Bessent Resists DOGE Cuts That Put Low-Income Lending Program Under Fire
(Bloomberg) -- President Donald Trump's aggressive government cost-cutting agenda is forcing his Treasury chief to balance support for that mission with efforts to protect a crucial financial lifeline for millions of low-income Americans.
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Treasury Secretary Scott Bessent is trying to preserve the Community Development Financial Institutions Fund while also adhering to an order from Trump that his department reduce the initiative to the maximum extent allowed by law, according to people familiar with the matter who aren't authorized to speak to the media.
At stake is more than $300 billion in mortgages and loans for small businesses and commercial real estate projects in low-income communities, largely across Republican-controlled states like Mississippi and Louisiana. This infusion of capital into under-served communities comes from lenders known as community development financial institutions.
A White House executive order on Friday named the CDFI Fund on a list of governmental entities that should 'reduce the performance of their statutory functions and associated personnel to the minimum presence and function required by law.' The order is part of the Elon Musk-led Department of Government Efficiency's efforts to 'reduce the federal bureaucracy.'
The order, which came just hours after Congress authorized a fresh $324 million infusion for the fund, caught CDFI industry officials by surprise. Just two months earlier, Bessent had described the program as 'very important' during his confirmation hearing; Trump was seen as a supporter too, after expanding the pool of cash the CDFI Fund could distribute to lenders in his first term.
The first CDFIs were formed in the 1970s to expand economic opportunities in areas where there were no for-profit banks, facilitating lending to people and businesses unable to get traditional loans due to hurdles like insufficient credit history or lack of collateral for loans.
Bankers Mobilize
Congress created the CDFI Fund in 1994 to expand CDFIs' reach. The Fund gave $6.3 billion in awards, tax credits and guarantees last year. CDFIs also receive investments and donations from Wall Street firms and big donors, maintaining a critical pipeline of capital to almost nine million people.
Bankers and industry executives quickly mobilized to lobby lawmakers and Treasury officials. Mark Warner of Virginia, a Democrat, and Republican senator Mike Crapo of Idaho, released a joint statement on Sunday reiterating bipartisan support for the CDFI Fund. Warner spoke directly with Bessent, while Crapo's office has been in communication with the Secretary's staff on the matter, according to people familiar with the conversations.
CDFI executives said they received phone calls from investors concerned that a sharp withdrawal of public funds from the industry could hurt their own investments.
'I got an email this morning from an investor and he says, 'Are we going to be safe? Should we reconsider our investments?'' Dominik Mjartan, vice chair of South Carolina-based CDFI Optus Bank, said on Monday.
CDFI executives and lawmakers supporting the program began calling Treasury officials to argue that the program was largely outlined by Congressional statute. They were desperate for reassurance that the program was not at risk of being cut, according to people familiar with the conversations who declined to be named discussing private matters.
The Meeting
On Monday, Treasury staff working on the CDFI Fund were convened to a meeting to discuss the order and left with the impression that they would be engaging in 'minimal operations,' according to a person familiar who asked not to be identified discussing a private gathering. Fund staff had already been working outside the main Treasury building since January, in an office without Internet connection, according to people with knowledge of the working conditions. A person familiar with the Treasury's operations said that officials were working on hooking up a connection.
'CDFIs are a key component of President Trump's commitment to supporting Main Street America in the pursuit of job growth, wealth creation, and prosperity,' Bessent said in a statement Monday night.
But he added that the department will, as per the requirements of the executive order, submit a response to the Office of Management and Budget. The executive order asked for a report explaining which parts of the program are statutorily required and to what extent.
A senior Treasury official would not rule out cuts to the CDFI Fund's programs and staff. The official said Tuesday that Treasury will review the program for potential improvements to efficiency and cost savings, and that the results of that review should not be prejudged.
The Hope
Still, some industry experts interpreted Bessent's statement as providing explicit support for the fund's staff and operations. They pointed out that the Treasury Secretary said in his Monday statement that he 'looks forward to future engagement with CDFIs and other stakeholders to strengthen the impact of these statutory programs and incentivize economic opportunities for all Americans.'
Others appeared less sanguine about the program's prospects and continued to call on the administration to leave the program alone.
'I urge political leaders on both sides of the aisle to ensure the CDFI Fund can carry out its mission at full capacity,' Randall Leach, CEO of California-based CDFI Beneficial State Bank, said in a statement. 'The financial wellbeing of millions of Americans and the vibrancy of neighborhoods across our country depend on it.'
--With assistance from Daniel Flatley.
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