Facing Federal Cuts, Local Governments and Community Leaders Can Continue to Expand Access to Capital
With the 2026 Fiscal Year Federal Budget cutting vital programs, city and county officials and local philanthropic organizations are being forced to find new ways to meet needs in their communities.
“Lower levels of federal investment…will absolutely put more pressure on state and local governments to identify resources to make up those gaps, which, frankly, is going to be really difficult, if not impossible to do.”
- Anne Bovaird Nevins, Accelerator for America
One of the many programs that has been targeted by the Trump Administration is the CDFI Fund in the U.S. Treasury, which manages the CDFI certification process and provides funding for Community Development Financial Institutions (CDFIs). In March 2025, President Trump released an executive order that called for the elimination of all non-statutory functions of the CDFI Fund. This prompted concern from CDFI industry practitioners and bipartisan policymakers who see the immeasurable value CDFIs have as part of the financial ecosystem.
Importance of Access to Capital in Communities
Access to capital for socially and economically disadvantaged borrowers and projects remains a persistent barrier to inclusive economic growth in cities and rural areas alike. Small businesses, affordable housing developers, nonprofits, and homebuyers—especially in historically underinvested neighborhoods—often struggle to secure financing from traditional lenders.
For Mayors, local officials, and place-based philanthropic organizations looking to invest their time and capital wisely to support community development, it’s not always clear where to turn. They may have heard of CDFIs, but most do not fully understand what CDFIs can do, how to support their work, or where to find them, if none are active in their region.
CDFIs are mission-driven lenders that specialize in financing and technical assistance for borrowers who conventional banks often overlook or can’t serve due to strict credit requirements. But while the CDFI industry’s assets have grown to more than $450 billion as of 2023, communities in many places are still unable to tap into the CDFI network. In September 2024, we released our first innovative mapping tool, the CDFI Market Map, that identifies the thousands of cities, counties, metro areas, and states that are in need of CDFIs but have minimal access to them. Our CDFI Friendly strategy is designed to help these “CDFI Deserts” and provides community leaders an inroad to increase CDFI presence and capacity in an efficient and cost-effective way.
CDFIs During Political Shifts
The Trump Adminstration doubled down on its attack on CDFIs, including the CDFI Fund in its list of so-called “woke” programs, which states that the Fund has been used to incentivize lending for racial equity and marginalized groups, which goes against the Administration’s anti-DEI (diversity, equity, and inclusion) agenda.
In a paper released in September 2024, our President/Founder, Mark Pinsky, and Lance Loethen, of Tract Advisors, used a data layer added to the CDFI Market Map to analyze the overlap between majority-minority census tracts and CDFI Fund Qualified Investment Areas.
“Our key takeaway is that many CDFIs serve target markets where economically distressed communities are almost entirely comprised of majority-minority communities.”
– Mark Pinsky & Lance Loethen
In other words, CDFIs serving borrowers in economically distressed places, will be primarily serving people of color in most instances. This new method of analysis is especially useful and timely for CDFIs at a time when the federal government is taking a stance against organizations that specify a focus on racial diversity or other marginalized groups.
Local Governments During Federal Cuts
For CDFIs, any reduction in federal funding will increase pressure on diversifying and solidifying their sources of capital, which may prove challenging for some organizations. Impacts of these changes at the federal level will have a reach far beyond the CDFI sector. Local and state government leaders are already seeing a disruption in funding for critical programs.
“As the chief executives of their cities, Mayors, in particular, have a unique role to put forward bold visions for equitable small business growth or affordable housing development in their communities, and they have the ability to use their special convening power to bring together the city’s or region’s philanthropic and capital ecosystem to meet those needs.”
– Anne Bovaird Nevins, Accelerator for America
It is more important than ever for city and county leaders to proactively step up their advocacy efforts, strategies for capitalizing projects in the absence of federal dollars, and collaborations with local philanthropies, like community foundations. Local governments still control budgets, land, convening power, and policy levers and can work with foundations and CDFIs to replicate or substitute federal programs.
The Role of Community Foundations
At a time when federal support for equity-centered financial tools is shrinking, the role of local philanthropic organizations has never been more essential. Local leaders who understand the value of CDFIs—and act boldly to partner with them—can help rewire their city's capital infrastructure. That means ensuring all residents, not just those who can already access capital, can obtain loans and technical assistance needed to build housing, launch businesses, and create generational wealth.
In June, the National Housing Crisis Task Force, co-convened by Accelerator for America and Drexel University's Nowak Metro Finance Lab, released the State and Local Housing Action Plan, which includes 15 tools for state and local leaders to combat the national housing crisis in their communities. Among the tools is "Beyond Traditional Giving: How Place-Based Philanthropy Catalyzes Housing Solutions," which includes several examples of place-based philanthropies working with city governments to fund crucial housing projects, like in Atlanta, Georgia, where the Community Foundation of Greater Atlanta has mobilized significant capital to create and preserve affordable housing units.
The challenge for many communities remains that there is no centralized hub that can help connect housing developers and other borrowers with capital sources, slowing down efforts. This is a unique feature of the CDFI Friendly model, which can accelerate the production of housing and the start or growth of businesses by referring borrowers to a lender that is best suited for their financing needs.
In each of the four existing CDFI Friendly communities (Bloomington, South Bend Region, Fort Worth, and Evansville Region), local foundations participated in some capacity during the CDFI Friendly process. In some cases, like Bloomington, Indiana, the Community Foundation of Bloomington Monroe County partnered with the City of Bloomington as a funder and supporter to bring in CDFI Friendly America, and ultimately create the first CDFI Friendly community in 2019. In the Evansville Region of Indiana/Illinois/Kentucky, the Community Foundation Alliance was part of an advisory group of organizations and investors that collaborated to fund the creation of CDFI Friendly Evansville Region. The new nonprofit is now nested within the Community Foundation Alliance.
Conclusion
Many, if not most, U.S. cities and towns face a significant reduction in federal funding for CDFIs, but the need for equitable capital access is not diminishing. CDFIs fill an important gap in the financial system for communities, providing a chance for small business owners, developers, nonprofits, and consumers who have been historically underserved by traditional lenders. Many CDFIs will continue to thrive despite a lack of government grants, but they cannot reach every place and borrower that needs them without support.
Local governments and place-based philanthropies are facing additional pressure in this moment of federal budget cuts, but they also hold immense power. They have the capacity to find new ways to collaborate, evaluate the needs of their communities, and support the work of CDFIs that are contributing to the economic development of their city, county, or region. In places with no or a limited number of CDFIs, there are often gaps in the local economic landscape, and many residents cannot obtain the capital they need. CDFI Friendly America specializes in helping these communities connect to the CDFI industry. Local leaders can work with us to explore how a CDFI Friendly hub could help close these capital gaps.
Recommendations for mayors, city/county officials, and local philanthropies:
Reach out to CDFIs already lending in their underserved communities to understand what products and services they provide. Use our CDFI Market Map to find CDFI headquarters.
Provide seed grants or guarantee funds to support CDFIs in their community
Facilitate collaboration between foundations and local government to understand the financial ecosystem and gaps in your community
Utilize loan participation structures
In communities with limited or no CDFIs, local leaders can start a conversation with CDFI Friendly America to explore how a CDFI Friendly effort can help fill financial gaps for underserved borrowers.
By: Bri Rose Gallic
Sr. Manager, Communications & Operations
CDFI Friendly America
