By Stacy Augustine
Last month, the Cato Institute published a briefing paper calling on Congress to eliminate the Community Development Financial Institution (CDFI) Fund. It’s no surprise that a libertarian think tank dedicated to less government is taking this position. But as someone who works to help credit unions leverage CDFI certification to transform communities, I can’t let the briefing go unanswered.
The Cato paper’s arguments focus heavily on the New Markets Tax Credit (NMTC) program, questioning whether it delivers value. But by critiquing the value of the CDFI Fund through the lens of the NMTC, it ignores the full portfolio of proven, targeted programs that fuel economic growth and financial inclusion in ways the private market alone does not.
For credit unions, the award programs are often the most visible: the Financial Assistance (FA), Technical Assistance (TA), and Small Dollar Loan (SDL) Awards. But these are part of a broader ecosystem. The Fund also manages the Capital Magnet Fund, Bank Enterprise Award Program, and, yes, NMTC; each targets specific financing gaps in our economy.
Taken together, they represent a national commitment to reaching communities often overlooked by traditional finance.
What the Numbers Say — Not the Rhetoric
Critics often frame these programs as “corporate welfare.” The reality is very different:
- In the most recent reporting year, CDFI Program awardees originated over $24 billion in loans and investments, financed more than 45,000 affordable housing units, and served over 109,000 businesses. Those numbers aren’t projections; they’re documented results reported to Treasury.
- The NMTC program alone has attracted billions in private capital to low-income communities, a leverage effect confirmed by independent evaluations.
- FA, TA, and SDL programs help CDFIs build capacity, launch innovative products, and provide safe, affordable alternatives to high-cost lending, all while leveraging local partnerships.
The Cato paper gives almost no attention to these outcomes. It also overlooks the demand: in FY 2024, CDFI Fund programs received far more eligible applications than they could fund, proof that the need for these investments is strong throughout the country.
Why CUs Should Care About More Than “Our” Slice
The credit union movement benefits from the healthy ecosystem the CDFI Fund supports. The Capital Magnet Fund helps create and preserve affordable housing that our members can live in. The Bank Enterprise Award Program strengthens community banking in places where we also serve. And NMTCs have financed community health centers, manufacturing facilities, and grocery stores that our members rely on.
Our Job as Credit Union Professionals
That said, continued support isn’t automatic. It’s reinforced every time a CDFI leader invites a member of Congress to tour their organization, meet those impacted in the community and hear firsthand how a CDFI Fund award turned an idea into a reality.
So, here’s my ask: keep telling your stories. Pair the data with the human impact. Show how these programs strengthen your ability to serve your community.
Claims Vs. Facts
Cato’s Claim: The CDFI Fund is “corporate welfare” for politically favored lenders.
The Facts: CDFI Fund awards are performance-based investments that must be deployed in low-income or otherwise underserved communities. Programs like FA, TA, SDL, Capital Magnet Fund, and NMTC require measurable outputs (such as loans closed, housing units built, and businesses financed) and are monitored by Treasury
Cato’s Claim: The New Markets Tax Credit (NMTC) is inefficient and funds projects that would happen anyway.
The Facts: Independent evaluations (Urban Institute, GAO) have confirmed that the NMTC Program attracts new private capital to low-income communities. Typical NMTC projects include health clinics, schools, grocery stores, and manufacturing facilities, often in places where no other viable financing exists. NMTC transactions require rigorous “but-for” tests and community benefit reporting.
Cato’s Claim: Grant programs aren’t necessary because the private market can meet these needs.
The Facts: The private market often can’t or won’t serve borrowers with thin credit files, smaller loan sizes, or projects in rural or persistently poor counties. FA, TA, and SDL awards bridge that gap, enabling credit unions and other CDFIs to serve members the market overlooks — without sacrificing safety and soundness. CDFI Fund programs represent an effective public/private partnership. Instead of developing direct outreach programs administered out of Washington, DC, the programs fund the most effective lenders embedded in local communities and with direct understanding of community needs.
Cato’s Claims: CDFI Fund programs have outlived their purpose
The Facts: Demand continues to outpace supply: in FY 2024, CDFI Program applicants requested over $1 billion in FA funding alone, far more than could be awarded. Communities still lack affordable capital, and these programs are designed to respond directly to that need
Cato’s Claim: The CDFI Fund lacks accountability
The Facts: Every award comes with compliance and reporting requirements. Treasury’s Office of Inspector General has conducted program audits without adverse findings. Awardees that fail to meet performance goals face penalties or repayment obligations
The government should invest in what works
Cato’s analysis misses an important point. The government should eliminate wasteful and superfluous programs, but – at least when it comes to credit unions – FA grants have a 10:1 leverage ratio. This means that for every dollar the government puts into the program, ten are invested in local communities. This is the kind of investment that pays off in terms of outcomes.
Why Congress keeps saying “yes”
The CDFI Fund has enjoyed bipartisan support for 30 years because it works. Lawmakers from both parties have seen the results in their districts: revitalized main streets, thriving small businesses, more first-time homeowners, and stronger local economies. That’s why, while it’s hardly surprising that the Cato Institute takes aim at a Treasury program dedicated to community investment, it’s equally unsurprising that their arguments haven’t gained meaningful traction on Capitol Hill.
The Takeaway
The CDFI Fund is not a niche benefit for a handful of institutions. It’s a national investment in equitable growth that lifts up the communities that credit unions were created to serve. Let’s be ready to stand up for it when it’s questioned. And let’s speak with one clear, confident voice: the CDFI Fund works, and our members and communities are better for it.
Stacy Augustine is president of CU Strategic Planning.
