A proposal to spur development in underserved communities is currently working its way through the U.S. Senate, although its prospects in the House remain uncertain until that chamber elects a new Speaker.
As introduced, the Community Development Investment Tax Credit is designed to free up capital for what are known as community development financial institutions.
In presenting the legislation, Virginia Senator Mark Warner remarked that “talent and ambition are not confined by income bracket or zip code.”
But, he added: “Unfortunately, access to start-up capital often is.”
The bill would make both increased equity and long-term financial capital available for thousands of smaller banking institutions that provide financing in disadvantaged and low-to-moderate income communities.
The bill, continued Warner, will create a “new tax credit, helping to spur important private-sector investments and allowing these communities lenders to grow.”
In a statement submitted to the U.S. Senate Committee on Banking, Housing, and Urban Affairs, the American Bankers Association this week noted that the legislation provides a “comprehensive framework for incentivizing investments” in both Community Development Financial Institutions as well as Minority Depository Institutions.
In so doing, continues the ABA statement, the tax incentives encourage the “flow of capital into these vital institutions, stimulating local economies, creating jobs, and empowering disadvantaged individuals and businesses.”
The legislation was originally introduced last year by Warner and Mississippi Senator Roger Wicker but failed for a lack of action.
In an interview with the Albuquerque Journal, Joshua Smith, New Mexico senior vice president of the Washington Federal Bank, remarked that CDFIs additionally play a “huge part in facilitating financial literacy, business plan development, and also just giving people a confidence that they have resources to support them as they build small businesses.”
The Senate bill, which could be voted upon in the next several weeks, is also requesting up to $341 million for a CDFI fund.
By Garry Boulard
