GAO-12-547R Community Development

United States Government Accountability Office

Washington, DC 20548

April 26, 2012

The Honorable Richard Durbin

Chairman

The Honorable Jerry Moran

Ranking Member

Subcommittee on Financial Services 

and General Government

Committee on Appropriations

United States Senate

The Honorable Jo Ann Emerson

Chairman

The Honorable Jose E. Serrano

Ranking Member

Subcommittee on Financial Services 

and General Government

Committee on Appropriations

House of Representatives

Subject: Community Development Financial Institutions and New Markets Tax Credit Programs 

in Metropolitan and Nonmetropolitan Areas

The Riegle Community Development and Regulatory Improvement Act of 1994 created the 

Community Development Financial Institutions (CDFI) Fund under the Department of the 

Treasury to help promote access to capital and credit in underserved urban and rural 

communities across the country.1

 1

The Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. No. 103-325, 108 Stat. 2160 

(1994).

The CDFI Fund carries out this mission through two primary 

programs: the CDFI Program and the New Markets Tax Credit (NMTC) Program. The CDFI 

Program awards financial and technical assistance to CDFIs for financial and development 

services, cash or capital reserves, operating expenses, and capacity building. CDFIs are 

specialized financial institutions—including community development banks and credit unions 

and nonregulated institutions such as loan and venture capital funds—that operate in markets 

underserved by traditional financial institutions. The NMTC Program, created by the Community 

Renewal Tax Relief Act of 2000, allocates tax credit authority (in this report, tax credits) to 

community development entities (CDE), which are domestic corporations or partnerships with a 

primary mission of serving low-income communities or low-income persons that act as 
Page 2 GAO-12-547R Community Development

intermediaries in providing loans, investments, or financial counseling in low-income 

communities.2 CDEs can use the tax credits to attract equity investments from investors who 

can, in turn, claim a tax credit over 7 years totaling 39 percent of their qualifying equity 

investment.3 The CDFI Program awarded a total of $443 million to CDFIs from fiscal years 2004 

through 2010, while the NMTC Program allocated tax credits worth $27 billion to CDEs from 

fiscal years 2003 through 2010.4

House Report 112-136, referenced by the Consolidated Appropriations Act of 2012, requires 

that we conduct a study on the concentration of CDFIs and NMTCs in urban areas and 

comment on the extent that program design, administration, or history contributed to the early 

establishment of CDFIs in urban areas.

Both programs’ statutes include provisions requiring them to 

ensure at least a minimum level of assistance to nonmetropolitan areas.

5

To address the first objective, we reviewed documentation related to the CDFI Fund’s policies 

and procedures for distributing financial and technical assistance awards and tax credits to 

certified CDFIs and CDEs, respectively. We also reviewed CDFI Fund documents, laws, and 

regulations, prior GAO reports, and other applicable documentation to determine how CDFI and 

NMTC program policies and other factors have affected the amount of funding and tax credits 

directed to CDFIs and CDEs in metropolitan and nonmetropolitan areas. To address the second 

objective, we analyzed CDFI Fund data on primary geographic areas (metropolitan or 

nonmetropolitan) served by CDFIs that received awards or allocations, the total amounts of 

awards and allocations CDFIs and CDEs received, and amounts of funding and investments 

they deployed to metropolitan and nonmetropolitan areas. Our review focused on the period for 

which complete transaction-level data were available for individual transactions from the CDFI 

Fund’s Community Investment Impact System database. Specifically, we examined data from 

fiscal years 2004 through 2010 for the CDFI Program and fiscal years 2003 through 2010 for the 

NMTC Program.

In this report, we examine (1) how the CDFI Fund 

awards funds and allocates tax credits to recipients and how program policies affect the amount 

of funding and tax credits to metropolitan and nonmetropolitan areas, and (2) the extent to 

which the amounts of program awards and allocations that recipients receive differ in 

metropolitan and nonmetropolitan areas. We used the terms “metropolitan” and 

“nonmetropolitan” to make geographic distinctions between areas that have urban and rural 

characteristics for consistency in presentation and because some of the data available in 

program reports use these designations.

6

 2

The Community Renewal Tax Relief Act of 2000, Pub. L. No. 106-554, § 121, 114 Stat. 2763 (2000). The Act 

generally defines low-income communities as census tracts with poverty rates of at least 20 percent or median family 

incomes of no more than 80 percent of statewide median family income. The NMTC Program generally defines lowincome persons as individuals with income of not more than 80 percent of the area median family income. 

The transaction-level data for the CDFI Program represent CDFIs’ loans and

3

A qualified equity investment is any equity investment in a CDE that an investor acquires at its original issue solely in 

exchange for cash. The CDE must use at least 85 percent of the cash to make investments in NMTC-eligible lowincome communities.

4

The time periods for these data reflect the periods for which public release data were available from the CDFI Fund’s 

Community Investment Impact System. The CDFI and NMTC Programs began making awards in 1994 and 2002, 

respectively. 

5

Consolidated Appropriations Act of 2012, Pub. L. No. 112-74, 125 Stat. 786 (2012); H.R. Rep. No. 112-136, at 14 

(2012).

6

Although we present CDE transaction-level data on a fiscal year basis, the NMTC Program conducts its allocation 

rounds on a calendar year basis. Therefore, this report presents NMTC Program allocation data (in other words, 

information on tax credit allocations the NMTC Program made to CDEs) in terms of calendar years.
Page 3 GAO-12-547R Community Development

investments outstanding (which we refer to as total portfolio outstanding) at the end of each 

reporting year and reflect CDFI Program awards combined with all of the CDFIs’ other funding 

sources. In other words, the data do not allow us to identify which loans and investments 

outstanding, or how much of the dollar amount of CDFIs’ total portfolios outstanding, resulted 

directly from CDFI Program awards. In addition, because not all CDFI awardees must report 

transaction-level data, we cannot generalize the findings to the entire CDFI awardee (recipient) 

population. We examined trends in the amount and number of CDFI- and CDE-financed 

projects in metropolitan and nonmetropolitan areas. We interviewed CDFI Fund officials and 

reviewed information from the CDFI Fund and its data contractors on the steps taken to ensure 

the reliability of their data. For example, we reviewed their processes for ensuring consistent 

data entry and for addressing potentially inaccurate data. We also checked the data for extreme 

values and missing data points. We determined that the data were reliable for our purposes.

We conducted this performance audit from January to April 2012 in accordance with generally 

accepted government auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings 

and conclusions based on our audit objectives. We believe that the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit objectives. Enclosure I 

provides a more-detailed description of our scope and methodology.

Results in Brief

The policies and procedures of the CDFI and NMTC Programs help ensure that awards and 

allocations generally are proportionate to the numbers of qualified applicants that serve 

metropolitan and nonmetropolitan areas. The CDFI Program’s authorizing legislation and 

regulations require that award recipients constitute a geographically diverse group, serving 

metropolitan and nonmetropolitan areas and Native communities from different U.S. regions. To 

meet this requirement, CDFI Program officials have used the application review process and 

established a goal of matching the proportion of awards to the proportion of qualified applicants 

that primarily serve nonmetropolitan areas. This proportion changed from year to year 

depending on the number of qualified applicants that served nonmetropolitan areas. According 

to officials, revisions to the award procedures in the fiscal year 2012 funding round will enhance 

the CDFI Program’s ability to achieve proportionality. In 2006, Congress, in the Tax Relief and 

Health Care Act of 2006, added a requirement for the NMTC Program that nonmetropolitan 

counties receive a proportional allocation of qualified equity investments.7 To meet this 

requirement, in 2008, the NMTC Program implemented two goals in its application review 

process. The first goal requires that a proportionate number of tax credits are allocated to 

recipients that principally serve nonmetropolitan counties.8

The programs awarded the majority of funds and tax credits to recipients that served metropolitan 

areas, but both generally met their proportionality goals with regard to ensuring assistance to 

The second goal requires that at 

least 20 percent of all community investments resulting from the annual NMTC allocations are 

made in eligible nonmetropolitan counties.

 7

Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, Div. A, Tit. I, § 102(b), 120 Stat. 2922 (2006).

8

Specifically, such a recipient is one that, over the past 5 years, has dedicated at least 50 percent of its direct 

financing dollars to nonmetropolitan counties and has committed in its application to dedicate at least 50 percent of its 

future NMTC direct financing dollars to such areas. The recipient is not required to be physically located in a 

nonmetropolitan area to be designated as such.
Page 4 GAO-12-547R Community Development

nonmetropolitan areas. From fiscal years 2004 through 2010, CDFI Program financial assistance 

awards to recipients serving primarily nonmetropolitan areas were proportional to the number of 

qualified applicants that served those areas in every year except 2008. For example, in 2010, 29 

percent of award recipients primarily served nonmetropolitan areas, exceeding that year’s 

proportionality goal of 27 percent. Based on recipients’ annual reporting for fiscal years 2004

through 2010, about 18 percent of recipients’ total annual loans and investments outstanding were 

in nonmetropolitan areas. For the NMTC Program, since implementing the two proportionality 

goals in the calendar year 2008 round, program officials stated that they have been successful in 

helping ensure that a proportional number of tax credits went to recipients that serve 

nonmetropolitan areas and that 20 percent of all NMTC investments were committed to 

nonmetropolitan areas. From calendar years 2008 through 2011, recipients committed to deploy 

more than $3 billion, or 20 percent of total investments, in nonmetropolitan areas. In 2010, the 

proportion of the dollar amount of NMTC projects financed that went to nonmetropolitan areas 

increased to 21 percent, which exceeded the program goal of 20 percent.

Background

In general, financial institutions must be certified as CDFIs or CDEs before they can receive 

CDFI Program awards or NMTC allocations, respectively. Table 1 lists the criteria that entities 

must meet to become certified. For example, CDFIs and CDEs generally must be legal entities 

that provide the majority of their financial services to low-income persons or communities and 

maintain accountability to those communities by having members that represent them on their 

governing or advisory boards. The CDFI Fund follows detailed procedures to ensure that 

certified entities meet the criteria.

Table 1: Eligibility Criteria for CDFI and CDE Certification

CDFI CDE

• Be a legal entity

• Have a primary mission of promoting community 

development

• Primarily provide financial products, development 

services, or other similar financing in arms-length 

transactions

• Primarily serve (direct at least 60 percent of 

financial product activities to) one or more 

geographic investment areas meeting certain 

poverty or income standards; low-income targeted 

populations; or other targeted populations that lack 

adequate access to capital and historically have 

been denied credit

• Provide development services—such as credit or 

homebuyer counseling—in conjunction with 

financial products

• Maintain accountability to defined target markets 

through representation on governing or advisory 

board or through outreach activities

• Be a nongovernment entity and not be under 

control of any government entity (except tribal 

governments)

• Be a legal entity and a domestic corporation or 

partnership for federal tax purposes

• Have a primary mission of serving or providing 

investment capital to low-income communities or lowincome persons and target at least 60 percent of 

activities to these groups

• Maintain accountability to low-income communities 

through representation on governing or advisory 

board

• Note: Certified CDFIs and Specialized Small 

Business Investment Companies automatically 

qualify as CDEs and only need to register as CDEs 

rather than apply for certification.

Sources: CDFI Fund; CDFI and NMTC Program statutes and regulations.
Page 5 GAO-12-547R Community Development

As of February 29, 2012, there were a total of 977 certified CDFIs and 5,500 certified CDEs, 

including subsidiary CDEs.9

Table 2: Certification Rates for CDFIs (Fiscal Years 2004-2010) and CDEs (Calendar Years 2003-2010)

Enclosure II lists the numbers of certified CDFIs and CDEs by 

state. The total number of certified CDFIs and CDEs is much higher than the number that 

typically applies for and obtains program awards in any given year. In addition, not all financial 

institutions that seek certification will obtain it. Certification rates for CDFIs averaged about 77 

percent from fiscal years 2004 through 2010, while CDEs obtained certification about 91 percent 

of the time from calendar years 2003 through 2010 (see table 2). Agency officials told us that, 

based on their analysis of fiscal year 2011 certification data, the most common reasons for 

denying CDFI certification applications were failure to meet the criteria for primary service to 

eligible target markets and accountability to those markets. They stated that in prior years, these 

were also two of the most common reasons for denials of certification applications. Failure to 

meet the financing entity criteria was also historically a reason for denial. They attributed the 

majority of CDE certification denials to failure to establish accountability to low-income

communities.

2003 2004 2005 2006 2007 2008 2009 2010 Total

CDFIs

Certified N/A 34 72 144 32 32 71 162 547

Declined N/A 50 15 11 12 15 32 30 165

Certification rate N/A 40% 83% 93% 73% 68% 69% 84% 77%

CDEs

Certified 211 153 155 33 121 100 104 134 1,011

Declined 18 14 12 3 9 9 16 21 102

Certification rate 92% 92% 93% 92% 93% 92% 87% 86% 91%

Source: GAO analysis of CDFI Fund data.

Note: The CDE certification rates in this table include only “applicant CDEs” and exclude subsidiary CDEs.

The CDFI Program provides financial or technical assistance to CDFIs to enhance their ability to 

make loans and investments and provide services for the benefit of designated investment 

areas, targeted populations, or both.10

 9

Subsidiary CDEs are legal entities that applicant CDEs own or directly control and to which CDEs can transfer all or 

part of their allocation authority.

CDFIs can apply for (1) financial assistance awards, 

which can be used for financial products or services such as loans and checking and savings 

accounts, development services such as financial or homeownership counseling, loan loss and 

capital reserves, and operations; or (2) technical assistance awards, which can be used for 

capacity-building purposes such as personnel salary, professional services, travel, training, and 

equipment and supplies. As shown in table 3, financial assistance applicants may apply as 

regular applicants or as Small and Emerging CDFI Assistance (SECA) applicants. SECA 

applicants are CDFIs that have smaller assets or have been operating for fewer than 5 years. 

However, regular applicants can apply for more financial assistance funding (for the fiscal year 

2011 funding round, up to $2 million) than SECA applicants (which can apply for $600,000). 

Technical assistance awards were capped in fiscal year 2011 at $100,000 per awardee. Since 

10Financial assistance can be in the form of grants, loans, credit union shares, equity investments, and deposits to 

CDFIs. However, most financial assistance awards are in the form of grants. Investment areas and targeted 

populations are defined in 12 C.F.R. § 1805.201(b)(3).
Page 6 GAO-12-547R Community Development

1994, the CDFI Program has disbursed more than $1 billion in financial and technical 

assistance awards.

Table 3: CDFI Financial and Technical Assistance Program Details 

Funding and applicant type Applicant criteria

Eligible uses for 

funds

Fiscal 

year 2011 

award cap

Matching fund 

requirement

Financial 

Assistance

a

Regular Certified or certifiable 

CDFIb

• Financial products

• Financial services

• Development 

services

• Loan loss reserves

• Capital reserves

• Operations

$2,000,000 100% match 

from nonfederal 

sources

Small and 

Emerging CDFI 

Assistance 

(SECA)

• Certified or 

certifiable CDFI

• Total assets of up 

to $5 million (up to 

$250 million for 

community 

development 

banks and up to 

$10 million for 

insured credit 

unions and 

venture capital 

funds) or in 

operation for fewer 

than 5 years

$600,000 100% match 

from nonfederal 

sources

Technical 

assistance

Certified, certifiable or 

emerging CDFI

• Personnel (salary 

and fringe benefits) c

• Professional 

services

• Travel

• Training

• Equipment

• Materials/supplies

• Other

$100,000 None

Source: CDFI Fund 2011 Notice of Funding Availability, 76 Fed. Reg. 68,831.

Notes:

a

Matching funds must be comparable in form and value to the financial assistance award. Congress waived the matching funds 

requirement in the fiscal year 2009, 2010, and 2011 federal budgets.

b

A certifiable CDFI has submitted an application to the CDFI Fund demonstrating that it meets the certification requirements, but the 

CDFI Fund has not yet officially certified the entity.

c

An emerging CDFI is an entity that demonstrates to the CDFI Fund that it has an acceptable plan to become a certified CDFI within 

approximately 3 years.

Congress created the NMTC Program in 2000 under the CDFI Fund to encourage investors to 

make investments in impoverished, low-income communities that traditionally lack access to 

capital. CDEs may apply for and receive tax credits, at which point investors can make qualified 

equity investments by acquiring stock or a capital interest in the CDEs in exchange for the ability 

to claim the tax credits on a portion of their investment. The CDEs, in turn, must use at least 85 

percent of the investment proceeds for community investments, which can be in qualified lowincome community businesses and used for residential, commercial, and industrial projects or 
Page 7 GAO-12-547R Community Development

can be used for other types of activities, such as purchasing loans from other CDEs.11 Since its 

inception, the NMTC Program has awarded $33 billion in tax credits to CDEs. The program 

expired at the end of 2011, but legislation has been proposed to extend it and the administration 

has asked for an extension in its 2013 budget proposal.12

The CDFI and NMTC Programs use varying terminology to describe program activity 

geographically, depending on the program stage. For example, in the application stage, both 

programs ask applicants to indicate whether they primarily serve major urban, minor urban, or 

rural (nonmetropolitan for the NMTC Program) areas.13 The programs also require awardees 

and allocatees to commit to the areas that they will serve with their awards and tax credits. At 

this point, the terminologies diverge. While the CDFI Program continues to use the major and 

minor urban and rural classifications, the NMTC Program uses the metropolitan and 

nonmetropolitan classifications as defined by the 1999 Office of Management and Budget 

bulletin, with the former term referring to a metropolitan statistical area with a core city or urban 

center of population 50,000 or more and its surrounding communities and the latter term 

referring to anything other than a metropolitan area.14 Finally, when agency officials collect 

annual data from awardees and allocatees on the use of their funds, both the CDFI Program 

data and the NMTC Program data are classified using the 1999 Office of Management and 

Budget bulletin (the “metropolitan” and “nonmetropolitan” system). To simplify the discussion, 

this report generally uses metropolitan and nonmetropolitan for both programs, as defined by 

the Office of Management and Budget.15 As of 2011, approximately 16 percent of the U.S. 

population resided in nonmetropolitan areas.16

Program Policies and Procedures Aim to Make Awards and Allocations 

Proportionate to Numbers of Applicants That Serve Nonmetropolitan Areas

The CDFI Program’s policies and procedures for reviewing funding applications and making 

financial and technical assistance awards are intended to encourage assistance to 

nonmetropolitan areas. After CDFI Program staff checks all applications for completeness and 

applicant eligibility, reviewers from outside of the CDFI Fund (three reviewers per financial 

CDFI Program

 11CDEs make community investments with the proceeds of qualified equity investments from outside investors. The 

community investments can include any capital or equity investments in, or loans to, qualified active low-income 

community businesses; loans purchased from other CDEs; financial counseling and other services to qualified active 

low-income community businesses, or to residents of a low-income community; or equity investments in, or loans to, 

other CDEs. For more information about the NMTC investment process, see GAO, New Markets Tax Credit: The 

Credit Helps Fund a Variety of Projects in Low-Income Communities, but Could Be Simplified, GAO-10-334

(Washington, D.C.: Jan. 29, 2010).

12See S. 996, 112th Cong. (2011); H.R. 2655, 112th Cong. (2011); Office of Management and Budget, Executive 

Office of the President, Fiscal Year 2013 Budget of the U.S. Government (2012).

13According to the CDFI Fund, a major urban area is a metropolitan statistical area with a population equal to or 

greater than 1 million, including both central city and surrounding suburbs. A minor urban area is a metropolitan 

statistical area with a population of more than 50,000 and less than 1 million, including both central city and 

surrounding suburbs. A rural area is any area not contained in a major or minor urban area.

14See OMB Bulletin No. 99-04.

15See enclosure I for more detail on how we classified geographic areas in this report. 

16 U.S. Census Bureau, Core Based Statistical Area (CBSA) Status for the United States, Regions, and Divisions, 

and for Puerto Rico: 2010 and 2011, CBSA-EST2011-12 (Washington, D.C.: April 2012).
Page 8 GAO-12-547R Community Development

assistance application and one reviewer per technical assistance application) evaluate the 

applications. Specifically, financial and technical assistance applicants are scored on and can 

receive up to 100 points from each reviewer for criteria such as how they meet the needs of 

their target market and their delivery capacity. As shown in figure 1, applicants that meet or 

exceed an overall scoring threshold and a threshold in each of the application sections advance 

to the second phase of the application review process in which CDFI Program officials 

determine—based on a final ranking score—which applicants will receive awards and how 

much they will receive.

Figure 1: CDFI Program Financial and Technical Assistance Award Process

a

CDFI Program officials also check for diversity with regard to geographic region and institution type.

b

Until the fiscal year 2012 funding round, this process might not have resulted in full proportionality with regard to nonmetropolitan 

areas. Because reducing award amounts to allow for additional awards could decrease the awards’ significance to CDFIs, CDFI 

Program officials must consider whether award reductions to achieve proportionality are in the best interest of the overall 

awardee pool.

The CDFI Program’s authorizing legislation and regulations require that awardees represent a 

geographically diverse group, serving metropolitan and nonmetropolitan areas and Native 

communities.17

 1712 CFR §1805.700(d).

According to CDFI Program officials, to meet this requirement, they have tried to 

match the proportion of awards to the proportion of the qualified applicant pool with 

nonmetropolitan service areas during the application review process. For example, if 25 percent 

of qualified applicants in a given funding round indicated a nonmetropolitan service area, the 

CDFI Program would strive to make 25 percent of the total aggregate number of financial and 

technical assistance awards to CDFIs with nonmetropolitan service areas. This proportion can 

change from year to year depending on the number of applicants that serve nonmetropolitan 

areas and meet the minimum scoring threshold. Until recently, the CDFI Program’s procedures 

did not allow officials to bypass other qualified applicants to select those with nonmetropolitan 

service areas, which impeded the program’s ability to meet desired proportionality goals in 

certain years. However, for the fiscal year 2012 funding round, the CDFI Program’s procedures 
Page 9 GAO-12-547R Community Development

have been revised to better support goal achievement. That is, CDFI Program officials can now 

bypass certain applicants on the ordered ranking list to select qualified but lower-ranked 

applicants to achieve geographic and institutional diversity.

In addition, according to CDFI Program officials, the SECA category for financial assistance 

awards, as well as the technical assistance awards, is helpful to CDFIs located in or serving 

nonmetropolitan areas. Officials stated that CDFIs in nonmetropolitan communities are often 

smaller in asset size and typically have fewer employees than their counterparts in metropolitan 

communities. The SECA category for financial assistance funding allows CDFIs with assets of 

less than a certain amount or in operation for fewer than 5 years to apply and compete 

separately from larger and more established CDFIs. In addition, program officials noted that 

technical assistance funding is useful to smaller and less established organizations because it 

can help them build capacity. Technical assistance awards can be used for such items as staff 

salaries and benefits, consultants, professional services, and computer equipment.

18

The NMTC Program’s process for making NMTC awards reflects a recent policy change that 

ensures investment commitments in nonmetropolitan areas. In 2006, Congress required the 

NMTC Program to ensure that nonmetropolitan counties receive a proportional allocation of 

qualified equity investments.

NMTC Program

19 To guide its implementation of the requirement, in 2007, the 

CDFI Fund published a Request for Public Comments to obtain feedback on how to define, 

measure, and ensure “proportionality.” Based on the public comments received, NMTC Program 

officials developed two goals, which they implemented in the calendar year 2008 funding round, 

to ensure compliance with the new requirement. First, program officials must review the annual 

allocation decisions and add additional allocatees if necessary to ensure that a proportionate 

number of applicants that are “rural CDEs”—CDEs that principally serve nonmetropolitan 

counties—receive tax credits. Second, program officials attempt to ensure through 

consideration of applicants’ commitments to invest in nonmetropolitan areas that at least 20 

percent of the aggregate investments made with each round of NMTC allocations are made in 

eligible nonmetropolitan counties. With regard to the second goal, although public 

commentators suggested a variety of benchmarks for the minimum proportion to be committed 

to nonmetropolitan areas, program officials chose 20 percent because it approximated the 

percentage of the U.S. population that—according to the CDFI Fund’s analysis—resided in 

nonmetropolitan counties.20

For the current review process, the NMTC Program first selects a group of three external 

reviewers with demonstrated experience in business, real estate, or community development 

Thus, in recent years, NMTC Program officials have used the 

review process to ensure proportionate selection on two levels—in terms of areas served and 

amount of investment committed in those areas.

 18While not within the scope of this report, the CDFI Fund’s Native American CDFI Assistance Program provides 

similar awards to CDFIs and organizations that serve economically distressed Native communities. According to the 

CDFI Fund, these organizations serve mostly rural communities. In 2009, the CDFI Fund also implemented a 

Capacity Building Initiative to provide technical assistance and training opportunities for CDFIs. The initiative also 

focuses on extending CDFI coverage to underserved communities, including a specialized focus in rural areas.

19Pub. L. No. 109-432, Div. A, Tit. I, § 102(b).

20The NMTC Program applies the 1999 Office of Management and Budget bulletin definition of nonmetropolitan 

areas to 2000 data to determine eligibility. According to this classification system, 19.6 percent of the U.S. population 

lived in nonmetropolitan counties in 2000.
Page 10 GAO-12-547R Community Development

finance. Applications are scored on a scale of 100 points for sections on business strategy, 

community impact, management capacity, and capitalization strategy. Applicants also can 

receive up to 10 “priority” points by demonstrating a record of successful investment in 

disadvantaged communities or businesses and by investing in businesses unrelated to the 

applicant.21

CDEs that meet or exceed an overall scoring threshold and a threshold in each of the four 

application sections listed previously advance to the second phase of the review, in which a 

panel of up to three NMTC Program officials determine—based on a final ranking score—which 

CDEs will receive allocations and how much they will receive. NMTC Program staff review the 

amount of tax credits that the CDEs requested and, based on the information in the application 

materials, award preliminary allocation amounts in the order of CDEs’ final ranking scores until 

the allocations are exhausted. Not all of the CDEs that satisfy the minimum application score 

thresholds receive allocations.22

After making award decisions, the NMTC Program analyzes the allocatee pool to determine 

whether it has met the two proportionality goals. If the percentage of allocatees that are rural 

CDEs is not at least equal to the percentage of qualified applicants that are rural CDEs, the fund 

provides allocations to additional qualified rural CDEs from that pool in descending order of their 

final ranking score until it achieves the appropriate percentage balance. If necessary to 

accommodate the additional allocatees without exceeding the available tax credits, NMTC 

Program officials apply a reduction to all allocations to CDEs that have not committed to make

at least 20 percent of their community investments in nonmetropolitan areas. For the second 

proportionality goal, all applicants must specify a minimum and maximum percentage of their 

community investments that they are willing to commit to nonmetropolitan areas. For example, 

an applicant might indicate that it will commit to making at least 15 percent but no more than 30 

percent of its community investments in nonmetropolitan areas, while another applicant might 

indicate that it will make all of its community investments in metropolitan areas. NMTC Program 

officials calculate the minimum amount of community investments that all allocatees have 

committed to nonmetropolitan areas. If allocatees have not committed to making at least 20 

percent of their aggregate community investments in nonmetropolitan areas, the NMTC 

Program can require allocatees to direct more investments—up to the maximum percentages 

they indicated in their applications—to nonmetropolitan areas. If, after applying the maximum 

percentages, the aggregate commitment to nonmetropolitan areas still does not equal at least 

20 percent, the NMTC Program can award additional allocations to rural CDEs in descending 

order of their final ranking score, applying a formula reduction to all allocations for which 

allocatees have not committed at least 20 percent of investments to nonmetropolitan areas. 

Figure 2 illustrates the NMTC allocation process with a hypothetical example.

 21The NMTC Program’s review process is similar to the CDFI program’s review process; see figure 1. 

22For a more-detailed description of the criteria used to evaluate NMTC Program applications, see GAO, New 

Markets Tax Credit: Minority Entities Are Less Successful in Obtaining Awards Than Non-Minority Entities, 

GAO-09-536 (Washington, D.C., Apr. 30, 2009).
Page 11 GAO-12-547R Community Development

Figure 2: Illustration of the NMTC Program Allocation Process

Notes: This figure is an example of applying NMTC Program proportionality goals to hypothetical application information.

a

Require any or all allocatees to direct additional community investments to nonmetropolitan areas (up to the maximum percentage 

they committed to in their applications). Based on track records and ability to deploy investments in nonmetropolitan areas, require 

eight allocatees to direct an additional $62 million in community investments to nonmetropolitan areas.

To address potential challenges in implementing NMTC projects in nonmetropolitan 

communities, the NMTC Program gives rural CDEs an extra year to raise qualified equity 

investments and deploy the proceeds for community investments. Specifically, most CDEs must 

raise at least 20 percent of their qualified equity investments (in exchange for the tax credits that 

they can provide to investors) within 1 year after they receive their allocations, and they must 

deploy the proceeds of those qualified equity investments to qualified businesses within 1 year 

after raising the investments. However, rural CDEs receive an extra year to meet these 

requirements because of the potential difficulties in carrying out NMTC projects in 

nonmetropolitan areas. In particular, we have previously reported that CDEs can face 

challenges in using NMTCs to invest in smaller projects because transaction costs, such as 

legal fees or compliance monitoring costs, tend to be fixed (thus, smaller transactions would not 

incur lower transaction costs relative to the size of the project).23

 23

Because of high transaction 

costs, NMTC Program officials said that the minimum investment size of an NMTC transaction 

is commonly $5 million to $6 million. They explained that the federal tax structure related to the 

NMTC Program tends to benefit larger-size projects or deals. This structure may put CDEs that 

GAO-10-334.
Page 12 GAO-12-547R Community Development

wish to invest in nonmetropolitan areas—where projects can be smaller than in metropolitan 

areas—at a disadvantage.24

Both Programs Directed Most Awards and Tax Credits to Metropolitan Areas, but

Generally Met Proportionality Goals for Nonmetropolitan Areas

The CDFI and NMTC Programs awarded the majority of funds and tax credits to recipients that 

served metropolitan areas, but both generally met their goals with regard to proportionality in 

nonmetropolitan areas. For both programs, we looked at the differences in the level of assistance 

provided to metropolitan and nonmetropolitan areas. Specifically, for each of the programs, we 

looked at the metropolitan and nonmetropolitan distributions of (1) awards and commitments, and 

(2) total portfolio outstanding (CDFI Program) and projects financed (NMTC Program).

CDFI Program officials stated that they typically had been able to meet their goal of making 

awards proportionate to the number of qualified applicants that primarily serve nonmetropolitan 

areas. We analyzed the financial assistance award data for fiscal years 2004 through 2010 to 

determine the extent to which the CDFI Program met the geographic diversity goal. During this 

period, the proportion of awardees that primarily served nonmetropolitan areas equaled or 

exceeded the proportion of qualified applicants that served these areas every year except in 

2008, when awardees serving nonmetropolitan areas represented 26 percent of all awardees 

compared with 35 percent of all qualified applicants (see table 4).

CDFI Program

Table 4: Proportion of Qualified Applicants and Awardees Serving Nonmetropolitan Areas for CDFI Program, 

Fiscal Years 2004-2010

Qualified applicants Awardees

Fiscal year Total

Number serving 

nonmetropolitan 

areas

Percentage serving 

nonmetropolitan 

areas Total

Number serving 

nonmetropolitan 

areas

Percentage serving 

nonmetropolitan 

areas

2004 78 a 21 27% 67 19 28%

2005 124 37 30% 48 17 35%

2006 121 28 23% 52 15 29%

2007 119 26 22% 49 11 22%

2008 158 56 35% 66 17 26%

2009 337 89 26% 121 33 27%

2010 292 79 27% 147 42 29%

Source: GAO analysis of CDFI Fund data.

 24Under IRC §45D(g)(3), there is a recapture provision by which an investor can lose the right to claim the NMTC if 

certain conditions are not met throughout the seven-year period after the qualified equity investment is made. In its 

February 6, 2012 response to the CDFI Fund’s Request for Public Comments on the NMTC Program, Novogradac 

and Company stated on behalf of the NMTC Working Group that the recapture provision increases transaction costs 

and discourages investments in specific types of businesses, including non-real estate businesses. The Internal 

Revenue Service recently indicated that non-real estate investments may be smaller than real estate investments, 

and it has proposed regulations that would modify the NMTC Program to facilitate and encourage investments in nonreal-estate businesses in low-income communities. In addition, it requested comments on potential regulatory 

changes that would simplify the substantiation requirements in cases where CDEs invest qualified equity investment 

proceeds in other CDEs that then make smaller (i.e., less than $250,000) loans to non-real-estate businesses in lowincome communities.
Page 13 GAO-12-547R Community Development

Notes: The data in the table reflect the CDFI Program’s financial assistance awards only. Data on technical assistance awards were not 

readily available within the time frames of this review. According to an official, recipients of technical assistance awards are more likely 

to serve nonmetropolitan areas. As a result, the percentages in the table are likely understated, but the extent of this difference is limited 

since the CDFI Program makes considerably fewer technical assistance awards compared with financial assistance awards.

a

The CDFI Program utilized a different scoring method for regular and Small and Emerging CDFI Assistance (SECA) applicants and 

a different applicant grouping process to categorize the two applicant types in fiscal year 2004. However, because applicants in 

2004 still had to meet a minimum scoring threshold to be considered qualified, we believe that this does not significantly impact our 

analysis.

The total financial and technical assistance award amounts varied for CDFIs primarily serving 

nonmetropolitan areas.25 From fiscal years 2004 through 2010, awards to CDFIs that indicated 

they primarily served nonmetropolitan areas totaled about $126 million, or about 29 percent of 

the $436 million in all awards for that period, compared with about $311 million (71 percent) that 

went to CDFIs serving primarily metropolitan areas.26

 25From fiscal years 2004 through 2010, the CDFI program awarded a total of $436 million, of which approximately 

$414 million (95 percent) was in financial assistance awards and $23 million (5 percent) was in technical assistance 

awards. Dollar amounts have been rounded.

As shown in figure 3, the proportion of 

awards to these CDFIs varied considerably over the review period. However, it averaged just 

under 30 percent across that time period.

26Amounts do not sum to $436 million because of rounding. As part of the CDFI application for combined financial 

and technical awards, applicants select the primary geographic market they serve, although they may also serve a 

combination of metropolitan and nonmetropolitan markets. 
Page 14 GAO-12-547R Community Development

Figure 3: Total Financial and Technical Assistance Award Amounts by CDFIs’ Primary Service Area, Fiscal

Years 2004-2010

Note: The increase in funding amount in the last 2 years of the period is a result of additional funding from the American Recovery 

and Reinvestment Act in 2009 and a higher appropriation in 2010 than in previous years.

For fiscal years 2004 through 2010, CDFIs’ total loans and investments outstanding in 

nonmetropolitan areas annually averaged about 18 percent of their total portfolios outstanding, 

reflecting an increase to nonmetropolitan areas in recent years (see fig. 4). As stated earlier, 

CDFIs must report all of their loans and investments outstanding, which includes program 

awards combined with all of their other sources of funding.27

 27According to CDFI Fund officials, the Fund does not require certain types of financial institutions (for example, 

regulated depository institutions such as banks, bank holding companies, and credit unions) to report loan and 

investment data because call reports capture this information. In addition, technical assistance awardees are not 

required to submit detailed data because these awards are to be used for internal capacity-building activities rather 

than for financial and developmental services to the community. However, some of these awardees voluntarily submit 

the data to the CDFI Fund. For example, CDFI Fund officials stated that in fiscal year 2011, 21 of 37 regulated 

depository institutions, or about 57 percent, voluntarily submitted these data reports. They also stated that, in general, 

70 percent of all financial and technical assistance awardees submit these reports, as do approximately 85 percent of 

all financial assistance awardees.

From a low of about $55 million in 

2004, the dollar amount of CDFIs’ total loans and investments outstanding in nonmetropolitan 

areas grew fivefold in 2005 and then increased steadily until 2009 and marginally decreased in 

2010. From 2008 through 2010, CDFIs’ total loans and investments outstanding in 

nonmetropolitan areas exceeded $1 billion annually. As a percentage of CDFIs’ total portfolios, 

the dollar amounts to nonmetropolitan areas remained fairly stable throughout this period. A 

similar trend occurred in metropolitan areas for the same period, as the total loans and 

investments outstanding increased fivefold from 2004 to 2005, steadily increased for 3 years, 
Page 15 GAO-12-547R Community Development

and plateaued at approximately $4.3 billion annually from 2008 through 2010. CDFI Fund 

officials stated that the growth in both metropolitan and nonmetropolitan total loans and 

investments outstanding was a result of two factors. First, the overall level of CDFI Program 

awards increased substantially over the time period. In 2004, total financial and technical 

assistance awards were about $46 million, and in 2010 the combined awards totaled almost 

$105 million. Second, partly because of the increase in total awards, the size of the individual 

CDFIs’ assets increased, as reflected by the number and amount of loans and investments 

made by reporting CDFIs. For example, the total portfolio outstanding for both metropolitan and 

nonmetropolitan CDFIs in 2004 was $330 million, and the total portfolio outstanding in 2010 was 

over $5 billion. See enclosure III for more details on CDFIs’ loans and investments outstanding 

in nonmetropolitan areas, by state.

Figure 4: Total Dollar Amount and Number of CDFI Loans and Investments Outstanding in Metropolitan and 

Nonmetropolitan Areas, Fiscal Years 2004-2010

Figure 4 also shows the number of loans and investments that CDFIs made in metropolitan and 

nonmetropolitan areas from fiscal years 2004 through 2010. CDFIs made more than 290,000 

loans and investments in metropolitan areas (73 percent) and more than 109,000 loans and 

investments in nonmetropolitan areas (27 percent) over the entire period. In addition, the 

proportion of loans and investments (27 percent) was greater than the proportion dollar amounts 

(18 percent) of those loans and investments in nonmetropolitan areas for the same period. The 

percentage of loans and investments in nonmetropolitan areas steadily decreased from its peak 

at 34 percent in 2006 to 23 percent in 2009.

Policy changes to the NMTC Program have helped to ensure that about 20 percent of CDEs’

community investments were committed to nonmetropolitan areas in recent years. Since the two 

goals related to the proportionality requirement were implemented in the 2008 funding round, 

NMTC Program
Page 16 GAO-12-547R Community Development

the NMTC Program has met the proportionality requirement. For the first proportionality goal, 

NMTC Program officials stated that they have been able to ensure that a proportional number of 

rural CDEs received tax credits and, for the second proportionality goal, that 20 percent of all 

NMTC community investments were committed to nonmetropolitan counties. From calendar 

years 2008 through 2011, rural CDEs received tax credits totaling almost $2 billion. On the 

basis of their designation as rural CDEs, they were obligated to deploy at least 50 percent of 

this amount in nonmetropolitan areas. During the same time period, CDEs (including both rural 

and nonrural CDEs) committed to deploy more than $3 billion, or 20 percent of total 

investments, in nonmetropolitan areas (see table 5). Data on investment commitments by areas 

served are not available prior to 2008 because the NMTC Program did not track this 

information.

Table 5: Total CDE Community Investment Commitments to Nonmetropolitan Counties, Calendar Years 

2008-2011

Dollars in millions

Calendar 

year

Total 

community 

investments

Number of CDEs making 

nonmetropolitan 

commitments

Total investments 

committed to 

nonmetropolitan counties a

Percentage of total 

investments committed 

to nonmetropolitan 

counties

2008 $4,895 b 60 $989 20%

2009 $4,880 49 $971 20%

2010 $3,409 46 $682 20%

2011 $3,526 c 34 $708 20%

Totals $16,710 189 $3,350 20%

Source: GAO analysis of CDFI Fund data.

a

The numbers in this column reflect only CDEs that committed to make a minimal percentage of their investments in

nonmetropolitan counties, including rural CDEs. CDEs do not have to commit to investments in nonmetropolitan counties. However, 

if CDEs do so, they must uphold the commitments.

b

There were two NMTC allocation rounds for applicants that applied in 2008: the regular NMTC annual allocation round and an 

additional allocation round authorized by the American Recovery and Reinvestment Act. Data in the 2008 row reflect both allocation 

rounds.

c

The NMTC Program announced the results of the calendar year 2011 allocation round in February 2012 and provided publicly 

available data on tax credits to rural CDEs and overall investment commitments to nonmetropolitan counties.

Based on our review of annual data reported by CDEs through the fiscal year 2010 reporting 

period, the proportion of NMTC projects financed in nonmetropolitan areas varied from 2003 

through 2010 but increased appreciably in 2010 following the 2008 policy change requiring 

proportional investments in these areas (see fig. 5).28

 28The number of projects that CDEs financed in nonmetropolitan areas from fiscal years 2003 through 2010 

remained relatively steady as a percentage of all projects financed (approximately 17 percent). 

From 2003 to 2005, the dollar amount of 

projects financed in nonmetropolitan areas increased from about $9 million to $239 million (or 

from 11 percent of total projects financed to 16 percent of total projects financed). During 2006 

to 2009, the dollar amount of projects financed in nonmetropolitan areas fluctuated between a 

low of $108 million to a high of $401 million. In the last year of the review period, the dollar 

amount of projects financed in nonmetropolitan areas increased to over $1 billion (or 21 percent 

of the total amount of projects financed). The dollar amount of projects financed in metropolitan 

areas also varied throughout the review period but totaled over $4 billion in both fiscal years 
Page 17 GAO-12-547R Community Development

2009 and 2010. See enclosure IV for more details on CDEs’ projects financed in 

nonmetropolitan areas, by state.

Figure 5: Dollar Amount and Number of CDE Projects Financed in Metropolitan and Nonmetropolitan Areas, 

Fiscal Years 2003-2010

According to an NMTC Program official, for several reasons, NMTC Program data do not 

immediately reflect the increased investments in nonmetropolitan areas that would be expected 

to follow from the proportionality goals instituted in 2008. First, some of the 2008 awards were 

not closed until 2009 under the American Recovery and Reinvestment Act of 2009. Second, 

rural CDEs have an additional year to raise qualified equity investments and deploy the 

proceeds as community investments. Lastly, CDEs have up to 180 days after the end of their 

fiscal year to report to the CDFI Fund on projects financed. Consequently, in 2010, the data for 

projects financed in nonmetropolitan areas reflect a substantial increase following from the 2008 

policy change.
Page 18 GAO-12-547R Community Development

Agency Comments and Our Evaluation

We provided a draft of this report to the Secretary of the Treasury for review and comment. In its 

written comments, reproduced in enclosure V, Treasury concurred with the report’s 

observations regarding the process and distribution of assistance to metropolitan and 

nonmetropolitan areas for both programs. Treasury also provided technical comments that we 

incorporated into the report, as appropriate.

We are sending copies of this report to the appropriate congressional committees and the 

Secretary of the Treasury. In addition, the report is available at no charge on the GAO website 

at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-8678 or 

garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who made key contributions to 

this report are listed in enclosure VI.

Daniel Garcia-Diaz

Acting Director, Financial Markets 

and Community Investment

Enclosures
Page 19 GAO-12-547R Community Development

Enclosure I: Objectives, Scope, and Methodology

The objectives of this report were to assess (1) how the Community Development Financial 

Institutions (CDFI) Fund awards funds and allocates tax credits to recipients and how program 

policies affect the amount of funding and tax credits to metropolitan and nonmetropolitan areas, 

and (2) the extent to which the amounts of program awards and allocations that recipients

receive differ in metropolitan and nonmetropolitan areas.

To address the first objective, we reviewed the CDFI and New Markets Tax Credit (NMTC) 

Programs’ policies and procedures for distributing financial and technical assistance awards and 

tax credits to certified CDFIs and community development entities (CDE), respectively. We 

reviewed how the programs’ policies and procedures considered and weighed applicants’

geographic location in making funding and tax credit allocation decisions. We also reviewed 

annual notices of funding and allocation availability, reports on annual awards and allocations, 

applicable laws and regulations, prior GAO reports, and other documentation. We further 

reviewed the CDFI Fund’s guidance for certifying CDFIs and CDEs because financial 

institutions generally must apply to the CDFI Fund for certification as CDFIs or CDEs before 

they can apply for CDFI awards or NMTC allocations, respectively. We also obtained program 

data to determine the numbers of approved and denied applicants for CDFI and CDE 

certification. The CDFI certification data covered fiscal years 2004 through 2010 and the CDE 

certification data covered calendar years 2003 through 2010. We reviewed lists of all certified 

CDFIs and CDEs as of February 29, 2012, from the CDFI Fund’s website. We also interviewed 

CDFI Fund officials.

Both programs used varying terms to describe geographic areas such as urban and rural areas. 

To simplify presentation of geographic designations and develop consistent terminology for use 

in our report, we consulted with agency officials and agreed to report information using 

“metropolitan” and “nonmetropolitan” categories. Specifically, the CDFI and NMTC Program 

applications require applicants to indicate the types of geographic areas they primarily serve—

major urban, minor urban, or rural.29

To address the second objective, we compared program data for metropolitan and 

nonmetropolitan areas on (1) the number of CDFIs that received awards by primary geographic 

service area, (2) the total amounts of awards and allocations CDFIs and CDEs received, and (3) 

the total amounts of funding and investments deployed. We reviewed CDFI and NMTC Program 

documentation to better understand each program’s proportionality goal. We conducted 

interviews with program officials, including the CDFI Fund Office for Financial Strategies and

For CDFI and NMTC Program applicants and awardees 

that indicated they served primarily major or minor urban areas, we reclassified them as serving 

metropolitan areas. For applicants and awardees that indicated they served primarily rural 

areas, we reclassified them as serving nonmetropolitan areas. The transaction-level data we 

received on CDFIs’ loans and investments outstanding and CDEs’ projects financed already 

were presented in metropolitan and nonmetropolitan terms and therefore did not require 

reclassification.

 29According to the CDFI Fund, a major urban area is a metropolitan statistical area with a population equal to or 

greater than 1 million, including both central city and surrounding suburbs. A minor urban area is a metropolitan 

statistical area with a population of more than 50,000 and less than 1 million, including both central city and 

surrounding suburbs. A rural area is any area not contained in a major or minor urban area. In the NMTC Program 

application, applicants must indicate whether they serve major urban, minor urban, or nonmetropolitan areas.
Page 20 GAO-12-547R Community Development

Research and Office of Certification, Compliance Monitoring and Evaluation to discuss the data 

captured by the various databases.

The CDFI Program regulations require that awardees represent a geographically diverse group 

serving metropolitan and nonmetropolitan areas. To assess the CDFI Program’s progress 

toward its geographic diversity goal, we analyzed the proportion of qualified applicants to the 

proportion of CDFI awardees serving nonmetropolitan areas for fiscal years 2004 through 2010. 

From the CDFI Program, we obtained financial assistance application and award data on the 

total number of qualified applicants and awardees. We calculated the percentage of qualified 

applicants and awardees serving nonmetropolitan areas. We used financial assistance award 

data and not technical assistance award data in our analysis of the geographic diversity goal 

because of time constraints to collect the qualified applicant data broken down by primary areas 

served. Our analysis of overall award data indicated that recipients of technical assistance 

awards are slightly more likely to serve nonmetropolitan areas. As a result, our discussion of 

proportionality in the CDFI Program may understate the percentage of awards that went to 

CDFIs serving nonmetropolitan areas. However, the extent of this difference is limited since the 

CDFI Program makes fewer technical assistance awards than financial assistance awards. 

CDFI Program officials told us that in fiscal year 2004, they used a different scoring method and 

a different applicant grouping process to categorize regular and Small and Emerging CDFI 

Assistance (SECA) applicants.

Analysis of CDFI Program Awards

30

To assess the primary geographic areas that CDFIs reported they served, we analyzed CDFI 

Program data on award amounts for financial and technical assistance by CDFIs’ reported 

primary geographic market served (metropolitan and nonmetropolitan). We obtained historical 

application and award data from the CDFI Fund on awardee, primary geographic market, 

amount of technical assistance funding, and amount of financial assistance funding for fiscal 

years 2004 through 2010. The applications for financial and technical assistance capture the 

primary geographic market variable. Applicants can serve a combination of geographic markets 

(metropolitan or nonmetropolitan) but can self-select the geographic market that they primarily 

serve. Because applicants choose only one area as “primarily” served, the data do not 

necessarily capture where CDFIs ultimately make loans and investments or capture CDFIs that 

self-identify as primarily serving metropolitan areas but also make loans and investments in 

nonmetropolitan areas. Therefore, we cannot say with certainty that CDFIs invest all of their 

awards in the areas that they select as their primary geographic markets. In addition, for 2004, 

data on the primary geographic market for technical assistance applicants were not readily 

available because the 2004 applications were paper based. As a result, we did not include 100

awardees from 2004 in our data set. In addition to these limitations, the data do not reflect deobligation of awards completed before May 2008 because the CDFI Fund did not have any 

electronic system to record de-obligations before that time.

We note these differences in our presentation of the 2004 data 

on proportions of qualified CDFI Program applicants and awardees serving nonmetropolitan 

areas.

 30The SECA category allows CDFIs with assets of less than a certain amount or in operation for fewer than 5 years to 

apply separately from larger and more established (regular) CDFIs. From fiscal years 2004 through 2010, SECA 

applicants received approximately 13 percent of the total dollar amount of financial assistance awards, while regular 

applicants received approximately 87 percent of financial assistance funding. 
Page 21 GAO-12-547R Community Development

To assess the amounts and number of investments and loans that CDFIs deployed to 

metropolitan and nonmetropolitan areas, we obtained transaction-level program data. Our 

review focused on fiscal years 2004 through 2010, for which complete transaction-level data 

were available for individual transactions (for example, a loan made to a local business) from 

the Community Investment Impact System (CIIS) database. We obtained aggregate data on the 

number and dollar amount of loans and investments outstanding, as well as the percentage of 

transactions and percentage of dollars outstanding by year and metropolitan status. There are 

two main limitations to the data set. First, the transaction-level data for the CDFI Program 

represent CDFIs’ loans and investments outstanding (to which we also refer as total portfolio 

outstanding) at the end of each reporting year and reflect CDFI Program awards combined with 

the CDFIs’ other funding sources. Therefore, the data do not allow us to identify which loans 

and investments resulted directly from CDFI Program awards. In addition, the program does not 

require certain types of financial institutions (for example, regulated depository institutions such 

as banks, bank holding companies, and credit unions) to report loan and investment data 

because bank call reports (quarterly reports that collect basic financial data from commercial

banks) already capture this information. Technical assistance awardees also are not required to 

submit transaction-level reports because these awards are intended for internal capacitybuilding activities rather than for providing financial and developmental services to the 

community. However, some of these CDFIs voluntarily submit transaction-level data to the CDFI 

Fund. For example, program officials stated that in fiscal year 2011, 21 of 37 regulated 

depository institutions, or about 57 percent, voluntarily submitted these data reports. They also 

stated that, in general, 70 percent of all financial and technical assistance awardees submitted 

these reports, as did approximately 85 percent of all financial assistance awardees. But 

because not all CDFI awardees must report transaction-level data, we cannot generalize the 

findings to the entire CDFI awardee population.

The NMTC Program ensures that a proportionate number of applicants that are “rural CDEs”—

CDEs that principally serve nonmetropolitan areas—receive tax credits. It also attempts to 

ensure that at least 20 percent of the aggregate investments made with each round of NMTC 

allocations are made in eligible nonmetropolitan areas. To describe the extent to which the

NMTC Program allocated tax credits to rural CDEs, we reviewed annual allocation reports. To 

assess the extent to which the NMTC Program has met the proportionality goal for investments 

in nonmetropolitan areas, we analyzed the total CDE community investments to 

nonmetropolitan areas for calendar years 2008 through 2011. Using the annual NMTC Program 

allocation reports, we compiled data on total funding, the number of CDEs making investments 

in nonmetropolitan areas, and total investments committed to nonmetropolitan areas for the 

years the policy was in place (from 2008). We calculated the percentage of the total investments 

committed to nonmetropolitan areas and present the data in terms of calendar years because 

the program conducts its allocation rounds on a calendar year basis.

Analysis of NMTC Program Allocations

To assess the amounts and number of investments and loans that CDEs deployed to 

metropolitan and nonmetropolitan areas, we analyzed the dollar amount and number of CDE 

projects financed in metropolitan and nonmetropolitan areas for fiscal years 2003 through 2010.

The NMTC Program provided us with aggregate transaction-level data on the total amount of 

qualified low-income community investment and with the metropolitan statistical area and 

combined metropolitan statistical area of the project location (MSACMSA code). To sort the 

data by metropolitan and nonmetropolitan, we created a new variable based on the MSACMSA 

code. We calculated the percentage of dollars and percentage of community investments for 

fiscal years 2003 through 2010. We present this information in terms of fiscal years because this 

is how the NMTC Program collects the data.
Page 22 GAO-12-547R Community Development

For all the analysis on CDFI and NMTC programs, we used data obtained from the CDFI Fund’s 

CIIS and internal certification, application, and award databases. We conducted a reliability 

assessment of the data by reviewing documentation from the CDFI Fund and its data 

contractor, Kearney & Company, which maintains and manages the CIIS database. Specifically, 

we reviewed their processes for ensuring consistent data entry and for addressing potentially 

inaccurate data. We also interviewed officials from the CDFI Fund to address questions about 

the reliability of the information and checked the data for extreme values and missing data 

points. We found the data to be sufficiently reliable for our purposes.

We conducted this performance audit from January to April 2012 in accordance with generally 

accepted government auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings 

and conclusions based on our audit objectives. We believe that the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit objectives.
Page 23 GAO-12-547R Community Development

Enclosure II: Certified CDFIs and CDEs by State or Territory as of 

February 29, 2012

Figure 6 lists all certified Community Development Financial Institutions (CDFI) and Community 

Development Entities (CDE) as of February 29, 2012. The numbers of CDEs represent both the 

applicant CDEs and their subsidiaries, which are legal entities that applicant CDEs own or 

directly control and to which CDEs can transfer all or part of their allocation authority.

Figure 6: Certified CDFIs and CDEs by State or Territory as of February 29, 2012
Page 24 GAO-12-547R Community Development

Enclosure III: CDFIs’ Percentages of Total Portfolios Outstanding in 

Nonmetropolitan Areas by State, Fiscal Years 2004-2010

We obtained data from the CDFI Program on the total dollar amount of CDFIs’ loans and 

investments outstanding (also referred to as total portfolio outstanding) by state and 

metropolitan or nonmetropolitan status for fiscal years 2004 through 2010. Figure 7 represents 

the percentage of total portfolios outstanding in nonmetropolitan areas in each state over this 

time period.

Figure 7: CDFIs’ Percentages of Total Portfolios Outstanding in Nonmetropolitan Areas by State, Fiscal 

Years 2004-2010
Page 25 GAO-12-547R Community Development

Enclosure IV: CDEs’ Percentages of Projects Financed in Nonmetropolitan Areas 

by State, Fiscal Years 2003-2010

We obtained data from the NMTC Program on the dollar amount of projects financed by CDEs 

by state and nonmetropolitan status for fiscal years 2004 through 2010. Figure 8 represents the 

percentage of projects financed in nonmetropolitan areas in each state over this time period.

Figure 8: CDEs’ Percentages of Projects Financed in Nonmetropolitan Areas by State, Fiscal Years 2003-2010
Page 26 GAO-12-547R Community Development

Enclosure V: Comments from the Department of the Treasury
Page 27 GAO-12-547R Community Development

Enclosure VI: GAO Contact and Staff Acknowledgments

GAO Contact

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov

Staff Acknowledgments:

In addition to the contact named above, Paul Schmidt, Assistant Director; William R. Chatlos; 

Elizabeth Jimenez; Marc Molino; Patricia Moye; Lisa Reynolds; and Barbara Roesmann made 

key contributions to this report.

(250652)
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