Perhaps even more than traditional banks, community development financial institutions (CDFIs) are keenly watching Washington, D.C. for election results – and the budget discussions that will inevitably follow, no matter who wins.

“Change is likely, and probably inevitable, in a lot of the programs we’ve been using,” said Joseph L. Flatley, president and CEO of the Massachusetts Housing Investment Corp, a prominent CDFI.

CDFIs, which are designated by the U.S. Treasury Department, often rely heavily on federal grants and tax programs. The CDFIs in Massachusetts have a variety of purposes and use a variety of funding, but everyone has their eyes on D.C., and must be ready to roll with whatever changes take place there.

For example, the New Markets Tax Credit Program, which is an enormous source of funding for revitalization efforts in low-income areas, has yet to be renewed by the current U.S. Congress. Low-income housing funding in general may be reduced as part of overall tax reform, Flatley said.

MHIC has had a busy 2012, still completing projects begun with stimulus money that flowed out of the federal government after the economy’s initial crash. While the pipeline is still full, Flatley predicts he won’t have a clear picture of the CDFI’s long-term outlook until at least next spring. Regardless of who occupies the White House or Congress after this year, the enormous budget deficit must be addressed, and that will likely have an impact on organizations like his.

“There’s tremendous uncertainty,” he said.

‘Doomsday Scenarios’ Loom

The federal government is more rife with instability and periods of intense gridlock than Christopher Sikes, CEO of Common Capital, can recall ever seeing. His Holyoke-based organization primarily provides financing for small businesses, and relies both on private support from banks and religious institutions, as well as public funds.

Common Capital did well with the stimulus funds of the past several years, Sikes said. Federal grants usually require that the CDFI match each grant dollar-for-dollar with money that the institution raised itself, either from local public or private sources. But the stimulus money had no such requirement, and provided a wellspring of funding.

But, like Flatley, Sikes is uncertain of how the next year will play out. The Small Business Administration or the Treasury’s CDFI program could get slashed, for instance, and there’s been talk of doing away with the Department of Commerce.

“You could come up with a lot of doomsday scenarios,” he said.

He is confident, however, that the New Markets Tax Credit program will be renewed. This credit is granted directly to certain investors who receive a credit against income taxes for putting their money in designated community development entities. The community developers then work on projects in low-income areas.

That program, which is by far the biggest tax credit of its kind, has a lot of bipartisan support, he said; real estate developers benefit from it, and congressmen like that it creates projects in their home districts.

 Otherwise, uncertainty abounds, he said. Some CDFIs are already planning ahead by looking into alternative, local sources of funding, but “the reality is, the federal money is big money.”

High Demand

Jeannine Marshall, executive director of Coastal Community Capital, sounded a more hopeful note. Her organization is a small-business lender based out of Centerville, and Marshall is confident that CDFIs like hers can find at least some alternative funding sources. These institutions are more frequently exploring how to lean more heavily on low-cost debt, instead of grant funding.

CDFIs can become members of Federal Home Loan Banks, for example, she said. More and more, institutions are learning to compromise by operating like for-profit entities.

Still, she acknowledged that grant capital is of critical importance. And with the economy’s lingering anemia, CDFIs’ services remain in high demand.

Elyse D. Cherry, CEO and Venture Fund President of Boston Community Capital, said her organization has been extremely busy this year. For most lenders “busy” is a good thing – but for CDFIs, she said, it means struggling constituents in need of funding for affordable housing, childcare, youth programs, businesses and foreclosure relief, all of which her organization tries to provide.

“We’re in the business of solving those problems,” she said.