Community Reinvestment in Texas 2003

Agency Strategies to Promote Community Reinvestment in Texas

Texas communities face a range of banking, economic development, housing and insurance problems. In the coming biennium, state agencies will attempt to creatively encourage community reinvestment in Texas in difficult financial times.

The following strategies were submitted by each agency work group member as a starting point for future community reinvestment planning efforts. These strategies do not necessarily reflect the views of all members of the Community Reinvestment Work Group.

Banking Strategies

Coordinate outreach efforts to educate interested parties in the role of community reinvestment and options for participation.

Use existing agency resources and personnel to promote and coordinate community reinvestment programs administered by state and federal agencies.

Publicize the fee savings available on certain applications submitted to the state’s Department of Banking when the applicant institution or branch will be located in a low- or moderate-income area.

Conduct statewide forums with banks regulated by the department, promoting and informing participants of programs and opportunities available to the industry to support and promote community reinvestment.

Actively support financial institutions participating in government-sponsored loan programs designed to spur investment in new companies.

Participate in statewide discussions with financial institutions about local and regional economic conditions and access to capital issues that affect community reinvestment.

As of December 2002, the Department of Banking coordinated efforts with the Federal Deposit Insurance Corporation on consumer education and financial literacy programs including outreach programs directed at minority-owned financial institutions. The agency continues to use its publications and studies conducted by the Finance Commission of Texas to inform and promote efforts to educate the public and the industry about community reinvestment issues. Although the agency has not sponsored a community reinvestment conference, it continues to support and participate in forums sponsored by the Texas Association of Community Development Corporations, a statewide nonprofit association dedicated to enhancing community economic development in Texas.

Economic Development Strategies

TxED supports new and expanding businesses by providing business access to debt financing for “near bankable businesses” in Texas.

If $473,615 funding were available, the Texas Department of Economic Development would be able to meet the current demand for Capital Access Program loans so that Texas communities, lenders and businesses could retain existing jobs and derive benefits in the form of about 700 new loans that would help create new jobs. At its present level of activity, the CAP program would need additional funding to bring its total loan enrollment to 840. This figure would result in $8,704,995 of debt financing for small and medium-sized businesses, bringing total new and retained jobs in fiscal 2003 to 2,532.

During fiscal 2002, TxED’s Business Incentives Division conducted 33 workshops for lenders and businesses at which it presented the Capital Access Program. The division enrolled 421 loans in the program leveraging $17,237,719 in debt financing for small and medium-sized Texas businesses. Participating businesses announced 615 new jobs and retained 1,575 existing jobs as a result of CAP loans.

The fiscal 2003 appropriation for CAP is $239,900. This level of funding equals about 30 percent of the program’s fiscal 2001 cost of $793,898 and only 41 percent of its fiscal 2002 cost of $591,620. Because the funding for fiscal 2003 is not sufficient to meet the current demand for program services or effectively run the program, TxED will not conduct workshops until the latter part of fiscal 2003. Also, it will limit CAP loan enrollment to 152 loans and only $1.9 million in debt financing for businesses will be leveraged. The agency expects that businesses enrolled in the program will create 429 new jobs.

During the first two months of fiscal 2003, CAP enrolled 140 loans which helped participating businesses create 79 new jobs and retain 313 existing ones. CAP also contributed $94,723 to the loan loss reserve accounts of participating lenders. A loan loss reserve account is established in which the state, the bank and the borrower make deposits to the bank account. The funding bank may draw upon this loan loss reserve account in the event of default by the borrower. Participating lending institutions have already provided $1,740,991 in debt financing to enrolled businesses, a leverage ratio of $18.38 of private debt financing for every state dollar deposited in the loan loss reserve accounts.

Housing Strategies

Increase the state’s appropriation to the Housing Trust Fund (HTF) and create a dedicated funding source for the program.

Expedite the property foreclosure process.

Expand public support of credit counseling programs.

According to TDHCA, the state’s appropriation to the HTF still needs an increase. TDHCA originally requested, but did not receive, $50 million for the fund for the HTF each year of the 2002-03 biennium. While TDHCA maintains that the amount of funding allocated to the HTF needs to be increased, due to the projected budgetary shortfall, the department has chosen to hold the line in its request for HTF funds for 2004-05.

The agency also advocates continued expansion of homebuyer/credit counseling programs. Recent studies by Freddie Mac, the National Task Force of Predatory Lending and the Millennial Housing Commission all reiterate the importance of homebuyer education.

The Texas Association of Community Development Corporations also has expressed strong support for increased funding for the HTF because it is a flexible program that “fills the gap” between the cost of affordable housing and the amount that low-income persons can pay. According to the Texas Low Income Housing Information Service, credit-counseling programs are particularly important right now.

Insurance Strategies

Continue to refine the insurance community investment report required by Art. 3.33, Sec. 3A of the Texas Insurance Code to better capture community reinvestment data and statistics.

Texas Department of Insurance should review and verify the quality of investments that are being self-identified by the insurers through the Community Investment Report as investments in economically disadvantaged areas.

Review and assess the effectiveness of Senate Bill 601 of the 2001 Legislature, which established a premium tax credit for insurers investing in certain Texas start-up companies, to determine whether Texas could adopt a similar measure to provide insurance companies incentives for community reinvestments in the state.

Continue to study and analyze the effect of credit scoring on insurance availability and affordability in underserved areas.

Continue to promote public awareness of the homeowners’ Market Assistance Program and, if adopted, the homeowner’s Fair Access to Insurance Requirements (FAIR) plan. In addition to the MAP program, TDI recently established a residual market for homeowners insurance through the creation of a homeowner’s Fair Access to Insurance Requirements (FAIR) plan. Individuals who are unable to obtain homeowners coverage in the standard market are eligible for a basic policy through the FAIR plan.

Review the California Organized Insurance Network program to determine whether a similar program would be appropriate for Texas or incorporated into existing systems and programs.

The Texas Department of Insurance evaluated the strategies for community reinvestment in Texas suggested by the agency in the 2001 update. The agency relies primarily on the biennial insurance investment report to identify insurance industry investments in the state’s disadvantaged areas which are voluntarily reported to TDI. To date, the investment report statute does not require the industry to use a common definition of community investments and has not set specific requirements for reporting investment data.

TDI indicated to the Texas Community Reinvestment Work Group that the agency may use elements of the COIN program to improve the TDI biennial insurance investment report. The COIN program identifies community investment vehicles and communicates the information to insurers.

The 2001 Texas Legislature established a premium tax credit for insurance companies that invested in certain Texas startup businesses known as certified capital companies. Senate Bill 601was passed in 2001, however the state did not collect sufficient revenues to implement it. A similar program might be adopted to encourage investments in disadvantaged areas, again using elements of the California COIN program system. TDI officials believe additional study on the effectiveness of SB 601 and the COIN program are needed.

TDI distributed 513,000 MAP-related publications in fiscal 2002 through tax assessor-collector offices across Texas, which distributed the information in property owner tax bill notices. The agency also distributed MAP brochures and information through various home shows and community events during the year. TDI continues to evaluate and identify new outreach methods for its MAPs throughout the state.