The California Organized Insurance Network (COIN) CDFI Tax Credit program (the Program), administered by the California Department of Insurance, has a track record of creating jobs in some of California’s most underserved communities. Drawing on a well-designed policy framework, an efficient and dedicated team of public officials responsible for COIN, and an effective statewide infrastructure of capital providers and community finance intermediaries, the Program has financed projects with largescale employment potential in low- and moderate-income (LMI) communities.
Expanding the Program in California, and to other parts of the United States, presents a promising opportunity to direct private capital to public purpose, contingent on carefully considering the conditions that have supported its successful implementation to date. In truth, these conditions are reflective of the very particular size and institutional characteristics of the private capital market in California that they impact and may be difficult to replicate. However the ‘Big Idea’ should not be considered an isolated policy or intervention for job creation. Rather, it is the paradigm of using a policy lever (tax credits in this case) to direct massive volumes of private capital toward public purpose that would otherwise not be invested with the goal of generating significant and explicit social benefits, including employment growth. Community finance already benefits from similar incentives at the national level, like the Low Income Housing Tax Credit (LIHTC) and New Markets Tax Credit (NMTC).
These policies provide a complement to the Community Reinvestment Act and ensure that banks are motivated to invest in low-income communities along with the other key providers of capital, namely philanthropic foundations and private individuals. This Program brings other types of private, institutional capital to the table, in this case from the insurance industry. In the counterfactual scenario, business as usual would lead to the capital affected by the Program being invested in markets without an imperative for, or explicit impact on, social good.
The Program demonstrates that tax credits can be used to catalyze private capital investment for social benefit – a practice known as impact investing. The social benefit of concern in this paper – job creation in places where unemployment is endemic – has resulted particularly from investments using the Program in housing and the provision of finance/loans to both individuals and small businesses.
A unique feature of this model is its focus on social investment intermediaries that further deploy the capital into a diverse portfolio of projects aligned with their mission of serving LMI communities. The flexibility to dynamically recalibrate this portfolio of investments makes it a highly versatile Program that is not locked into one intervention. Instead intermediaries are able to constantly refine their investment strategies in order to maximize impact, including through financial sustainability. This is salient within the context of impact investing and speaks to a novel way of leveraging tax credits. It must be noted that the job creation benefits are indirect and subject to the context of the capital deployments, which are dependent on the prevailing market opportunities in a particular market/place. As such, comparing the job creation benefits of the Program to other policies is like comparing apples to oranges.
The paper begins by exploring the relationship between investments in housing and loans, and job creation. It then explains the COIN CDFI Tax Credit program in California, including its origins, features, related infrastructure for implementation, and performance. The paper explores recent developments in the Program and plans for its expansion and further refinement to optimize impact. It also provides conservative estimates of job creation as a result of this expansion and provides recommendations for replicating a similar model in other states. Finally, the paper discusses key drivers necessary to make a similar program feasible and closes with thoughts on what the success of the Program means for the larger field of impact investing.