Legal Insight and Litigation

Shaky Ground for CDFIs: New Executive Orders Bring Uncertainty

Since assuming office on January 20, 2025, President Donald Trump has implemented a series of significant measures aimed at drastically reducing spending across the federal government. These efforts have the potential to dramatically alter states’ reliance on federal grant funding to support a wide range of programs that assist economically disadvantaged communities. In particular, President Trump’s recent executive order targeting the Community Development Financial Institutions Fund (CDFI Fund) not only raises concerns for Kentuckians who depend on its financial assistance for community based financial institutions, as well as for small businesses and infrastructure projects that benefit from the Fund’s incentives and investments.

Executive Order 14238

On March 14, 2025, President Trump signed an executive order aimed at continuing “the reduction in the elements of the Federal bureaucracy that the President has determined are unnecessary.” The Executive Order, titled “Continuing the Reduction of the Federal Bureaucracy,” directs seven governmental entities, including the Institute of Museum and Library Services, the United States Interagency Council on Homelessness, the Minority Business Development Agency, and the CDFI Fund, to eliminate, “to the maximum extent consistent with applicable law,” the “non-statutory components and functions of” such governmental entities, and to “reduce the performance of their statutory functions and associated personnel to the minimum presence and function required by law.”  Under the Order, these governmental entities were required to provide a report to the Director of the Office of Management and Budget (OMB) within seven days of the Order that demonstrated their compliance with the Order and provided explanation for “which components or functions of the governmental entity, if any, are statutorily required and to what extent.”

The Statutory Components and Functions of the CDFI Fund

A bipartisan initiative, the CDFI Fund was established under the Riegle Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325) to “promote economic revitalization and community development through investment in and assistance to community development financial institutions, including enhancing the liquidity of community development financial institutions.”  12 U.S.C.A. § 4701(b).  As an office administered by the Department of Treasury, many of the key components and functions of the CDFI Fund are authorized under the Riegle Community Development Act, while others are authorized under different Acts.

CDFI Program’s Under the Riegle Community Development Act

The Riegle Community Development Act authorized the CDFI Program, which directs the CDFI Fund to provide financial assistance and technical assistance to CDFIs certified under the Act to “invest in and build the capacity of CDFIs.” Financial assistance consists of various forms of monetary awards, provided to aid CDFIs in their development and support of numerous community services and facilities that “serve investment areas or targeted populations.” Technical assistance includes training opportunities for management and staff, as well as the “development of programs and investment or loan products” to “enhance the capacity of” CDFIs, and can be provided directly, by way of grant, or through contract with community development finance organizations that possess a certain level of expertise. Additionally, the Act authorized the Bank Enterprise Award (BEA) Program, which provides awards to depository institutions insured by the FDIC for expanding their assistance to CDFIs and promoting community development initiatives, and the Native American CDFI Assistance (NACA) Program, through which the CDFI Fund awards financial assistance.

Other Programs

In addition to the three programs authorized under the Riegle Community Development Act, the CDFI Fund is authorized under various statutes to administer seven other programs that are integral components to the governmental entity.

• The Community Renewal Tax Relief Act of 2000 authorized the New Markets Tax Credit (NMTC) Program, which is administered by the IRS and the CDFI Fund and is directed towards encouraging economic development and community progress through the use of tax credits to incentivize private investment in underserved areas.
• The Housing and Economic Recovery Act of 2008 authorized the Capital Magnet Fund (CMF), which provides monetary awards to CDFIs and certain non-profit housing organizations “to finance affordable housing activities,” “related economic development activities,” and “community service facilities.”
• The Small Business Jobs Act of 2010 authorized the CDFI Bond Guarantee (BG) Program to provide loans to CDFIs to “inject new and substantial investment into our nation’s most distressed communities.”
• The Dodd-Frank Wall Street Report and Consumer Protection Act authorized the administration of the Small Dollar Loan (SDL) Program, which offers a different avenue for CDFIs seeking small dollar loans.
• The Consolidated Appropriations Act of 2021 authorized the CDFI Equitable Recovery Program and the CDFI Rapid Response Program. Both Programs provide assistance to CDFIs in responding to COVID-19. This Act also authorized the Housing Production-Financial Assistance (HP-FA) Program which aids the development of affordable housing and seeks to increase homeownership for low-income and moderate-income families.

Support to Kentucky

While Kentucky may receive assistance from a number of the entities targeted in the Executive Order, its assistance from the CDFI Fund is particularly noteworthy. Since the Fund’s establishment, it has provided $728,284,569.00 in CDFI loans to Kentucky organizations and $1,188,953,695.00 in NMTC investments. In 2024 alone, the Fund awarded $5,392,672.00 to grow the financial resources available to Kentucky communities. Additionally, the Fund supports at least fourteen CDFIs in Kentucky that are organized to support economic development, affordable housing, and access to financial services.

What to Expect

Immediately upon issuing the Executive Order, CDFIs across the country had questions about how the CDFI Fund would be impacted by the Order. Four days after the Order, on March 19, twenty-three members of the United States Senate’s CDFI Caucus wrote a letter to Treasury Secretary Scott Bessent urging the Department not to eliminate key functions of the Fund, emphasizing how “more distressed communities are being served by CDFIs than ever before, more first-time buyers are receiving the financing they need to purchase a home, more community facilities are being built, and more commercial loans are reaching entrepreneurs.”

In apparent response to these concerns, on March 21, the Department of Treasury confirmed its position that “[t]he CDFI Fund programs and related activities are statutorily authorized,” that the Fund “is operating as normal and does not anticipate any disruptions to the programs,” and that “[s]enior leadership at [the] Treasury has consistently expressed support for CDFIs.”

Despite the reassurance from the Department of Treasury, the actual impact of the Executive Order on the Fund’s programs and assistance remains unknown, as it hinges on the CDFI Fund’s arguments for its statutory authorization in its report to the OMB. Small businesses, economic developers, and community financial institutions should be on the lookout for details from the CDFI Fund’s report to the OMB. For more information about how these orders may affect your organization, contact your McBrayer attorney today.

Kara Legg is an Associate at McBrayer's Lexington office where she specializes in economic development with a particular emphasis on industrial development authorities and the procurement of funding through the business programs available in Kentucky. Ms. Legg can be reached at klegg@mcbrayerfirm.com and (859) 551-3685.

Services may be performed by others. This article does not constitute legal advice.