In 1966, New York Senator Robert F. Kennedy toured Bedford-Stuyvesant, a Brooklyn, N.Y., neighborhood that had suffered two decades of disinvestment and blight. Following the tour, Kennedy and neighborhood activists began a dialogue that led to the establishment of what many people consider to be the nation's first community development corporation (CDC).1/ Over the next four decades, the CDC industry gradually expanded, adapting all the while to historic shifts in the nation's economic and political environment. Today, the number of CDCs in the U.S. is estimated at 4,600.2/ Their main role is to anchor capital locally by providing hands-on community revitalization services, such as developing commercial corridors and affordable housing.
CDCs are characterized by having a 501(c)(3) nonprofit, tax-exempt status with the Internal Revenue Service; paid staff members; a volunteer board; and a mission grounded in improving the quality of life in the communities they serve. From the beginning, CDCs have sought to redevelop their communities using a "bottom-up" approach. For example, the board of directors is typically made up of community residents, especially low-income individuals.3/
Funding sources for CDCs include foundations, governments, and private businesses. Additional funding and support is provided by community development intermediaries, such as Local Initiatives Support Corporation and NeighborWorks® America. These organizations provide grants, loans, training, and consulting services to help CDCs pursue their missions.
While most CDCs are primarily concerned with creating affordable housing through construction and rehabilitation, others have a broader focus and engage in activities such as property management, commercial and industrial development, transportation, employment assistance, health care, day care, small business development, and housing counseling. Place-based CDCs are those whose missions are closely tied to delivering services within a specific geography. Approximately 600 of the 4,600 CDCs in the nation serve a single neighborhood.4/
More than 40 years after Senator Kennedy's tour of Bedford-Stuyvesant, the viability of CDCs—and place-based CDCs in particular—is being tested. Some of the major challenges CDCs face today are described below.
Demographic changes. The growing number of new immigrants in cities is changing the mix of services CDCs traditionally provide. According to the U.S. Census Bureau's American Community Survey, the share of the total U.S. population that is foreign-born increased from 7.9 percent in 1990 to 12.6 percent in 2007. Forty-seven percent of the foreign-born population live in central cities, compared to 30 percent of the native-born population. CDCs, the majority of which are located in metropolitan areas, are often taking the lead in assisting newcomers with housing, employment, health care, and other necessities.
The foreclosure crisis. CDCs have worked hard to revitalize their communities, rehabilitate homes, invest in improvement projects, and increase rates of homeownership. In communities throughout the country, the foreclosure crisis is undoing much of this work. As the incidence of vacant properties increases, CDCs are on the front lines in the struggle against a new wave of neighborhood blight. In addition, the drain that foreclosed properties have on local governments puts a strain on public funding sources, which directly affects CDCs.5/
Changes to a major source of federal funding. One of the biggest sources of funding for CDCs, the U.S. Department of Housing and Urban Development's Community Development Block Grant (CDBG) program, has become less project-specific and changed its distribution model. As a result, much of the grant funding that once went directly to CDCs now goes to state and local governments. Also, since 1981, funding for CDBG formula-based grants has dropped by 59 percent when adjusted for inflation. More recently, funding fell from $4.3 billion in fiscal year 2003 to $3.6 billion in fiscal year 2008. When adjusted for inflation, this represents a 28 percent cut.6/
Changes in funders' expectations. Funders of community development work are increasingly looking for comprehensive impact evaluation reports from their grantees. Small CDCs are often not able to afford data tracking tools and other instruments needed to produce these reports.
To learn more about how place-based CDCs are coping in these uncertain times, Community Dividend spoke with Brian Miller, who has served as executive director of Seward Redesign since 2002. Seward Redesign is a CDC serving the Seward, Longfellow, Howe, Hiawatha, and Cooper neighborhoods of the Greater Longfellow Community in southeast Minneapolis. Miller is a licensed real estate broker and attorney and has experience in real estate development, community development, construction management, finance, and law. In addition, he has been a consultant to private and nonprofit clients on development projects. No matter what hat he wears, Miller seeks to work closely with community members to address housing and economic development issues.
Community Dividend: In light of the challenges CDCs face today, do you think place-based CDCs and the bottom-up approach to decision making are still relevant?
Brian Miller: I think the idea of having place-based CDCs is still important. I believe it's better to make decisions closer to where information is. The more you remove decision making from the source of information, the less likely you are to get good decisions. There's been a trend within community development and elsewhere in society to try to create efficiencies of scale, which basically means consolidating and creating larger organizations. It may work effectively to begin with, but over time as the organizations grow and become more bureaucratic, the decision makers become more removed from the information base.
The bottom-up approach in the community development field ensures that you and the people who are most familiar with issues in the community make decisions together. Therefore, when a problem arises, instead of pointing fingers at somebody from outside the community, people roll up their sleeves and take responsibility for that problem. They help solve the problem and they also take some ownership over the solution.
CDCs are fundamentally entrepreneurial. We alter the built environment as part of a longer-term approach to creating opportunity. Place-based CDCs create more than just affordable housing. We advocate around streets, bike paths, pedestrian circulation, and access to mass transit. We also develop commercial corridors that provide necessary goods and services to people—for example, maintaining access to a grocery store in the community and maintaining access to a bank. Those things are important for the economic viability of the community and for attracting people to live there and reinvest in the housing stock. And for that reason, some CDCs ought to remain geography-based.
CD: About ten years ago, your organization expanded its service area to include the four other neighborhoods in the Greater Longfellow Community. If the bottom-up approach was working well for Seward Redesign and Seward residents, why did you feel the need to expand your service area?
Miller: I wasn't here when the expansion happened, but as I understand it, the Greater Longfellow Community was looking at whether or not it should create its own CDC or work with an existing CDC. So there was some dialogue between Seward Redesign and Longfellow Community Council to explore partnership opportunities. Based on those discussions, and with some encouragement from the funding community, the decision was made to expand Seward Redesign's service area rather than create another CDC. With an expansion, the question becomes, "How big can you get while still remaining immersed enough in the community to sustain relationships and communication with residents and businesses?" In our case, we had already been doing some work in greater Longfellow and we thought there were enough common networks, values, and issues to make it a functional relationship.
CD: CDC researcher Randy Stoecker asserts that there is an inherent problem in trying to maintain community control of development projects. According to Stoecker, poor communities don't have enough community-controlled capital, and therefore must look for outside capital whose tendency is to transform use values (i.e., preserving neighborhood space) into exchange values (i.e., converting neighborhood space for a profit). Do you agree with that position?
Miller: I think Stoecker's analysis is too black and white. Yes, there is an inherent conflict between community values and access to capital, but there are also opportunities to achieve a balance between the two.
As a CDC, we need to meet the criteria for financing our projects, but the decisions regarding which projects to choose and when to pursue them are made by community members and reflect the community's values. For example, one of our recent projects was the Riverside Market site, a one-acre site at Franklin and Riverside Avenues that was highly sought-after by market-rate developers. We saw some of their concept drawings and they already had in mind a chain drugstore with housing on top of it. However, the neighborhood grocery co-op needed and wanted to expand. When Seward Redesign got control of the site and solicited input from the community, we found that people were widely supportive of the co-op expanding on that site. The economics of developing the site dictated a mixed-use development, but we committed to what the neighborhood wanted and began advocating within the CDC community for New Markets Tax Credits to close the financing gap. The project came together and got built as the neighborhood's co-op grocery store. That's an example of how a CDC, even though it has to go outside the community for capital, can do what the community wants.
CD: Has the economic downturn changed the funding environment for Seward Redesign?
Miller: Yes, certainly, our short-term outlook is affected by the economy. But there has also been an evolving, long-term reality for CDCs. And by "CDCs" here, I'm referring to CDCs like us that focus on building healthy neighborhoods. For several reasons related to the nature of our work, organizations like ours have had increasing difficulty attracting funding. We don't do enough of the larger, more profitable projects, for example. We don't produce large enough numbers, usually of housing units, to meet current evaluation standards. And much of what we do is time-intensive work that our clients cannot pay for, like working with emerging businesses or planning with the community. That kind of work is not currently in vogue with many funders.
The other issue is that the priorities of the community do not necessarily align at any given time with the work that is most financially rewarding. Lately, the priorities in our community have been on commercial corridor and small business development. The financing available for projects has been much more focused on affordable housing. Right now, both are in trouble.
I think the trick is to put together the right combination of services and income streams so the organization can sustain its capacity and remain a community asset without prostituting itself to someone else's agenda.
CD: You mentioned the term "capacity," which usually refers to the extent to which CDCs can perform their tasks successfully. What's your understanding of the term?
Miller: That's a good general definition of capacity, but under a neighborhood-based model of community development, the definition becomes much more complex than completing tasks or projects. Our capacity is a combination of the technical skills and experience of our staff and the financial resources that we have available for investment. Our "success" in mobilizing that capacity is measured by a wide range of constituents in the community who have shaped our vision and plans.
On numerous occasions, we've undergone a lot of examination by intermediaries to measure our capacity. Any one of their measurement approaches usually lasts for a couple of years. Our own measure continues to be the physical and economic health of our community.
CD: So, you've worked with intermediaries on capacity measurement. How else have you worked with them?
Miller: We've used LISC [Local Initiatives Support Corporation] as a source for small amounts of seed money. For example, they have feasibility grants of $5,000 that enable us to do some quick evaluation of a project at a very early stage. Occasionally, they also have what they call "recoverable grants" that they can approve for up to $50,000 locally. Those can be helpful. For larger projects, their interest rate is usually higher than what I could borrow from my bank. GMHC [Greater Metropolitan Housing Corporation, a Twin Cities-based housing intermediary] has traditionally provided seed capital at more competitive rates, but that resource has dried up in the current environment, too.
CD: What do you think the future holds for place-based CDCs?
Miller: I think CDCs are at an absolutely critical point in terms of reexamining why they exist and how they go about doing business. If CDCs are going to survive as something other than nonprofit housing producers, the remaining neighborhood-based organizations will need to come together as a group and evolve. We'll need to recognize the central issues we face, such as how do we continue to attract and sustain staff expertise? How do we hold funders and partners accountable for providing adequate capital to pursue and invest in neighborhood-scale projects? And how do we limit our organizational growth to levels that can be sustained over the long term? We'll need to start viewing ourselves as an industry, which to me means acting collectively to articulate and provide things like peer-to-peer technical assistance across organizations, instead of relying on intermediaries, and identifiable career paths for young talent to stay in the industry and grow. We'll also need to recognize that while our direct constituencies are neighborhoods, cities are a part of our industry and are also our customers. We need to work out a more intentional, long-term partnership with city governments that recognizes the role and value-added services we provide and the tools we need to do our work effectively.
The beginnings of Seward Redesign
In the mid-1960s, the Minneapolis Housing and Redevelopment Authority (HRA) determined that many of the houses in the Seward Neighborhood on the city's southeast side were no longer salvageable and had to be demolished. The agency proposed clearing about 39 square blocks. Backed by preservationists from the Minnesota Historical Society, neighborhood residents dissuaded the HRA from continuing with the proposed plan. Meanwhile, residents began working with a local church, Trinity Lutheran, which granted $5,000 to support efforts to address an affordable housing shortage in the neighborhood. Using the grant as seed money, residents created a new, all-volunteer organization called Neighborhood Research and Development (NRD) to purchase rundown homes in Seward, rehab them, and sell them to low-income families.
In November 1972, NRD became Seward West Redesign. Later, the organization dropped the "West" from its name and became known as Seward Redesign (SR). Throughout the 1970s, SR concentrated on rehabbing single-family homes, building low-income and market-rate townhouses, and managing properties. In the mid-1980s, SR broadened its mission to include economic development. SR later became a community development corporation under the leadership of its first paid staff member, Executive Director Caren Dewar. Both of Dewar's successors, David Fey and Brian Miller, have concentrated their efforts on job creation, affordable housing, and commercial district revitalization.
This sidebar draws on material originally published as "When the banners came down: Minneapolis's early community development corporations," in Hennepin History by Iric Nathanson, 2008.