WASHINGTON – U.S. Senator Martin Heinrich (D-N.M.), along with nine Democratic Senate colleagues, 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.
“It is critical that when any kind of disaster strikes – we are prepared for an immediate response,” said Heinrich. “The COVID-19 pandemic has proven that we need to strengthen our current federal and economic response systems. This new crisis fund for CDFIs would ensure that aid for small businesses and individuals can be quickly activated so that those in need during natural or economic crises get the assistance they need immediately.”
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 legislation, led by U.S. Senator Brian Schatz (D-Hawai’i), is cosponsored by U.S. Senators Tammy Baldwin (D-Wis.), Chris Van Hollen (D-Md.), Kirsten Gillibrand (D-N.Y.), Ron Wyden (D-Ore.), Elizabeth Warren (D-Mass.), Dianne Feinstein (D-Calif.), Richard Blumenthal (D-Conn.), and Bernie Sanders (I-Vt.).
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.
For a copy of the bill, click here.