CDFIs Expand Access to Workforce Development Training
As a percent of GDP, the United States spent less of its gross domestic product (GDP) on workforce development training than all but one Organisation for Economic Co-operation and Development (OECD) country in 2019.1 Additionally, the nation has a fractionated array of programs that federal workforce funds flow through to help workers and learners access the training they need to have a successful career with family-sustaining wages. Unfortunately, these programs can be difficult to access and limited in their ability to provide workers the skills and credentials they need. Equipping workers with the necessary skills to succeed in in-demand industries increases their competitiveness and the competitiveness of the US economy globally.
The role of CDFIs: three case studies
Given these trends, the workforce development sector needs new ways to finance education and training at every level, from students to training providers. Community development financial institutions (CDFIs) can play an important role in these innovations that could create lasting impact. CDFIs are financial institutions that prioritize both financial earnings and their social impact.2 Their social impact is measured by the services and products they offer to underserved populations—populations that are often the targets of workforce development programming. In a new paper, Partnerships between Community Development Financial Institutions and Workforce Development Organizations, authors explore three case studies where CDFIs played a critical role in workforce development financing.
- In Roanoke, Virginia, a local credit union offers an alternative student loan product for individual job seekers needing in-demand credentials. This Freedom First Credit Union loan product allows students an accessible and affordable loan to finance training needed for jobs in their local labor market. The program is unique because it is designed with each workforce training provider to meet the students’ needs.
- A national CDFI facilitated the use of the New Markets Tax Credit (NMTC) program to accelerate investment in facilities required for a new culinary arts education program at a community college in Indianapolis. NMTC financing provides low-cost capital to businesses in 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 where the individuals they serve live.
- A group of CDFIs helped finance the expansion of a nonprofit staffing firm focused on housing-insecure or formerly incarcerated people expand into a new market. In this example, CDFIs—co-led by Nonprofit Finance Fund and Reinvestment Fund—helped Atlanta-based First Step Staffing stand up operations in Philadelphia. The consortium of CDFIs provided both $4.85 million in funding and technical assistance that was essential for First Step to build relationships in a new market.
With the US economy facing great uncertainty, new ways of financing workforce development are essential. Financing barriers limit the growth of workers, employers, and local economies. As CDFIs and workforce developers are providing services to the same low- to moderate-income communities, expanding partnerships like these can help reach their shared goal of economic inclusion. CDFIs and workforce development organizations can work together to bring diverse players, and consequently more funding, into the workforce development system to sustain and scale these kinds of transactions.
By Katherine Townsend Kiernan, CED research analyst II. The views expressed here are the author’s and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.
1 Organisation for Economic Co-operation and Development, OECD (2022), Public spending on labour markets (indicator), 2019, https://data.oecd.org/socialexp/public-spending-on-labour-markets.htm. Note: This calculation excludes out-of-work and early retirement spending.