Community Development

Early Results of the Community Development Financial Institutions Fund's Programs Gao ID: T-RCED-98-229 June 17, 1998

Community-based financial institutions have improved the economic well-being of economically distressed neighborhoods through lending and investments tailored to these communities. In 1994, recognizing that such institutions were relatively few in number and small in size and often had difficult meeting the demand for their services, Congress created the Community Development Financial Institutions (CDFI) Fund. So far, the Fund has sought to expand access to credit and other financial services in distressed communities through two programs--the CDFI and the Bank Enterprise Award programs. The CDFI program provides a range of for-profit and nonprofit financial institutions with financial and technical help to support their efforts in distressed communities and monitors their performance during a period of at least five years. The Bank Enterprise Award program rewards banks for increased lending and investments in CDFIs or in distressed neighborhoods. This testimony focuses on the first year's performance of the CDFI and the Bank Enterprise Award programs and identifies ways to improve their effectiveness. GAO also reviews the Fund's progress in meeting the strategic planning requirements of the Government Performance and Results Act of 1993.

GAO noted that: (1) as of January 1998, the Fund had entered into assistance agreements with 26 of the 31 CDFIs that received awards in 1996; (2) these agreements include performance goals and measures that were based on the business plans submitted by awardees in their application packages and negotiated between the Fund and the awardees, as the CDFI Act requires; (3) these agreements are consistent with the program's objectives; (4) using the Results Act for guidance, GAO found that the performance measures in the assistance agreements generally assess activities rather than accomplishments reflecting the results of activities; (5) GAO further found that although the performance measures in the assistance agreements are generally related to specific goals, they do not always address all key aspects of the goals, and most assistance agreements lack baseline data that would facilitate tracking progress over time; (6) the Fund has developed reporting requirements for awardees to collect information for monitoring their performance and is developing post-award monitoring procedures for assessing their compliance with their assistance agreements; (7) the Fund currently does not have a system for evaluating the impact of awardees' activities; (8) although the Fund has disbursed about 80 percent of the fiscal year 1996 BEA awards funds, it is difficult to determine the extent to which the program has encouraged the 38 awardees to increase their investments in distressed communities; (9) in addition, some banks do not collect all of the data on their activities needed to guarantee that increases in investments under the BEA program are not being offset by decreases in other investments in these distressed areas; (10) furthermore, the Fund cannot be assured that banks' increased investments remain in place because it does not require banks to report any material changes in the status of these investments; (11) the CDFI Fund's strategic plan contains all of the elements required by the Results Act and the Office of Management and Budget's associated guidance, but these elements generally lack the clarity, specificity, and linkage with one another that the act envisioned; (12) although the plan identifies key external factors that could affect the Fund's mission, it does not relate these factors to the Fund's strategic goals and objectives and does not indicate how the Fund will take the factors into account when assessing awardees' progress toward goals; and (13) in addition, the plan does not describe the relationship of its activities to similar activities in other government agencies.

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