1. Update to the Capital Formation Committee October 28, 2010

2. 2 Overview There are a number of pending initiatives / issues relevant to Living Cities’ capital formation objectives: –Resolution of FY2011 appropriations process which includes funding and program direction for a number of key initiatives –CDFI FY11 Funding Cycle and Extension of NMTC Authority –Expiration of Recovery Act bond and bond-related tax provisions –Status of CRA Reform –Status of PACE programs –Implementation of Small Business Jobs Bill –Developments related to a National Infrastructure Bank The broader context is, of course, the mid-term elections and potential party change in Congress.

3. 3 Major Funding Announcements Sustainable Communities Regional Planning Grants –http://portal.hud.gov/portal/page/portal/HUD/documents/Sustainable_communitie s_regionalplanning_grant_finalists.pdfhttp://portal.hud.gov/portal/page/portal/HUD/documents/Sustainable_communitie s_regionalplanning_grant_finalists.pdf TIGER II Capital and Planning Grants –http://www.dot.gov/docs/tiger2grantinfo.pdfhttp://www.dot.gov/docs/tiger2grantinfo.pdf –http://www.dot.gov/docs/tiger2planninggrantinfo.pdfhttp://www.dot.gov/docs/tiger2planninggrantinfo.pdf HUD Community Challenge Planning Grants –http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_adviso ries/2010/HUDNo.10-242http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_adviso ries/2010/HUDNo.10-242 Promise Neighborhood Planning Grants –http://www2.ed.gov/programs/promiseneighborhoods/index.htmlhttp://www2.ed.gov/programs/promiseneighborhoods/index.html Social Innovation Fund Grants –http://www.nationalservice.gov/about/serveamerica/innovation_grantees_2010.a sphttp://www.nationalservice.gov/about/serveamerica/innovation_grantees_2010.a sp HUD NSP III Funding –http://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoods pg/nsp3.cfmhttp://www.hud.gov/offices/cpd/communitydevelopment/programs/neighborhoods pg/nsp3.cfm

4. 4 Status of FY11 Appropriations There are two primary options for the resolution of the FY11 appropriations process: –An “omnibus” or multi-bill package that will combine multiple appropriations bills for one vote; or –A year-long Continuing Resolution (CR) that will extend FY10 funding levels and programs for another year (and that might make some across the board cut) but that will NOT fund any new programs or enact any specific program funding changes.

5. 5 Obama Administration Budget Proposals: What is the Likely Endgame? Democrats will push for an omnibus spending bill during the Lame Duck session. However, the intervening elections introduce real uncertainty as to timing, process and outcome. –For example, a Republican Congress may have little interest in passing spending bills developed by the Administration and Democratic Committee Chairmen. Republicans also foreswore earmarks in the House, so the bills would not contain any of their “projects.” –In addition, the President’s Deficit Commission will report on December 1 st which may have a significant impact on the narrative and dynamic around federal spending. –The result could be a year-long CR or Republicans could delay action until after the 112 th Congress is seated at which time they could make substantial changes. –Republicans could also let the bills proceed during the Lame Duck but enact substantial cuts as a compromise for letting the bills go through.

6. Key Initiatives Pending in the FY11 Appropriations Bills

7. 7 Healthy Food Financing Initiative

8. 8 Agencies have committed to moving forward in FY11 under existing authority even if the appropriations bills are not passed. Key issue is whether USDA will be able to use funds in urban areas as current authority is limited to rural areas by statute. USDA is working on legislative compromise. The CDFI application for FY2011 is due November 19 th. –Applicants seeking HFFI funding must apply. –http://www.cdfifund.gov/docs/2011/cdfi/FY_2011_CDFI_Prog ram_NOFA.pdfhttp://www.cdfifund.gov/docs/2011/cdfi/FY_2011_CDFI_Prog ram_NOFA.pdf

9. 9 Bank on USA Funding and basic program structure pending in the appropriations legislation. The Senate position is to use the appropriation to fund the “Access to Mainstream Financial Institutions” title in the Financial Reform Legislation. –Authority is for grants and other agreements to enable low- income individuals to establish appropriate accounts in FDIC insured institutions. –In connection with such accounts, eligible entities may provide small dollar loan products and financial education and counseling. –Eligible entities are non-profits, FDIC insured banks, CDFIs, state and local government entities, or some partnership thereof.

10. 10 HUD Catalytic Investment Corporation Not funded in either House or Senate bill A number of concerns were expressed, including: –The proposed authority is too broad –It represents another carve-out from CDBG –Similar activities can be financed using CDBG funds at the option of localities

11. 11 Other Programs We are happy to provide an update on any of the following additional programs if of interest: –Choice Neighborhoods, Promise Neighborhoods and the Byrne Criminal Justice Innovation Program Collectively the “Neighborhood Revitalization Initiative” –Department of Education Invest in Innovation (i3) Fund –Race to the Top –Early Learning Challenge Fund –Regional Innovation Clusters –Workforce Innovation Funds –Social Innovation Fund

12. Key Issues for Capital Formation

13. 13 CDFI FY11 Funding Cycle and Extension of NMTC Authority The CDFI program for FY2011 is open. Applications are due November 19 th. NMTC allocation authority has yet to be authorized for FY10 or FY11. A one year, $1 billion extension of NMTC authority (for FY10) was included in Senator Max Baucus tax extenders bill released in September. This is an item for potential inclusion as a rider on a Lame Duck tax measure.

14. 14 Recovery Act Bond Provisions The Recovery Act authorized, or extended favorable tax treatment, for a number bond programs. Build America Bonds Qualified Recovery Zone Facility Bonds Qualified Recovery Zone Development Bonds Private Activity Bonds Without legislative action, these provisions will sunset at the end of 2010. A number of extenders bills have been introduced this year but could not work through Congressional gridlock. These are additional potential items for a Lame Duck tax measure.

15. 15 PACE Programs FHFA warning letter in July 2010 effectively halted PACE programs across the country due to “senior lien” issue. Legislative efforts continue to provide clear authority for PACE programs in Fannie Mae and Freddie Mac underwriting criteria.

16. 16 CRA Reform The Agencies responsible for CRA reform held four public hearings this summer on potential regulatory changes for the CRA. Focus was on how to update the regulations to reflect: –Changes in the financial services industry, –Changes in how banking services are delivered to consumers today; and –Current housing and community development needs.

17. 17 CRA Reform The agencies provided a list of questions in seeking public comment that provide insight into the areas being considered for reform. The agencies were particularly interested in receiving feedback on: –Geographic coverage –CRA performance tests, asset thresholds and designations –Affiliate activities –Small business and consumer lending evaluations and data –Access to banking services –Community development –Ratings and incentives The full list of questions can be viewed at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100617b2.pdf http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100617b2.pdf

18. 18 CRA Reform In June 2010, the CRA agencies issued a Proposed Rule to encourage depository institutions to support the Neighborhood Stabilization Program (NSP). –The Proposed Rule would allow banking institutions to receive CRA consideration for NSP-eligible activities in additional NSP-targeted areas. In September 2010, the CRA agencies issued a Final Rule requiring the agencies to consider low-cost higher education loans to low- income borrowers as a positive factor under the CRA. –The rule also incorporates a CRA statutory provision that allows the agencies to consider a financial institution's capital investment, loan participation, and other ventures with minority-owned financial institutions, women-owned institutions and low-income credit unions as factors in assessing the institution's CRA record.

19. 19 Small Business Jobs Act In addition to eight new small business tax cuts, the Act extends and expands existing Small Business Administration loan programs: –Raises loan limits: From $2 million to $5 million for SBA 7a loans. From $1.5 million to $5.5 million for SBA 504 loans. From $35,000 to $50,000 for SBA microloans From $350,000 to $1 million for SBA Express loans –Allows use of SBA 504 loans to refinance short-term commercial real estate debt into long-term, fixed rate loans. –Provides a temporary increase in the SBA's 7a loan guarantee to 90 percent. –Eliminates fees for all SBA 7a and 504 loans through December 31, 2010.

20. 20 Small Business Jobs Bill The bill also authorizes a State Small Business Credit Initiative and Small Business Lending Fund. –The State Small Business Credit Initiative will support at least $15 billion in new lending by strengthening state small business programs that leverage private-sector lenders to extend additional credit. State by state allocations and additional detail can be found here: http://www.ustreas.gov/press/releases/tg896.htm http://www.ustreas.gov/press/releases/tg896.htm –Authorizes Treasury to create a Small Business Lending Fund to lend up to $30 billion to small banks to expand lending to small businesses. As an incentive for participating community banks to increase small business lending, interest rates will be adjusted relative to the amount of their small business lending activity.

21. 21 National Infrastructure Bank Congressional hearings over the past two months have revealed mixed support. Opposition appears centered on three points: –Because there are a number of existing and successful credit programs, including the TIFIA program, a National Infrastructure Bank just “reinvents the wheel.” –It will be structured as a Government Sponsored Enterprise (GSE) like Fannie Mae, with significant risk to the taxpayer –It will concentrate project funding decisions in the Administration While these views are more prevalent among Republicans, Senate Environment and Public Works Chairman Barbara Boxer (D-CA) has signaled her support for expanding the TIFIA credit program instead of “a legislative battle to create a new entity.”

22. 22 National Infrastructure Bank The Administration will propose a ban housed within the Department of Transportation. As such, it will have a purely transportation focus. Several witnesses testified that a bank should be financed purely with Treasury equity capital and should not raise capital on the open market or have privately subscribed capital. The Administration will release a detailed legislative proposal with its FY2012 Budget Request. Until then, key details remain unknown. The Administration has asked Congress to act on a $50 billion infrastructure proposal during the Lame Duck session that includes funding for an Infrastructure Bank. Action is unlikely. –However, there are some discussions of increasing TIFIA authority during the Lame Duck session.

23. Lame Duck and Post Midterm Outlook

24. 24 Lame Duck Session Key issues will be the FY11 appropriations bills and addressing the expiration of the Bush Tax Cuts (and potentially other tax provisions). There are signs that the President’s Deficit Commission will not reach consensus on December 1 st, indicating that extremely difficult battles over fiscal policy lie ahead.

25. 25 Post-Midterm Outlook Should there be party change in either the House or Senate, some factors to think about: –Dynamics of closely divided government –Overall posture on federal spending –Program-specific factors Certain programs/policies have attracted GOP opposition (i.e. DOT livability initiative) while other are more broadly supported.