Community Development

Access to credit and investment capital is essential for creating and retaining jobs, developing affordable housing, revitalizing neighborhoods, and promoting the growth of small businesses. In economically distressed communities, community development financial institutions (CDFI), such as nonprofit loan funds and community development credit unions, provide lending and investment services. In 1994, recognizing that such institutions often have difficulty meeting the demand for their services, Congress created the CDFI Fund, which seeks to expand access to credit and other financial services in distressed communities through two programs. The CDFI program provides financing and technical assistance to CDFIs, while the Bank Enterprise Award program rewards banks and thrifts for providing similar services to CDFIs. In response to a legislative mandate, GAO found that the CDFI Fund in fiscal year 1996 complied with the CDFI Act's requirements for negotiating performance goals and measures based on the awardees' business plans. GAO found these goals and measures are consistent with the CDFI program's mission of promoting economic revitalization and community development. However, because the CDFI Act provides no specific guidance for evaluating performance measures, GAO applied standards found in the Government Performance and Results Act. Using these standards, GAO's evaluation of the awardees' assistance agreements revealed an emphasis on measures of activity, such as the number of loans made, rather than on measures of accomplishment, such as the net number of jobs created or retained.

GAO noted that: (1) for fiscal year 1996, the Fund complied with the CDFI Act's requirements for negotiating performance goals and measures based on the awardees' business plans; (2) moreover, these goals and measures are consistent with the CDFI program's mission of promoting economic revitalization and community development; (3) however, because the CDFI Act provides no specific guidance for evaluating performance measures, GAO applied the Results Act's standards to the goals and measures that the Fund negotiated in assistance agreements with the 1996 awardees; (4) GAO found that the Fund could improve the nature, completeness, and specificity of these goals and measures; (5) GAO's evaluation of the awardees' assistance agreements revealed an emphasis on measures of activity, rather than on measures of accomplishment; (6) as a result, the assistance agreements focus primarily on what the awardees will do, rather than on how their activities will affect the distressed communities; (7) GAO's evaluation also revealed occasional omissions of measures for key aspects of goals and widespread omissions of baseline data and information on target markets; (8) primarily because of staffing limits, the Fund has just begun to develop mandated monitoring and evaluation systems; (9) given that most awardees have just recently signed their assistance agreements, it is still too early to assess their progress; (10) the impact of the BEA program on banks' lending and investment in CDFIs and distressed communities is difficult to isolate from the impact of regulatory and other economic incentives; (11) moreover, because the Fund did not require banks to report material changes in rewarded investments, it did not have a systematic way of learning about any such changes; (12) the Fund is not authorized to address what banks do with their award funds; however, most awardees have reported that they have reinvested at least a portion of their awards in community development activities; (13) the Fund's current strategic plan contains all of the elements required by the Results Act and suggested by the Office of Management and Budget's implementing guidance; (14) however, these elements generally lack the clarity, specificity, and linkage with one another that the act envisioned; (15) in addition, the plan does not describe the relationship of its activities to similar ones in other government agencies, and it does not indicate whether or how the Fund coordinated with other agencies in developing the plan; and (16) these difficulties are similar to those experienced by other federal agencies in implementing the Results Act's requirements.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Team: Phone: