Brighter Futures Begin with HOPE.

Resources Designed for Rural, Persistent Poverty Communities Vital Now More than Ever

December 22nd, 2021

By Sara Miller and Diane Standaert

Small, rural communities often face significant challenges in gaining access to the resources created to support economic opportunity in distressed communities.  This is particularly true in areas of persistent poverty, where communities have experienced high rates over poverty for more than 50 years.  Unlocking the potential for resources to reach these communities is key to reversing these trends, and Community Development Financial Institutions (CDFIs) are important conduits to do so. CDFIs like HOPE, and others through the Partners for Rural Transformation, often fill the gaps in these areas working with the local communities to finance development projects like housing, community facilities, and infrastructure.  Both the proposed modernization of the Community Reinvestment Act, as well as deployment of resources from the American Rescue Plan, can be transformative in meeting the needs of rural communities.

CDFIs with a track record of serving these communities will be critical to make sure resources meet the local needs of these communities.  The following essay provides examples of how CDFIs, such as HOPE, are well-positioned to work with communities to achieve their own goals.

Strong Partnerships with Local Communities

CDFIs located in and close to historically underserved communities are able to draw from the strength of the leadership and vision of the people who live there.  In so doing, CDFIs can quickly adapt and address the needs of various communities, both as they change over time and in times of crisis.  HOPE has formalized these relationships to ensure sustained, ongoing communication through partnerships like the Hope Community Partnership, a collaboration with small rural towns; and the Deep South Economic Mobility Collaborative, a network of partnerships with larger Black-led municipalities and Historically Black Colleges and Universities (HBCUs).  Through these partnerships, HOPE has come to know and understand the real-time impact of underinvestment in these communities, and pivot to draw attention and resources in direct response to the needs identified by local leaders.

For example, small, rural towns often lack community and economic development staff, leaving the towns at a disadvantage when competing for resources – especially in high poverty areas. Recognizing the need in these municipalities, the Hope Community Partnership (HCP) provides strategic and focused community and economic development training and technical assistance for communities.  A few recent examples of the outcomes of the work include:  helping the town of Itta Bena successfully apply for $500,000 in community development grants and with the completion of a community-initiated art project in partnership with HBCU Mississippi Valley State University. HCP also supported the drawing down of $2.2 million of state-funding to fuel the initial phase of community revitalization projects in four Delta towns.

Innovating to Overcome Inequities Barriers in Accessing Relief Dollars

Within the context of COVID-19, HOPE quickly deployed technical assistance to local government leaders to access the CARES Act money allocated by the state.  As a result of these relationships, all seven towns drew down the full amount of their allocation, totaling $600,000 to help their communities respond to the impact of COVID-19.

Community development and disaster resources should be designed and directed to address obstacles faced by small communities. For instance, many state CARES act programs for local governments required expenditures for reimbursement. This reimbursement model is commonplace among many types of disaster relief aid.  Communities with small budgets, however, often do not have the “up-front” funding required to provide assistance and then later be reimbursed.  This was true for the 2020 CARES Act Coronavirus Relief Fund as small, rural towns in low-income communities and communities of color, such as those in the Delta regions of Louisiana and Mississippi, as well as the Alabama Black Belt, lacked pre-existing resources to purchase personal protective equipment (PPE) and other pandemic-related response items for reimbursement.  HOPE and the Black Belt Community Foundation overcame this barrier by setting up a revolving loan program, where the Foundation advanced the towns up to $50,000 in recoverable grants, which were then repaid when the towns were reimbursed by the state. This was made possible with philanthropic funds raised to serve as loss reserves for the program.  This pilot project served as the model for subsequent regulations guiding the deployment of resources for small communities made available in the American Rescue plan. Specifically, the guidance prohibited states from distributing the funding on a reimbursement basis[1], and required States to pass the funds through to the local governments within 30 days of receipt.

Deploying Community Development Financing Resources to Persistent Poverty Communities

Another example of a challenging area for small communities is drawing down much needed equity to finance critical community infrastructure, such as affordable housing, hospitals, and schools. Two significant sources of equity include the Low Income Housing Tax Credit (LIHTC) and the New Market Tax Credit (NMTC).  In Deep South communities, every penny of equity matters in determining whether a proposed project can come to fruition. This is particularly true for many of the borrowers with whom HOPE works, as most are non-profit organizations in rural or other communities which have a higher hill to climb when trying to raise equity from other sources. CDFIs with a track-record of reaching persistent poverty communities are well positioned to deploy both tools in a way that overcomes these inequities.

The Low Income Housing Tax Credit is a significant source of funding for new or rehabilitated affordable housing units in places like the Mississippi Delta.  However, developers in small communities often have a more difficult time attracting the equity investments needed to complete the typically smaller projects with lower returns than larger projects in urban areas.  For a bank investor looking for CRA credit, it is easier to do one larger $30 million deal than several $3 million deals in in rural areas.   In HOPE’s experience, smaller affordable housing developments in rural areas perform just as well, or better than others; yet, they are harder to close because investors do not find the returns as attractive.

Another significant example includes the NMTC Since the launch of the NMTC program in 2003, HOPE has had the opportunity to invest $204 million in NMTC financing in the communities we serve, often with outcomes contrasting the program as whole. More than one-third (34%) of HOPE’s NMTC projects have been in rural, persistent poverty communities. By contrast, just 5% of all NMTC projects during this time have been invested in rural persistent poverty counties. In light of these data, the New Market Tax Credit program must improve its track record of deploying resources to community development entities (CDEs) owned and led by people of color, and funding projects in rural, persistently poor communities.

Potential LIHTC and NMTC projects in rural communities often face capital access challenges given the limited banking options in rural places. On CRA-eligible LIHTC and NMTC projects, there is an increased demand for tax credits, which increases the price for the credit, thus resulting in more equity for the project. The extra premium on tax credit pricing on CRA qualifying deals can be the difference between a project not being able to come together or getting it across the finish line.  However, the ability to attract CRA-investments into Deep South areas is challenged by the fact that much of the region is a banking desert, and therefore not included in the areas to which larger banks have CRA obligations to invest. One solution to this challenge is to provide an incentive through the allocation of credits that provide a higher return to syndicators willing to engage with small rural projects, and to provide additional CRA incentives for banks willing to work in rural areas.

The Way Forward

The needs as well as the community development infrastructure in communities can vary widely, and a “one-size fits all” approach to community development financing and disaster relief often falls short in rural, persistent poverty communities.  More can be done to remove obstacles and provide incentives within existing programs, like LIHTC and other community development resources, to make them work more effectively in rural areas.

Additionally, resources should be directed to support CDFIs with a strong track record of doing this work in historically underserved rural communi­ties and communities of color.  In addition to federal resources for CDFIs, private investment can be encouraged via the Community Reinvestment Act, to ensure bank investments are in fact responsive to the priorities and self-determination of these communities.  This type of sustained, deep, and trust-building partnerships can and should be replicated by other financial institutions and government agencies.

[1] U.S. Department of Treasury, “Coronavirus Local Fiscal Recovery Fund: Guidance on Distribution of Funds to Non-entitlement Units of Local Government”, June 30, 2021.

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