Financial, Training Collaboration Needed to Expand Workforce Development Programs

January 03, 2023

Photo of building
Federal tax credit financing is available to help fund the restoration and repurposing of buildings into training centers and office space.

To foster the development of a skilled national workforce, Atlanta Fed researchers suggest that mission-driven financial institutions collaborate with worker training programs to fill gaps extended by dwindling federal funding for adult worker development and education.

Community development financial institutions are federally designated to provide financial products and services intended to improve economically underserved communities. Workforce development systems offer programs intended to train and upskill workers who typically are unemployed or underemployed. The idea is to build on the strengths of these two entities.

"Shared missions and an overlapping client base between CDFIs and workforce development practitioners create a natural pairing for collaboration," according to a discussion paper, "Partnerships between Community Development Financial Institutions and Workforce Development Organizations". Written by Nisha Sutaria of the Community Development Bankers Association and Katherine Townsend Kiernan and Sarah Miller of the Federal Reserve Bank of Atlanta, it builds on 13 years of research into CDFIs in the Southeast that has involved several Federal Reserve Banks and resulted in multiple reports.

For the recent project, researchers looked for ways to address shortcomings in the nation's workforce employment and training programs. Federal funding for these programs tapered from about $20 billion to $14 billion a year between 2009 and 2017. The drop-off is due in part to the expiration of programs funded during the Great Recession by the American Recovery and Reinvestment Act of 2009, according to the latest report on federal training programs and obligations issued by the Government Accounting Office.

"When you look at CDFIs, we do offer a lot of resources, first in getting the know-how and then how to implement the know-how."
— Thelma Adams Johnson, chief executive officer, Albany Community Together

The researchers determined that public and private partners have experimented successfully with innovative financing, but these funding agreements are not keeping pace with skills required in the rapidly changing workplace. The paper observes the funding mechanisms, which include social-impact bonds and income-share agreements, "are not sufficiently available to meet the rapid pace of technological advancements that require constant workforce reskilling. More innovations in workforce finance are needed to create a nimble and sustainable system that will promote career stability and growth for all workers to remain competitive."

The premise of the proposed collaboration starts with the CDFIs' intrinsic tolerance for higher risk than traditional financiers. This provides CDFIs with capacity to help workforce entities access credit to finance improvements to training facilities. CDFIs also can provide workforce development entities with working capital and technical expertise, as well as access to student loans that traditionally aren't available to lower-income individuals. Students could use these loans to gain technical training for in-demand jobs through nonaccredited programs, which are ineligible to receive Pell Grants and federal student loans, according to the paper.

The funding platform provided by CDFIs could enable workforce development entities to focus on delivering key training programs. The common theme among these programs is their intent to help people find jobs that pay a living wage by providing individuals with necessary post-secondary and continuing education. These offerings run the gamut from career and technical education to apprenticeships and adult basic education.

The paper cites three examples of creative collaborations between CDFIs and workforce development entities (see the sidebar). Each is presented as successful in delivering programs that provide skills and knowledge that students use to land a job with a meaningful wage. Each also has the potential to be replicated. In Albany, Georgia, a program that could confirm the ability to scale one of these concepts was started before the paper’s release and involves a CDFI and several organizations that seek to build on the region’s legacy of farms owned by Black and small-scale operators.

Small-dollar student loan programs

In Virginia, Freedom First Credit Union (FFCU), a CDFI, established a workforce development loan program. Proceeds finance tuition and other costs in high-demand fields including truck driving, welding, and some nursing jobs. The maximum loan amount is $5,000 for up to 36 months. Interest rates are based on creditworthiness, not just credit score. Most borrowers pay rates of 10 percent to 12 percent, with the ceiling capped at 18 percent by federal credit union regulations. FFCU supplements the program with financial coaching for borrowers to help them achieve long-term stability.

Real estate development

In Indiana, Local Initiatives Support Corporation (LISC), a CDFI, secured federal tax credit financing to help fund the restoration of a former Stouffer Hotel into a training center and office space. The $33.5 million project was initiated by Ivy Tech Community College. LISC enabled a $10 million New Market Tax Credit allocation with the investment provided by a subsidiary of JPMorgan Chase Bank. The remainder was provided by Ivy Tech Foundation, the leverage lender, with funds provided by Lilly Endowment Inc.

Business expansion loans

In Pennsylvania, four CDFIs collaborated to enable the sale of a for-profit staffing agency to a nonprofit staffing agency, which intended to convert the business to nonprofit status and provide its employees with wraparound social services. The CDFI consortium, led by the Nonprofit Finance Fund and the Reinvestment Fund, provided a loan of $4.85 million in senior debt and provided technical assistance to the buyer, which secured additional funding including $950,000 in subordinate debt from four lenders, $530,000 in grants and contracts from two entities, and seller financing of about $2 million.

The project in Albany is slated to start construction in 2023 and is not cited in the paper. It does address aspirations noted in the paper's conclusion, which asserts that declining rates of federal funding for job training programs result in the need for collaboration and innovation by CDFIs and workforce development agencies to help workers secure jobs that pay living wages: "New strategies for workforce financing are increasingly relevant."

Jobs in Albany are notoriously low-paying, and the region's unemployment rate typically has exceeded Georgia's statewide unemployment rate over the past 12 years, according to rate charts on Georgia and Albany maintained by the St. Louis Fed. Of 22 occupations tracked by the Bureau of Labor Statistics, 18 in Albany pay from 10 percent to 35 percent lower than the national mean, according to the BLS's May 2020 report, the bureau’s latest available report on the region. The region's mean hourly wage of $21.66 is 20 percent lower than the national mean hourly wage of $27.07.

Albany's project to develop a community hub in a vacant big-box retail space donated to a CDFI is like the one in Indiana cited in the paper. The financial model calls for the CDFI to secure an allocation of New Market Tax Credits and for $14 million in costs to be borne by multiple partners.

The planned facility would offer services intended to relieve the surrounding food desert, banking desert, and health care desert, according to the planning document, "Project Overview: The Table." A cornerstone of the plan is an effort to build on the region's agricultural legacy with programs that aim to increase the profit margin for Black and small-scale farmers. Their goods are to be aggregated into batches big enough to be sold to wholesale and institutional buyers at prices higher than piecemeal sales. Food entrepreneurs will be able to cook in a kitchen that meets state requirements for such businesses. Financial advice and services will be offered, along with health care programs that emphasize wellness and care for chronic diseases.

The project has three primary partners, according to the overview—Southwest Georgia Project for Community Education Inc., which grew from roots in the Civil Rights movement; Albany Community Together Inc. (ACT), a CDFI; and Phoebe Putney Health System, which oversees facilities that serve more than 800,000 residents in a 42-country area, according to a report on its website. Additional or likely partners include the City of Albany, Albany Technical College, Albany State University, and the Medical College of Georgia.

Thelma Adams Johnson, chief executive officer of ACT, said the collaboration could increase the quality of life in an area that has lost major employers and was a national epicenter of COVID-19 cases. The New Market Tax Credits allocation would be a first in the Albany area. "When you look at CDFIs, we do offer a lot of resources, first in getting the know-how and then how to implement the know-how," Johnson said. "We offer resources—capital, business development resources, and connections—to help them stand this up. We intersect with creating wealth and providing resources for individuals to make a better life for themselves."

photo of David Pendered
David Pendered

Staff writer for Economy Matters


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