Correspondence Date: January 8, 1997

Dear [ ]:

This letter responds to your inquiry dated September 16, 1996 regarding the application of the Community Reinvestment Act (CRA) regulations to a financial institution’s support of the [ ] Regional Jobs Initiative under the revised CRA. As you know, the four bank and thrift regulatory agencies have promulgated identical CRA regulations. Therefore, staff from all of the agencies have considered the issue you raised, and they concur in the opinions expressed in this letter.

You have asked whether a grant to the Jobs Initiative program will receive, positive consideration in CRA examinations. As you explained in a telephone conversation with staff, currently a financial institution’s role in this project would be to give a grant(s) to the [ ], which runs the Jobs Initiative program, and which would, in turn, invest in local programs which have agreed to meet specific parameters and goals set by the council. You have further explained that the Jobs Initiative program connects the target community (city of []) residents to work opportunities in and around their community. You indicated that the program is not a job placement service, but rather an integrated approach to address both the supply side and demand side of the labor market.

The [ ] believes this process is an integral step toward equitable participation in the labor market for residents of areas where job opportunities, entrepreneurial activity, and daily experiences relating to work may be missing. To increase employment of urban core residents, your organization believes several other factors must be addressed; for example, transportation, dependent care, and other support services. As a result, as these resources become more available in conjunction with job creation, they will create a more sustainable urban core, a more efficient use of scarce resources, and a higher quality of life for the program’s targeted residents and residents of the entire region.

In the new CRA regulations, grants may be considered to be "qualified investments" if they meet certain criteria. A "qualified investment" is defined as a lawful investment, deposit, membership share, or grant that has as its primary purpose community development. See 12 C.F.R. __ 25.12(s), 228.12(s), 345.12(s), and 563e.12(n). The definition of "community development" in the regulation indicates that the concept includes 1) affordable housing (including multifamily rental housing) for low- or moderate-income individuals; 2) community services targeted to low-or moderate-income individuals; 3) activities that promote economic development by financing businesses or farms that meet the size eligibility standards of 13 CFR 121.301 or have gross annual revenues of $1 million or less; or 4) activities that revitalize or stabilize low-or moderate-income geographies. See 12 C.F.R. __25.12(h), 228.12(s), 345.12(s), and 563e.12(r).

The second and the fourth definitions of community development may address the purpose of the Jobs Initiative program. However, in order to meet these criteria any such program must be primarily targeted to low- or moderate- income individuals and/or to low- and moderate- income geographies. Under the CRA regulations, low- and moderate- income individuals are persons whose income is less than 80% of the HUD adjusted median family income for the MSA in which the person lives or if not in an MSA the statewide nonmetropolitan median family income is used. The low- or moderate- income geographies are determined by computing the median family income of the census tract or BNA as a percent of the MSA or non-metropolitan statewide area median family income, as applicable, as determined by the 1990 census (STF3A). If the percentage is below 80% then the census tract or BNA is a low- or moderate-income geography.

The answer for Question 2 under .12(h) &563e,12(g) Community Development in the newly released Interagency Questions and Answers Regarding Community Reinvestment (61 Fed. Reg. 54,647, 54,650 (Oct. 21, 1996)) helps to clarify the definition for community development, by providing an example that relates to programs such as the Jobs Initiatives program. The example states that "Activities that stabilize or revitalize particular low- or moderate- income areas (including by creating, retaining, or improving jobs for low- or moderate-income persons) also qualify as community development, even if the activities are not located in these low- or moderate-income areas." The Supplementary Information preceding the joint final regulations in the Federal Register also indicates, "Activities that create, retain, or improve jobs for low- or moderate-income persons to stabilize or revitalize low- or moderate-income areas also qualify as community development, even if the activities are not located in low- or moderate income areas" (60 Fed. Reg. 22,156, 22,159(May 4, 1995). For further examples of "qualified investments" see Question 4 under .12(s) & 563e12(r) Qualified Investments in the Interagency Questions and Answers.

To summarize, programs including services that address job improvement, creation or retention, that help create economic revitalization and stability to low-to moderate-income geographies or provide community services targeted to low- or moderate-income individuals would qualify as community development. Therefore, any investments or grants to in such programs would be considered qualified investments.

I trust this letter has been responsive to your inquiry. We have included a copy of the recently released interagency staff commentary containing guidance regarding the new regulation in the form of questions and answers that we hope you find useful. If you have any further questions, please feel free to contact me at (202) 452-3585.

Glenn E. Loney
Associate Director
Division of Consumer and Community Affairs
Board of Governors of the Federal Reserve System

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