Center for Workforce and Economic Opportunity

This Q&A Digest has been derived from the Ask Us Anything session "Partnerships with Community Development Financial Institutions (CDFIs)" held on August 9, 2022, with Nisha Sutaria, director of programs and impact at the Community Development Bankers Association; Tim Cerebe, vice president of financial wellness programs at Freedom First Credit Union; and Donna Nuccio, vice president of New Market Tax Credit Investing at New Markets Support Company.

Inability to secure capital to improve worker skills or expand training programs can prevent growth in a local economy. In this conversation on, our guest speakers discussed their experiences working with workforce developers and key components of their successful relationships.

The comments included are made by Center for Workforce and Economic Opportunity staff members along with our panelists, and do not necessarily represent the views of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

Key Takeaways

• CDFIs can offer expertise–on new market tax credits or consumer financing–to workforce developers that enable organizations to expand their offerings and focus on programming that they do best.
• Partnerships between CDFIs and workforce developers are often very successful but rely on a holistic approach that addresses the needs of the worker and the broader economy. Building relationships with the right partners in your community is key to success.
• Financing projects through CDFIs can help fill a gap where other, traditional workforce funding has fallen short. CDFIs can work with training providers, social enterprises, job seekers, or even employers to build products and services that promote economic mobility.

Resources
The Atlanta Fed’s Center for Workforce and Economic Opportunity offers several data tools and publications to help people track unemployment and reemployment and get other potential policy and practice suggestions as they manage recovery from the pandemic.

Federal Reserve Bank
Partnerships between Community Development Financial Institutions and Workforce Development Organizations is a recently released discussion paper that describes the case studies from the webinar where CDFIs have partnered with and helped finance organizations providing workforce training and development.
CDFIs Expand Access to Workforce Development Training is a Partners Update article that provides a brief overview of the longer discussion paper.
Funding and Financing Workforce Development highlights CWEO partnerships focusing on innovative financing approaches and results driven programs that address skills gaps and drive economic mobility.
Center for Workforce and Economic Opportunity Events describes upcoming events and includes registration links for Ask Us Anything webinar sessions.

Resources from our Panelists:
2019 Financial Innovations Roundtable Summary covers conversations and topics from the 2019 conference that sparked work on this paper and event. The Roundtable focused on aligning capital, training, and economic mobility.
Engaging Workforce Development: A Framework for Meeting Community Reinvestment Act Obligations offers banks, and organizations interested in partnering with them, information on how the Community Reinvestment Act can be leveraged to support workforce development goals
CDFI Fund Small Dollar Loan Program explains a CDFI Fund program that expands consumer access to mainstream financial institutions and provides alternatives to high cost small dollar loans.
Treasury Emergency Capital Investment Program is a new program offering capital to CDFIs or minority depository institutions (MDIs) to mitigate the effect of COVID-19 in their communities.

Speaker Bios

Donna Nuccio, vice president of New Market Tax Credit Investing, New Markets Support Company

Donna Nuccio serves as vice president of New Market Tax Credit (NMTC) Investing at New Markets Support Company (NMSC), an affiliate of LISC. In this role, she oversees all aspects of deploying NMTCs for clients, including deal origination and underwriting, tax credit investor relations, advisory board relations, post-close portfolio management, and compliance. Prior to joining NMSC, she served as a senior director at Reinvestment Fund, where she was responsible for pipeline development, strategy, and originations for the organization’s NMTC and equitable food system portfolios. She holds an MS in social policy from the University of Pennsylvania and a BS in sociology from Saint Joseph’s University, where she remains an adjunct professor.

Nisha Sutaria, director of programs and impact, Community Development Bankers Association

Nisha Sutaria is the director of Programs and Impact for the Community Development Bankers Association (CDBA). Her responsibilities include advancing CDBA’s programmatic agenda around membership education/training, peer-to-peer learning, and building impact measurement capacity for member banks. Prior to joining CDBA, she was a research analyst at the Federal Reserve Bank of Atlanta, where she conducted applied research and economic impact studies on community and economic development topics, including CRA modernization, workforce development financing, underbanked consumers, and housing vulnerability.

Tim Cerebe, vice president of financial wellness programs, Freedom First Credit Union

Tim Cerebe, is vice president of Financial Wellness Programs with Freedom First Credit Union. He manages the credit union’s award-winning financial wellness and financial education programs. His passion to address member and community well-being, affordable housing, household finances, workforce development, and transportation issues as they relate to underserved communities is the basis for his work at Freedom First, bringing stability to those who are most vulnerable.

What should workforce developers and CDFIs be aware of when building new projects or partnerships with each other?

A successful partnership has three main components: quality service, quality partners, and quality funding. Finding training providers or workforce partners who have strong outcomes is crucial because it mitigates the financial risk by ensuring program graduates have competitive and relevant skills. Strong outcomes do not necessarily mean a high number of students served. They can also include strong employer partnerships that lead to gainful employment or providing services that are affordable and equitable. Ensuring the right people are in place at these organizations to lead these projects is critical.

How do CDFIs meet funding needs of workforce developers and job seekers?

Unlike other sources of funding, particularly public funding, CDFIs can provide necessary funds to holistically meet workforce development clients’ needs. For instance, when people are in school or training, they have other costs besides tuition such as tools, uniforms, books, or testing. Funds from a CDFI can help pay for these.

New market tax credits, specifically, are most successful as a place-based strategy. For projects that have a high-value, built-infrastructure component, NMTCs can reduce costs on the infrastructure that can be repurposed to other parts of the project. In fact, Ivy Tech Community College used this strategy in its project to redevelop a historic building into a culinary arts training facility.

How can CDFIs support progress toward racial equity within communities?

CDFIs, like any funder, have reporting requirements for their partners. Community benefits agreements (CBAs) can be used to represent residents’ needs and desires and to provide goals and metrics for CDFIs and workforce developers. Using tools like a CBA to focus on racial equity is one way CDFIs can support local communities.

Does Freedom First Credit Union have experience establishing income share agreements?

While Freedom First has not yet worked on income share agreements, they are focused on working with employers to provide strong employee benefits and on providing the best product and outcome to their borrowers. For instance, Freedom First has worked with a local healthcare provider that provides tuition reimbursement. This benefit helps workers upskill, but many lack the funds for tuition up front, which is where Freedom First provides gap financing. Freedom First also connects lenders to other sources of funding, including state grants that can lower tuition costs.

What does a typical new market tax credit deal look like and what are its benefits?

New market tax credit transactions use tax credits allocated through the US Department of the Treasury through a CDFI Fund program to attract private investors to projects in underserved, distressed neighborhoods. The 39 percent tax credit is realized by the investor and earned back over the seven-year compliance period, which represents about 36 percent of the total project cost on average, according to the CDFI Fund.

A major benefit for communities is the number of jobs and revitalized or new space created through the program. The CDFI Fund reports that the NMTC program has created over 830,000 jobs since its inception and added over 218 million square feet of office, manufacturing, and retail space. For investors, the program generally offers more favorable terms on a loan and the ability to braid funding from grants, traditional debt, tax increment financing, and other tax credits.

New market tax credits have a long compliance period, seven years. How do projects start and remain on a path for success?

The loan is in place for seven years, and planning for it can take several months. In the evaluation stage, NMTC distributors learn how a project will affect the community. For the workforce development community, that could include the number of students or clients an organization serves, programming details, placement rates, or employment relationships. Then, a community benefits agreement (CBA) is created to outline the project’s goals and metrics. Each year, there is reporting on the CBA to ensure the loan recipient is making progress toward the goals.

Katherine Townsend Kiernan: On behalf of the Federal Reserve Bank of Atlanta and the Center for Workforce and Economic Opportunity, welcome to today's Ask Us Anything webinar. My name is Katherine Townsend Kiernan. I'm one of the researchers with the center. For those of you who aren't familiar with the work of the center, our focus is on employment policies and labor market issues that affect low- and moderate-income workers. We think of ourselves as a think-and-do-style center, meaning that we connect researchers, practitioners, businesses, and policymakers with innovative approaches that create economic opportunity through education and employment. Our conversation today will explore some partnerships between community development financial institutions, or CDFIs, and workforce developers.

This event follows a release of a discussion paper that goes in-depth on three case studies. If you haven't had a chance to read it yet, please follow the link that'll come up in the chat or take a look at our short partner's update on our website for a quick overview. We have some great speakers lined up for today, including my coauthor, Nisha Sutaria, director of programs and impact at Community Development Bankers Association; Donna Nuccio, vice president of New Markets Tax Credit investing at New Markets Support Company; and Tim Cerebe, vice president of financial wellness programs at Freedom First Credit Union.

Before we dive in today's conversation, here are a few housekeeping items. First, I want to take some time for our disclaimer that the views and opinions expressed today are those of the speakers and do not necessarily represent those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Second, we want this to be a conversation, answering questions that are important to those of you in the audience and letting your interest guide the direction of today's comments. Please use the Q&A button at the bottom of your screen to submit questions throughout the webinar. Throughout the conversation, my colleague Sarah Miller will be popping links and resources in the chat, and please feel free to ask for any other resources that you'd like to see. In about a week, you'll get an email with a link to the website that will have today's recording, bios, key takeaways, and other information from today's webinar. If we aren't able to get to all of the questions that are asked live today, we'll be able to work on those and post answers through our website.

Those are our housekeeping items. At this time, I want to invite Nisha Sutaria to come on camera so we can give a little bit of background before hearing from our CDFI friends. When Nisha and I started this paper, we realized that expanded connections between workforce developers and CDFIs could really fill a need for financing and technical assistance in the sector where other workforce development funding has fallen short. Historically, students and job seekers have been responsible for financing their own education training and upskilling. When the responsibility for financing training lies on workers, fewer workers are able to finish school or earn credentials because they can't pay for it.

Also, the United States has a highly decentralized approach to adult worker training and allocates fewer public dollars to such programs than most other industrialized countries. In 2019, the United States spent about a quarter of a percent of our GDP on training and development, while other similar countries spent up to 4 percent of their GDP. In addition, public sector funding moves through multiple programs that can often have strict guidelines or use cases, leaving workers unable to use those funds to finance the training or credentials that employers are looking for in today's labor market.

While private sector funding offers an alternative, these programs are generally structured as an employee benefit and often go to workers who already have a bachelor's degree, or to those who can accept the upfront cost of a training program. I'm going to turn the mic over to Nisha, who's going to give a little bit of background on the CDFI industry and explain how the overlapping clientele of CDFIs and workforce developers creates a natural pairing for improving and scaling training programs. Nisha, can you tell us a bit about your work at Community Development Bankers Association and the CDFI industry more broadly?

Nisha Sutaria: Absolutely. Thank you for that introduction, Katherine, and thank you all for having me here today. It's a pleasure to be here. I'm Nisha Sutaria, and today's topic is one of great interest to me. I've spent the past decade or so working in community development finance in a few different capacities. Currently, I'm the director of programs and impact for the Community Development Bankers Association, or CDBA, which is the national trade association for about 100 or so banks and counting, the vast majority of which are Treasury-designated community development financial institutions, or CDFIs, and many of which are also minority depository institutions, or MDIs.

Prior to joining CDBA, I worked alongside Katherine as a research analyst with the community and economic development [CED] team at the Federal Reserve Bank of Atlanta, which is where I came to learn more about this intersection we're talking about today of community development finance and workforce development. For me, the study began in 2019 when the Atlanta Fed hosted this long-running financial innovations roundtable about CDFIs, this year being about CDFIs and workforce development. Because we recognized that while both workforce development organizations and community development financial institutions seek to help businesses grow and create quality jobs for low-income workers, the two sectors have often been siloed with little coordination or alignment of their work. One of the outgrowths of this conference is this case study discussion paper that we wrote with the input of CDFI practitioners, including our panelists today, Tim and Donna.

Before I get started with our panel discussion, I wanted to give a brief overview of the CDFI industry. For those who may be unfamiliar, community development financial institutions, or CDFIs, are financial institutions with the mission of serving low- and moderate-income, or LMI, communities that are underserved by traditional financial service providers. The CDFI Fund at the US Department of Treasury is responsible for certifying these CDFIs. Today, there are almost 1,400 CDFIs, and that number continues to grow. Almost half of these are loan funds, a third of them are credit unions, and less than about a quarter are banks. While CDFI loan funds comprise almost half of CDFIs by number, they are on average 10 times smaller than the regulated depository bank and credit union counterparts.

While CDFIs have a long track record of providing mortgages to small businesses and consumer loans to low-income borrowers, as well as an array of development services such as financial education, business assistance, credit counseling, and technical assistance, to date, the data does show that CDFIs have focused less on workforce development and training. This is important to note because CDFIs can attract mission-aligned investments and funding as well as take risks on new business models that can help transform the way that workforce development exists and help meet the need for additional financing.

First, CDFIs are experts in developing financial products that are accessible, affordable, and sustainable for a low-income client base. Second, CDFIs are designed to maintain a low enough cost of capital. This is because they know how to work with different classes of investors, including those with different risk- and mission-driven profiles. Moreover, CDFIs are experts at accessing particular sources of incentivized funding. This includes Community Reinvestment Act-motivated activities as well as New Markets Tax Credit Programs, which can bring low-cost funding to training systems.

That brings me to one of our case studies. Before I turn to one of our CDFI experts with us today, Donna, to kick off our panel conversation, I'll provide a little context for the New Markets Tax Credit Program case study, which accelerated investments in facilities required for a new culinary arts education program at a community college in Indianapolis, Indiana. New markets financing provides low-cost capital to businesses and neighborhoods that have experienced disinvestment by attracting private capital to conventionally high-risk deals. This program is important because it can help training providers locate their services exactly where the communities they serve live. In this case, New Markets Support Company helped Ivy Tech College manage their NMTC transaction, which allowed the school to complete construction and begin training in a new culinary arts training facility. Through this partnership, the college was able to double enrollment in their hospitality program and provide the training and experience local employers demanded.

Without further ado, we're ready for our panel discussion. As a reminder, please do use the Q&A function to ask your questions to our panelists. It's my pleasure to ask Donna Nuccio, vice president of New Markets Tax Credit investing for New Markets Support Company, our first question. Speaking from personal experience, for Katherine and me, in the hand-holding your team had to provide us in putting this case study together, the learning curve for New Market Tax Credits is steep. New Market Tax Credits are complicated. What advice would you give to an organization interested in accessing this type of capital?

Donna Nuccio: Hi Nisha, thank you for that question and thank you for having me. Again, just quickly, my name's Donna Nuccio; I'm the vice president of New Markets Tax Credit investing at New Markets Support Company. We're an affiliate of LISC [Local Initiatives Support Corporation], a large CDFI with multiple offices, 39 nationally, and a national rural footprint. We manage LISC's New Market Tax Credits investments. New Market Support Company is why we're there. We are in the business of New Market Tax Credits and we see that New Market Tax Credits can be such a rich subsidy.

Taking a step back and thinking about how beneficial New Markets can be for a project is probably the first step in how I would start answering this question. New Market Tax Credits is a 39 percent tax credit with a lot of structuring, legal, and fees involved. The project can net up to about 20 percent of their capital investment. If you're thinking about a large project that includes expanding a building, renovating a building, [and] purchasing or acquiring property—one of these kinds of capital expenditures, a lot of times when you think about new types of workforce development, you're talking about culinary, automotive, medical, all of these types of programs that will require additional capital investment than just the brick-and mortar-box—it starts making sense to put the brain power into going through a New Market Tax Credit project because of the benefit that you would net out. Keeping that net benefit in mind is very important as you go through the process, because there'll be lots of times that you could be overwhelmed by the number of squares on the box of the structure chart.

To directly answer your question, the advice that I would give is to start early. If you're looking at a capital project for a new expansion of a program or a new program, if you're thinking about relocation, start reaching out to either CDFIs or community development entities, which are often also CDFIs who specifically manage New Markets, and have a conversation about the project, the location of the project, the potential impact or training that will happen at the project, and get a sense from them, what are the tools in their toolbox to be able to help? New Markets is typically one, especially if you're talking about locating in a low-income community. A New Market Tax Credit consultant, a good one, is worth their weight in gold. I would first recommend having that conversation with your local CDEs [Community Development Entity] or your local CDFI, really starting to get to know them and what tools they might have.

Then, think about the experts that you'll need to be able to go through a New Market Tax Credit transaction and ask them early, how can we think about the net benefit when we think about the tool funding? How can we think about the actual benefit at the end of the day to our project and to our program? Early enough that you can think about all of the rest of the sources and funding you'll need to provide and how it will meld with New Market Tax Credits. Doing all of those kind of approaches early on will allow you to really be effective and really get into the New Market Tax Credit cycle. It is very challenging to go through your New Market Tax Credit project, and we really want our workforce development partners and all of our nonprofit partners to focus on what they do best, which is the training in the programs. We really recommend that you rely on some of the consultants in this space to help you through the process.

Sutaria: Great. Thank you. That's some really helpful background on New Markets. Katherine, I'm going to pass over to you to ask Tim a question.

Kiernan: Thank you, and thank you, Donna, for all of that background information. Like Nisha mentioned, we learned a lot about New Market Tax Credits through this paper and really appreciate all of the expertise that your organization and your team was able to lend to us throughout the process.

Tim, I'd love to invite you to come on camera now and talk a little bit about the case study that Freedom First was able to help us out with. A little bit of background from that, though I'll let Tim speak to a lot of it: Tim's located in Roanoke, Virginia, where Freedom First began offering an alternative student loan product for individual job seekers that were needing in-demand credentialing. The loan product, which was designed by Freedom First, allowed students to access an affordable loan to finance the training that they needed in the local labor market. The program's unique because it's designed with each workforce training provider or employer to meet the students' needs. To protect students from excess debt, the loan is distributed through Freedom First to the training provider. Freedom First uses some custom underwriting for the loan that really works with each of the students and job seekers as they're on their financial journey to find in-demand credentials.

Tim, the product that you offered was a direct service to workers and learners. Why was Freedom First positioned to serve these students seeking credentials in your community? And if you could tell us a little bit about Freedom First generally, that would be great.

Tim Cerebe: Thank you for the introduction and great question. A little bit of background. Again, I'm Tim Cerebe, VP of financial wellness at Freedom First Credit Union. We are a CDFI credit union serving about a 20-county area in Southwest Virginia. I like to describe us as an organization that fully embraces the CDFI mission, which enables us to take care of our members, our employees, and the broader communities that we serve. We're a top-notch financial institution that also has a suite of programs and services, and initiatives that are targeted to address issues with transportation, or housing, financial counseling, financial education, and workforce development. To answer the question, something else core to our being here at Freedom First is we have an open-minded approach to partnerships.

Workforce development now is a trending topic. It's very trendy. You have to think about this, though. We got involved in workforce development lending almost nine years ago when it really wasn't very, very trendy. It all started with meeting the president of a local truck driving school, CDS, in our area at a job fair. He said, "Hey, I heard you guys are doing great things in the community. Can we get together and meet and talk?" You would think, a credit union and a truck driving school, why would they want to meet and talk, but we did and found out that they were having some issues with their students getting funding because it's a credentialing licensing program that doesn't qualify for traditional student aid or student lending.

From there, we saw that we could play a role in helping their students. We discussed some of the different challenges they were having, and then really looked at what we could provide. That was direct lending to these individuals that was going to, not only be available for more folks than would've previously had this at their fingertips, but also it was also a better option than some of the other types of funding that were out there, including some that are more predatory in nature. I think it's just that open-mindedness that we approach things in our community with, that nothing's a no from the beginning, it's always a conversation and let's see how we can help. That really entrenched us with this organization, CDS, which our program was born out of and saw a lot of success from, and then grew from there.

Kiernan: Thank you so much, Tim. That's great background on CDFIs, just this really strong willingness to partner, and what you said, nothing's a no. We're always here to understand the needs of the community, wherever that might be. I wanted to follow up about this specific loan product. I know it was, sort of, you took your unsecured consumer loan and readjusted it and created a workforce development loan with a couple of specific key features or designs. Can you tell us a little bit about those for all of the workforce developers on the call who are working with clients every day?

Cerebe: Absolutely. The big thing for us is we try not to overthink things. Sometimes, it's so easy to go down that pathway where you think that you have to magically invent this whole new type of lending, but that's really not true. When we looked at the challenges that our community members were facing, we asked ourselves, "Okay, we do unsecured lending. If someone walked in our doors, and they were creditworthy, and they wanted to get a loan to go back to school, take a licensing class or a credentialing class, would we lend to them?"

Well, yeah, we wouldn't tell them no. We just took our existing traditional loan product, our unsecured loan product, [and] we did some targeted marketing with it because I think labeling sometimes is very important because it signifies intent. If we just say, "Oh, get a personal loan with us for whatever you need," that says one thing. If we call something workforce development, that signals our intent that, yes, this is appropriate and you can approach us and we will help you find a solution to taking the classes that you need, getting the credentials that you need. We didn't overthink it, just made some tweaks.

One of the changes we made is we allowed for 60 days of no payments. We extended that first payment time, and we built that around our first partner, which was CDS, that their course takes four weeks to go through the program. We wanted to make sure that people that were going through the program, they were just being able to focus on their work and not having to worry about a payment coming due, so we do defer that first payment up to 60 days. On the back end, it was really continuing to work with the different organizations that we were partnered with on what worked best for them. How can we best connect with their students? Including, we found out with the CDS program in particular that a lot of truck driving employers offer tuition reimbursement as an employee benefit. We were able to strike up some relationships with those employers where they would then, as soon as the loan was booked and that person was hired on, the employer would start sending us payments for that loan. It went back to that relationship approach that I mentioned at the top.

Sutaria: Thank you so much for all that context, Tim. I want to come back to the relationship question because I want to ask Donna about the New Markets financing. First, I just want to underscore, Tim, that it's really helpful to know that you were able to reinvent, put some bells and whistles on the unsecured loan product. We know we have some banks and credit unions in the audience and it's just good to know that it doesn't require heavy lifting, that they already have this expertise in underwriting these types of loans and that they can make them accessible. At least in the CDFI world, I know for example that the Community Development Financial Institution Fund just launched a Small Dollar Loan Program in the past year for CDFIs and that there are increasingly more initiatives. I think there's a credit union one specifically, Tim, to combat high-cost, small-dollar loans. Just knowing that that's a really important gap in financing that's needed, of course, in addition to traditionally the mortgage and small business lending that banks do.

For Donna, something that Tim underscored a couple of times was just how important this partnership was with the trucking school. I want to come back to you, if you could elaborate on some of the complexity of the New Markets transaction and tell us more about the relationship building that was there and what role some of the key financers played in coming together to get this deal to fruition.

Nuccio: Absolutely. This project is in Indianapolis, and Indianapolis is one of the places where LISC has one of our local programs. A number, if not the majority, of our pipeline and projects for New Market Tax Credits come through one of those local programs because we have practitioners on the ground who are really working within their community. Our strategy in terms of the types of projects we support go back to that relationship, go back to understanding that certain communities need different types of assets than other communities. We really try to think about how we use New Market Tax Credits to support those key partners, those key initiatives, those key projects in the local community. This project was one that was obviously done in partnership with our Indianapolis local LISC office and they had that understanding and those relationships in the community to know that this was important.

This was an important community to them in that this building not only would expand workforce development activities and training programs but would also bring back a historic hotel in a community that really grounded that community, and brought life back to that building, and anchored that organization. For this project, it was done with a number of partners. We worked with not only our local Indianapolis LISC office, but also an Indianapolis local CDE on the project. We also partnered with Capital Fund on the project, and we also partnered with Chase. Those partners came together because it's a very large project. The budget was around $36 million, and we were able to source over $33 million in New Market Tax Credit allocation to be able to provide to the project because of those relationships and those partnerships.

Sutaria: Thank you. That's really helpful to know that all of these different financing entities came together. If I recall correctly, too, Chase was well-versed in NMTC transactions, but there was one entity that you worked with where it was their first New Markets transaction and the borrower's as well, so there was a lot of that technical assistance and onboarding to New Markets up front. One of the things that we discussed was that it's great in terms of getting into the field of doing New Markets transactions, it's great to buddy up with someone if you're new that has done it a couple of times before.

Nuccio: Yeah, absolutely. Once we get that project closed, which can be quite a long process, the New Market Tax Credit project takes typically months to pull together and close and thousands of dollars in legal fees. I make it sound very attractive, I know, but it doesn't end there. After closing your inner relationship with this New Markets for a seven year-compliance period, there's continued reporting and compliance realities. Having an experienced team around the table is really helpful, but then also making sure that the organization has a good understanding of what the expectation will be for them over the next seven years. Because we really see this as a partnership with all of our projects.

Kiernan: Thank you so much, Donna. Whenever I've talked to people about this paper and about these case studies, the key takeaway that I always seem to come back to is that relationships are really, really important. Relationships are really, really hard and time-consuming to start up and to take that first step, but they are often so fruitful and can provide a lot of expertise into a particular situation, and guidance and help throughout the way. Tim, we have a question from the audience, and I want to remind people to keep using the Q&A. We've got some great questions coming your way. Specifically for Freedom First, asking if you guys have any experience or interest in supporting the establishment of income share agreements with some employers in the area.

Cerebe: Good question. We have not gone down that road. I'll explain some things that we have done as far as those type of partnerships. But this is my personal opinion on income share agreements: Certainly I think the jury is still out overall if that is a benefit, especially when you're looking at low- and moderate-income workers. There's all types of different setups for income share agreements. Ones that I've seen don't always benefit the student or the client, but hopefully there's going to be more work in consolidating those income share agreements so that they do benefit the workers a little bit more than what I've been seeing.

What we do is we work with a lot of employers. I mentioned in the truck driving industry in particular, how do we get a benefit that those workers get, how do we get them tapped into that. Forming those relationships, making it easy for folks to get that benefit. We've also worked with a local healthcare provider that does something similar. They do some tuition reimbursement, particularly with some programs like RN to BSN programs, so we partner with them to do almost like gap financing, because there's a period of time that the students have to pay for the education themselves and then they have to wait for the reimbursement. We can provide that gap financing so that then they ultimately get that reimbursement back and can pay off the loan.

We also make sure that they're tapping into resources that we do know are going to be very valuable for them. For example, Virginia has been very progressive in the workforce space, one of the first states to actually put some grant funding aside for workforce development. We launched our program here in Virginia years and years ago. Students can actually, if they qualify for residency, they can get two-thirds of their tuition paid for any of the approved workforce or career development credentialing courses in the state. We like to make sure that people are getting tapped into all of those free money resources, which of course, it takes the amount of the loan that they need from us down. Which I say great, because it's great for the student and we will come in and provide the support that is needed. That's really our approach. We try to make sure anything we're supporting is really for the benefit of the individual that is taking advantage of it.

Kiernan: Thanks so much, Tim. I appreciate that perspective of thinking about what your borrowers need. I'm sure that shows we have this mission for the individual and it also helps with your borrowers to make sure that you guys are able to recoup the collateral and continue the programming. That's a really great perspective to think about your dual mission in the ways that you work with employers to make that happen.

Sutaria: Okay. We're getting some great questions in the chat. Please continue to submit them. This next one is for, we'll give Tim a breather and Donna, this one's for you. For LISC and NMSC, the question for you is: Seven years is a really long horizon for workforce, but that of course is the horizon for the NMTC transactions that you all are doing. What earlier intermediate measures do you use to know that you're on the right track from a workforce perspective?

Nuccio: New Market Tax Credits, the typical structure has us, we close with a community benefits agreement in place. The loans are in place for seven years. That's a seven-year compliance period, Nisha, as you mentioned. Over those seven years, we also require annual impact reporting. Typically what happens is that in the evaluation of projects we get a sense of what anticipated impacts they're going to have. When you talk about workforce development, it's around how many students. What types of programs? Are you directly placing them? Do you have employment relationships where you're helping the students then secure positions? Do you have data on what the quality or accessibility of those jobs are once a student goes through your training program? All of that is typically done in the kind of intake process.

At closing, what we do is we say, okay, this is what you're projecting for the next seven years. We ask that they break that up per year, so every year we will ask that you submit information to us to say, "How many students have been in, and how many students received scholarships, or how many students received placements out of your program?" Any of the data that you agreed to commit to. Sometimes we see that seven years is a long time and a couple years in your employment relationships might change or you might tweak some of the types of programming. That's usually okay because the community benefits agreement outlines what you project to do, and all of the documentation is around your best efforts to do that.

The two requirements of that seven-year compliance period is that you continue to stay active. You continue to stay providing the service that we closed, and you assumed that you would. You do best efforts to have the impacts that you projected to have. Totally understand that sometimes funding streams change, priorities change, and the programming can look a little bit different, but that's why I said it is a partnership, because we do work with you and, if something dramatically changes, we want to understand it. We want to know it. We want to make sure that we're aware and you're still in compliance under the agreement and under the federal requirements for New Markets, but that also you're living up to the goals that you put out when we selected the project.

Sutaria: That's really helpful context. I think you touched on this, but a quick follow-up is it sounds like you all are agreeing on the metrics upfront that will be required for the annual impact reporting. I'm just wondering because a big thing in the CDFI industry overall is generally the theme of having the burden of data collection for having to provide evidence for impact, which is extremely important, of course. I'm wondering if there's standard data for New Markets transactions and does that tend to align with how workforce development practitioners evaluate their own programs, or is it an incremental kind of data collection? It sounds like those might be metrics that are common to them, but just wanted to check.

Nuccio: There's both, so your question is spot on. There are certain data metrics that we are required to report back to the CDFI Fund annually. Those are pretty general, there's not too many, and those are across all different types of projects. There are a lot of data points that get put in the community benefits agreement at closing, which varies by CDE, that are more focused on the types of things that we want to look at to evaluate the impact. Typically where we start with that is asking what types of data reports are you already sending to other funders?

The last thing we want you to do is to have to tweak every single number slightly to submit it to us. We're looking at what types of data do you already report on, what types of data are available to report on, and then really making sure that we're not asking for data that we're not using and trying to find that lovely balance. Which is sometimes hard but is the approach that we take. That's the goal that we have so that it doesn't become a burden just reporting to us as another entity.

Sutaria: Great. Thank you, Donna. It's really good to hear that you're being careful understanding what burden that could cause and being careful about knowing that this is a seven-year commitment and trying to make that as simple as possible for folks. We want to move the Q&A forward. We're getting some great questions here. This question is for both of you, and it reminds me of what, Tim, you were saying earlier about taking advantage of state and local funds. We got a question about what barriers folks who are running CDFIs experience when trying to partner with workforce developers—the public workforce system or even individual nonprofits or schools, for example.

Cerebe: I can take a step at that first if that's okay. What we realized pretty early on was it's all about having the right type of partnership. Not all workforce credentialing organizations are the same. In particular, when we started looking at the success we were having with CDS and the truck driving school, immediately alarm bells were going off in my head and I was like, "Oh, we could expand this and there's a lot of truck driving school providers out there." I started doing the research on some other ones in the area and just didn't get that same high-quality feeling that we did with our local one here.

We found that some workforce credentialing providers maybe are just focused on getting people the number of hours that they need to get them the credential, where what we found with CDS in particular was they really took an approach that was similar to our approach. They wanted to help these folks gain full employment, regardless. If they have to keep someone in class for an extra week because they need the additional training, they would do it. They've also built up a reputation with a lot of the employers in the area where these students, before they even graduate, are normally getting two or three job offers from different companies.

Job placement rates are really high, and they form a lifelong partnership with their clients where their clients will even come back to them if they're looking to make a change and say, "Look, I've been driving nationally. It's great, but I want to get back to driving more locally so I can spend more time in the family. Can you help me find a job?" And they will because they have all these relationships and they'll help them with that as well. Finding the right partners that are willing to work is always a key to scaling anything up like this.

Community colleges are a good place to start. We have a lot of community colleges in our area that do a lot of work in workforce and career development. The key is finding the right people in those organizations that are willing to take on this relationship and see where it goes. That's where we have found success is when we get that right partner and we get that right level of leadership that has bought into it, we can make it happen. Sometimes it is finding who those right people are at those organizations to have a discussion with.

Nuccio: I'll add on to that. The quality of service is extremely important to us as well. Thinking about who the right partners are. Number of people served is not necessarily an indication of quality. We want to think about placement rates, and we want to think about issues of outreach affordability for the program, and equity in the program, and success rates, whether that looks like placements or credentialing, or you know exactly how that would look. That's a really important component of our early evaluation.

When you talk about workforce development funding, there's two elements that impact us as we look at a project. One of them is the tenure and how stable that funding is. Again, back to my seven-year relationship, we're looking to make sure that this organization will be able to provide training over those seven years, if not longer, and will have consistent funding or relationships to be able to continue that. That's one level that we look at. The other is because New Market Tax Credits are largely around capital investments, you do have to take a look at what are the other sources of funding and can they play nice in the sandbox with New Markets? There is funding that needs to flow through the structure in order to generate the tax credit benefit, so it's important that you look at some of the other types of sources. Sometimes other public sources prefer not to go through a New Market Tax Credit structure and there's some creative financing that needs to be put into place. That's why, to go back to my first conversation point, starting early is really important, then really making sure that we've got the right partners at the table.

Kiernan: Thanks so much, Donna. I have a follow-up question on what you just asked, but I don't want to lose this question from the audience that's specifically about New Market Tax Credits. A lot of interest in how they work, specifically what the typical percentage of closing costs are, [and] how much the New Market Tax Credit contributes to program capital cost. If you can, give a little bit more information about a standard NMTC project.

Nuccio: It does vary, I would say very slightly, and it's so hard to give a rule of thumb across projects, but New Market Tax Credits are best used for large projects. You're talking about, the minimum is typically, while there are small programs, the traditional New Market Tax Credit model is best used for large projects. Minimum, I'd say $5 million. Really some people would say closer to $10 [million] or larger. That's when it becomes kind of worth it, if you will. The tax credit itself is a 39 percent tax credit, which is typically realized by the investor. What happens is the New Market Tax Credit investor puts capital up front, then they earn back in that tax credit over seven years, which is why there's a seven-year compliance period.

They will receive the benefit of that 39 percent of what they put in, of the total allocation amount. They then price that. For them to put in that capital at closing, they will pay currently around 75 cents, anywhere between 70 and 80 is the current market, on the dollar for that benefit that they'll get over that seven years, once you take into consideration 39 percent and then the pricing on that. The CDEs and the tax credit allocation make their operating revenue off of fees rather than interest income, which is the traditional kind of lending model, and then there's our partner attorneys and consultants.

While it differs, and I've seen projects all over the place in terms of net benefit, I think that kind of 17 to 20 percent of allocation is a really good rule of thumb when you're thinking about how this could come out. It varies based on consultants, and structure, and CDEs involved. But that's how I would think about the rule of thumb. There's many resources out there to dig into. So happy to maybe pass some of those along when the webinar gets sent out if you're interested in learning more about New Markets.

Kiernan: Thank you so much, Donna. Those resources would be great, and I know that all of our audience is excited to hear about those sort of opportunities and understand them a bit more. We're coming to close and I want to remind people to keep using the Q&A. We'll be able to answer any questions that we don't get to today through our website and through our follow-up materials. We're coming into our last couple of questions. Donna and Tim, as you were answering one of the earlier questions, Donna said something about the pockets of funding that work well with New Market Tax Credits. It had me thinking, what are other areas that you guys see CDFIs being able to fill the gap and provide that sort of gap funding? Tim, you mentioned reimbursement. Donna, you mentioned the way that New Market Tax works with other sorts of funding. I would love your thoughts on that.

Nuccio: I'll jump in first here. I think that New Markets at its core is around place-based, while you can do New Markets nonplace, it's really a place-based strategy and it's really a capital expenditure strategy. Where it could work really well is when you think about starting a new program and you start thinking about what is the built component of what you need there, and then thinking about how you can use New Market Tax Credits as a tool to offset or reduce the cost that you as an organization or a community college would need to spend on that, allowing some of your resources or other types of funding to directly benefit your participants, your education, your ability to do the work in the community.

Sometimes we see employers benefit from New Market Tax Credits and that's because they're able to then use some of that net benefit to pay for additional workforce training for their employees or potential employees that they need to be able to develop to utilize into their business. Sometimes we see it from educational institutions that have been doing this for a long time but are looking to pilot that next or expand that next type of training program.

Cerebe: When I think about that question [and] about our approach, we try to not design programs and interventions in a vacuum. It's nice, and clean, and easy to think that someone who is coming to us that may need funding for credentialing or licensing, that's their only need, that's their only concern, but that's really not the case. Usually, there's a lot of different things going on in the household, so we try to keep that in mind when we're designing our programs. For example, with our workforce development lending program, it doesn't have to be just for tuition for one of these courses or classes. Sometimes people, to get into a job, they need to provide their own set of specialized tools that they don't have the funding to buy, or specialized uniforms, [or] some testing that they need to undergo and sometimes those tests do require some fees.

We'll consider really anything that's going to help that individual move along that pathway to either gain full employment or better opportunities and better careers, but we also don't just look at it through the focus of workforce development. We try to understand what the other needs are [in] trying to develop those relationships. Are there transportation needs? Are there childcare needs? Are there housing needs? What else can we do to help support and provide? To me, the biggest gap, besides having more of the organizations that are providing the workforce training, is understanding what kind of opportunities are out there for their students and connecting them with those. Also from those that are providing that funding and that financing, what are other areas that we can be helping the student population, which includes a lot of adult learners in our area as well. How can we connect people with all those vital resources?

Sutaria: Thank you. Really rich comments from both of you. Katherine and I, one of the big things we heard, just to echo Tim, is understanding that for these students, for these folks getting these trainings, that this is one touchpoint in their life among other things that are going on. These wraparound services are critical. It's great to hear from you both, great to compare and contrast consumer loans in New Markets, real estate construction loans, understanding that CDFIs can fill those gaps and other gaps in between. The second to last question that we have for you all is, in talking to you all, we know you learned so much in this process, in getting these programs up and running. What is one thing you have, best practices you've learned, or one thing that you might have done differently in this project now that you have this experience?

Nuccio: I'm going to piggyback on part of Tim's last answer, I think, in that the New Market Tax Credit project and product is pretty solid right now. The industry has that down, so there's not a ton of tweaking to that that typically gets done. But the important thing when you talk about identifying projects, and funding them, and building the partnerships, is also thinking about the larger approach. Going back to the importance of having our LISC local programs and thinking about what else might be needed in the community, child care is a great example. We have used New Markets to fund early childhood education centers and are continuing to think about how to do that work. Does that need to be convenient, have easy transportation to a workforce development project? What else might be needed in that community and how can we bring that same box of tools from a CDFI to think about all of those components? Every single time we think about what is next in the community and how does this work, because it doesn't work in a vacuum. How do we kind of continue to keep invested in that community and support projects with each other?

Cerebe: This is going to sound very similar to some of the comments Donna had. We were very intentional with our relationship building at the beginning of this program. You've heard me use the term relationship, relationship, a million times over the past hour, but it really is true. Something that we did from the very beginning is we understood, even when we launched the program and we had built out what the policy looked like and the structure, we were very intentional to share with our partner that this may need to morph, and change, and develop, and adapt, so let's keep the lines of communication open. We had biweekly calls at the beginning of this program just to see how things were going. Because we formed that relationship, when we did run into higher expected delinquencies at the very beginning of the loan program, we were able to quickly pivot.

That was a phone call to our partner to say, "Hey, we're struggling. What changes do we need to make?" From there that organization, because we have information sharing agreements for everyone that was getting one of these loans and the relationship that the student had was really with the organization's CDS, they would get on the phone and call people if payments weren't coming through. Once the students understood that Freedom First was a true partner with this organization that they loved, the delinquencies went down dramatically. I believe for as far as the study's concerned, they dropped to like around 2 percent, which was way lower delinquency rates than we were expecting for this. It was really being intentional from the beginning, knowing that probably something's going to go a little bit haywire, something's going to be wacky, and that's okay. When that happened, it was not a surprise to anyone, and we just shifted instead of having to go into panic mode.

Kiernan: Thank you so much, Tim and Donna, for that. I think that you both highlighted some really great things. Thanks, Tim, bringing up that there are challenges, and these are innovations and complicated transactions, so be flexible and make sure you're having all of the right people at the table and maintaining those relationships. I'll just say it one more time. Then to think holistically about community needs from the worker to the employer, to the workforce developer, in the case of the New Market Tax Credit case study. I just have one last question for everybody, and that's what's on the horizon or what are you hoping to see in the future?

Nuccio: I've got two answers to this. One is that NMSC, we are working really hard to bring kind of new investors into the New Market Tax Credit space. We feel really passionate about the opportunity to bring some impact investors into this New Market Tax Credit space where they might not have been previously and thinking about what that means for investors that may be specifically interested in certain asset classes or geographies. Typically, we can provide higher pricing or technical assistance, or sidecar grants to be able to amplify the impact of the New Markets Tax Credit Program. That's one thing that's not workforce development specific, but I think is really, really exciting in this conversation. The other thing is that we're seeing more workforce development projects across our desk, which I think is really exciting.

The other thing that's important to see and exciting to see is the variety of them. We're looking at one in Boston that's pretty similar to the Ivy Tech project, but we also funded one last year in non-metro Florida that's really focused on providing workforce development for adults with autism. Thinking about how then to partner with employers to better understand the work environment and making that comfortable for somebody with autism and thinking about that untapped potential. No size fits all, and I think that there's more opportunities for CDFIs and workforce development to work together.

Cerebe: One of the things I'm most excited about in the workforce development space is there seems to be a shift where a lot of employers now that are starting to think outside the box as far as what types of benefits and support they offer to their own workforce, which is very important. There's the component of getting people trained and certified, and credentialed, and all the schooling, but there's also how do we take care of our workforce when they're in the workforce and at these employers. We've been working with a lot of our local employers on different types of interventions, and support, and benefits that they can provide to their own workforce.

One in particular is we have a pretty large employer that we helped them establish an employee emergency assistance fund, where they put some funding into this fund. It's really supposed to help folks that are experiencing some type of financial hardship, whether it be death in the family or some unplanned for event, and they're able to tap into some funding to help support them. We helped them develop that. We actually facilitate that for them because they wanted to really not be the decision-makers. They wanted to say, "Look, here's the policy. Here's what we want to fund and what we don't, but we want someone else to be making the decision," so we are facilitating that fund for them. We've got a couple other employers that are doing some very similar things, too. I'm really excited about just the expanded work, [and] that we as a CDFI financial institution are able to add value to our employers in terms of also helping their workers and their workforce in very unique ways.

Kiernan: Thank you so much, Tim and Donna, and Nisha for joining us today. We continue to learn from you guys. It's great to have you back on our Federal Reserve Bank of Atlanta event, Nisha. Thank you to all of our attendees for the amazing questions that drove today's conversation. I just want to remind everyone that the questions and the recording will be up in about a week, and you'll receive an email with those when they're ready. We encourage and look forward to seeing everyone at upcoming events with the center. Thank you, everybody. Have a great afternoon.