Talking Heads, Annie Donovan, CDFI Fund

10 min read

Few people are better qualified to oversee the New Markets Tax Credit (NMTC) program than the current director of the Community Development Financial Institutions Fund (CDFI Fund), Annie Donovan.

For over 30 years, Donovan has worked in the public and private sectors to help revitalize struggling communities, including stints as a senior policy advisor at the White House and as the chief operating officer of Capital Impact Partners, a certified Community Development Financial Institution (CDFI) focused on education, healthcare, long-term care and affordable homeownership finance.

Donovan is the 10th of 11 children who grew up in a working-class neighborhood in Pittsburgh, Pennsylvania.

Her parents had high expectations for her and her siblings, despite the lack of resources. Even though her mother had a lot of mouths to feed, there was usually an extra place setting at the dinner table for neighbors, friends and especially anyone her mother was worried might be suffering from social isolation. These experiences influenced Donovan in many ways. After graduating from college in the mid-1980s, she joined the Peace Corps and spent the next two years working in a poor coastal fishing village in Jamaica that she says was a transformative experience, inspiring her to choose community development as a career.

Since she took over as director in 2014, the CDFI Fund has made the NMTC a more efficient tool for social change by enhancing data collection, streamlining application procedures and breaking down bureaucratic barriers. Tax Credit Advisor sat down with Donovan to talk about these achievements and future priorities.

Tax Credit Advisor: Let’s discuss your early life. Where did you grow up? What led you to choose community development as a career path?

Annie Donovan: I grew up in Pittsburgh at a time when the steel industry was in decline. By the time I left for college in 1982, the city was in a pretty bad way. Today, Pittsburgh has reinvented itself in many positive ways, but when I go back to my old neighborhood, I am distressed and discouraged because the kids growing up there don’t seem to have the same opportunities that I had, and that saddens me. Coming out of college, I joined the Peace Corps and spent two years in Jamaica.

I lived in a community that was very poor, but the people were resourceful, smart and caring. I asked myself, why was I privileged enough to be born into a situation where I had opportunities to pursue my potential when these people, who were just as smart and way more resourceful, did not? That experience led me to pursue career choices that encourage opportunities for people not born into them.

TCA: Given your long and distinguished career as a community development leader and public servant, how has the culture within the CDFI Fund changed since you became director in 2014?

Donovan: The CDFI Fund has always had a very committed, talented staff. What I have focused on since becoming director is how we can collaborate more within the fund and also with other federal agencies. The communities that we are serving don’t exist in silos. We have to ask ourselves how can we break down those barriers, and how can we see our work more holistically, so that we are coming up with better solutions. We are also trying to get better at collecting and using data for decision-making and measuring performance. That’s a task for us internally, but one that also extends to the CDFIs and Community Development Entities (CDEs) that we serve. Our goal is to help them build better capacity that results in better outcomes for the communities that they serve.

TCA: In what regions of the country have you seen increased NMTC activity and what types of projects are being developed in these areas?

Donovan: Since 2012, the CDFI Fund has encouraged additional investment in states and territories that have historically received fewer dollars of NMTC investment; places like Arkansas, Georgia, Nebraska, Nevada, Puerto Rico and several others. We have seen some successes in those areas. Detroit, Baltimore, Memphis and New Orleans are also examples of communities that have seen a lot of benefit from the New Markets Tax Credit Program. What I am encouraged by most is what is happening beyond the urban core, in distressed neighborhoods that are more residential and have been harder to get to. In Detroit, for example, projects are emerging north of midtown, where investment has been less prevalent. One project that comes to mind involves a retail grocery store, minority-owned and managed, that has become an anchor for other development. The grocery store is located on the bottom floor with low-income housing above, and other small businesses are benefiting from that one grocery store. So we are seeing how the tax credit can lead to new jobs and stronger neighborhoods.

TCA: You recently published an ambitious five-year strategic plan. Which of these initiatives is the most critical to the future success of the CDFI Fund?

Donovan: You can’t isolate just one area. They all work in concert. The central theme of the strategic plan is to increase our impact. We encourage CDFIs and CDEs to go where they are most needed. I am a firm believer that the financing piece of this puzzle is critically important, but it’s not the only piece. We are looking for CDFIs and CDEs to act in concert with others in their communities; for New Markets Tax Credits to be used as a tool for broader, community-wide change.

TCA: There has been recent concern about the use of Qualified Low-Income Community Investment (QLICI) proceeds as evidenced by new FAQs 42, 43 and 44. How would you articulate the policy concerns that underlie the new FAQs?

Donovan: The New Markets Tax Credit Program was created to leverage new capital investments in low-income communities. We must ensure that we optimize that in every deal. There was a practice that we saw emerging whereby some groups were monetizing existing assets – meaning there is an asset that already exists that is being refinanced. It’s not new financing, the tax credit is not financing new cash into a deal. We felt that this structure didn’t meet the spirit of the program, so we created new eligibility criteria that basically say you can only use tax credits to repay or refinance up to five percent of prior investments into a business or repay expenses that are directly attributable to the business that’s being financed within a 24-month period. There is a simple rule of thumb for this requirement, and that is “invest new cash.” The tax credit is there to incentivize new cash investments. And if you follow that simple rule, you won’t run afoul of this principle.

TCA: In addition to New Markets Tax Credits, the CDFI Fund awards grants through its Capital Magnet Fund to finance affordable housing opportunities. Given the acute shortage of affordable housing in America, what steps are you taking to boost funding and awareness of this potentially critical resource?

Donovan: The proceeds for the Capital Magnet Fund come from Fannie Mae and Freddie Mac. The Housing and Economic Recovery Act of 2008 set a formula for the funding, which is equal to 4.2 basis points of Fannie’s and Freddie’s annual new business volume. The Capital Magnet Fund gets 35 percent of those proceeds and the National Housing Trust Fund gets a slice as well. During the last funding round we awarded $92 million to 32 organizations. We had 125 applications, so we were oversubscribed. I wish this program could be a lot bigger, given that the demand for funding is much greater than the supply.

TCA: As a result of the NMTC Program being extended through 2019 have you seen any increase in NMTC allocation applications? Are there any CDEs that have been especially innovative that you’d like to recognize?

Donovan: The last allocation round opened and closed before the New Markets Tax Credit Program was extended, so we have yet to see the impact of the five-year extension in terms of demand for the program. The current NMTC application round awards, which will be announced by the time you read this, combine the 2015 and 2016 authorizations and grant $7 billion in tax credits. We were able to make awards to a higher percentage of applicants, which is a big relief because the most painful part of administering this program is that every year we must say “no” to so many qualified organizations that have pledged themselves to do high-quality work.

TCA: What were your biggest achievements in 2016 and what are your priorities for the coming year?

Donovan: We got a lot done in 2016. We relaunched the Capital Magnet Fund. We launched a new technology platform called the Awards Management Information System. We launched something called the Annual Certification Form, which changes how we certify CDFIs and allows us to collect more and better data and report out on the landscape of our field. We advanced the development of an Assessment and Risk Management Tool that will be used in the future to do performance-based funding. We also topped $1 billion in commitments through the CDFI Bond Guarantee Program, which makes long-term, low-cost capital available to finance small businesses, affordable rental housing, day care centers, senior living facilities, charter schools and health care facilities. In fact, the manager of the program, Lisa M. Jones, was awarded a “Sammie,” one of the most prestigious awards honoring our nation’s civil servants. The Sammie is often called “the Oscars of government service,” so we are very proud of Lisa. We put a lot of work into our CDFI Program, substantially streamlining the applications for the Financial Assistance and Technical Assistance awards. The Technical Assistance application, for example, went from 29 questions to nine. We designed our Financial Assistance application to be better aligned with our strategic goals. We completed our strategic plan. And, of course, the double round of New Markets Tax Credits went off without a hitch. It’s an extraordinary amount of productivity when you consider we have roughly 80 staff. Our priorities for the coming year include really tackling the goals and objectives of our strategic plan. We will also be building out the Awards Management Information System and the Assessment and Risk Management Tool, and redesigning the Capacity Building Initiative.

TCA: You mentioned how the NMTC Program has transformed certain neighborhoods in Detroit. Are there any other cities that have gone through similar revitalization efforts that you’d like to recognize?

Donovan: Many cities are embracing the tax credit. For example, last year, I visited a project in Memphis, Tennessee, in a midtown neighborhood called Cross Town that involved a one million square-foot property that formerly served as a Sears distribution center. It’s a multi-purpose project that is going to stimulate a lot of development. But Memphis is certainly not alone. I was recently at the Conference of Mayors Annual Meeting, and I came away from that gathering with a firm understanding that municipalities believe that the New Markets Tax Credit is a vital tool for revitalization efforts and a catalyst for change in America’s cities.

Darryl Hicks is vice president, communications for the National Reverse Mortgage Lenders Association and a 24-year veteran of associations managed by Dworbell, Inc., the management company of NH&RA.