-wide through the following automatic triggers:
- For economic crisis: The Sahm Rule—an increase in the state’s six-month moving average unemployment rate (or if nationally, three-month moving average) by 0.50 percentage points or more relative to its low during the previous 12 months.
- For natural disasters, a Stafford Act major disaster declaration where the Individual Assistance Program is activated. Funds are available state-wide if a majority of residents live in a declared county, or for affected county use otherwise.
The bill is supported by the Opportunity Finance Network, National Community Reinvestment Coalition, Native CDFI Network, Opportunity Fund, Local Initiatives Support Coalition, Inclusiv, Prosperity Now, Enterprise, National Association of Realtors, and Credit Union National Association.
The full text of the bill is available here.
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