California Extends Community Development Program with $11 Million in Insurance Company Investments

Strategic Insights -

California Insurance Commissioner Dave Jones and Speaker John A. Perez today announced a collaborative effort to extend the life of the Community Development Program, a tax credit program that facilitates insurance industry investments in underserved communities. The program received $11 million in new investments from Farmers Insurance Exchange, Pacific Life Insurance Company, and State Farm Mutual Automobile Insurance Company. In exchange for an $11 million, zero-interest, five-year loan to benefit underserved communities, the insurance companies will receive a 20% tax credit of $2.2 million.

Key Takeaways:

  • The Community Development Program, administered by the California Department of Insurance, allocates $2 million in tax credits annually to support $10 million in community development investments.
  • The program has been underutilized in recent years, with $4.67 million in tax credits available to support $23.7 million in community development investments.
  • Insurance companies have an exclusive window until July 1, 2011, to place investments in the program, after which it will be open to other investors.
  • The investments made by Farmers, Pacific Life, and State Farm will be used by Impact Community Capital LLC to make federally insured deposits with potentially 22 community banks and credit unions, allowing them to expand their community lending activities.
  • Impact Community Capital LLC has pioneered the pooling and securitization of community investment portfolios and the use of federal New Markets Tax Credits to finance community childcare and healthcare facilities.
  • Impact investments and investment commitments currently exceed $1 billion, with key investors including Allstate Insurance Company, Farmers Insurance Companies, Nationwide Mutual Insurance Companies, and State Farm Insurance Companies.
  • The program has a 20% state tax credit, with an approximately 4.3% annual percentage rate of return.
  • CDFIs, including community development loan funds, credit unions, banks, microenterprise funds, corporation-based lenders, and venture funds, have invested more than $100 million in California's most underserved communities from 1997 through 2009.
  • The program underscores how creative solutions and partnerships between the public sector and the private sector can have genuine, real-world benefits in promoting economic and social development in underserved communities.

Statistics:

  • $11 million in new investments from Farmers Insurance Exchange, Pacific Life Insurance Company, and State Farm Mutual Automobile Insurance Company.
  • $2.2 million in tax credits from a 20% tax credit of $2.2 million for the insurance companies.
  • $4.67 million in tax credits available to support $23.7 million in community development investments.
  • 81 CDFIs certified by COIN and eligible to participate in the tax-credit program.
  • $100 million invested in California's most underserved communities from 1997 through 2009.
  • $1 billion in Impact investments and investment commitments.
  • 20% state tax credit with an approximately 4.3% annual percentage rate of return.

Sources:

  • "California Department of Insurance"
  • "Impact Community Capital LLC"
  • "California Organized Investment Network (COIN)"
  • "Assembly Bill 624"