Finance for Individuals
One of the most popular policies that Sherraden championed to help poor people increase their wealth was individual development accounts (IDAs). Typically in these schemes, funding agencies and local nonprofit organizations match the amount of money that an individual saved. Sometimes IDAs were targeted for specific goals such as school tuition or the purchase of a home. In that IDAs are a direct cash transfer, albeit for a special purpose, they are extremely beneficial to people whose chief problem is a lack of money.
Sherraden also advocated another individual asset program, microenterprise, which involved lending small sums of money to individuals. Activists working with very poor people in South Asia, South America, and Africa had devised the program to encourage the informal businesses that proliferate in the global slums. Conditions in the United States, however, differ from those in developing regions. Here the poor frequently lack tightly knit clan-type social groups, even the smallest businesses are regulated, and for better or worse credit is available to almost anyone. Nonetheless, the American version of support for microenterprise has grown dramatically. By 2002, more than 500 organizations offered either credit—including small seed grants and equity investments—and financial services or financial training and technical assistance. ACCION, the largest agency by far, had lent approximately $148 million to more than 15,000 entrepreneurs, with an average loan of $5,300.37
There’s No Place Like Home
Home purchases, which IDAs could help achieve, became the other popular form of asset building. People in the community development field had long praised the effect of homeownership on neighborhoods: low-income homeowners, like other homeowners, worked hard to maintain their houses and yards and were engaged in community affairs. In addition to these beneficial aspects of owning a home, reformers now extolled the idea that houses were an asset that, like a bank account, could be drawn against in the future. At the same time, presidents Bill Clinton and George W. Bush both declared that expanding the percentage of homeownership in the United States was a high priority for the nation. Thanks to a number of changes in mortgage lending, credit that had been so hard to come by in the past was now available to low-income households.
Nonprofit organizations such as the Neighborhood Housing Services groups across the country offered first-time home buyer classes as well as loans. These careful programs required that the novice mortgage borrowers take classes to prepare them for the challenges of homeownership and also offered them well structured fixed-rate loans. As a result, the first-time homebuyer programs had few defaults.
As is well known, however, subprime mortgage companies that were more interested in quick profits were not so careful and in some cases operated fraudulently. In numerous cases, unscrupulous lenders lured unsuspecting borrowers—who were disproportionately African American and Hispanic—into disastrous refinancing schemes, eventually causing millions of defaults and foreclosures. The concentration of foreclosures in low-income neighborhoods, especially those in the Midwest, undid decades of hard-won progress.
In the end, those low-income homebuyers who were able to complete their purchases had acquired their own homes, which is perhaps the most important benefit of the purchase. They often, however, did not possess an appreciating asset. Their houses were likely to be located in neighborhoods with stagnant or declining property values. Therefore, even if they were able to retain their homes, low-income homeowners often could not trade up or borrow against their houses for future investments as upper-middle-class owners in appreciating land markets might do.
The Return of Economic Community Development
Place-based community development was hardly dead. Rather it returned to its roots in economic development. To stimulate “economic opportunity in America’s distressed communities,” in 1994 the Clinton administration instituted the Empowerment Zone/Enterprise Community program, which channeled billions of dollars in tax incentives, performance grants, and loans to more than 100 designated urban and rural places. Twenty-seven years earlier, Robert Kennedy had proposed a similar concept, but it was Jack Kemp, HUD Secretary under President George H. W. Bush, who first established “enterprise zones” to provide financial incentives to help expand businesses and employment in economically depressed areas.
Following business professor Michael Porter’s research on the hidden economic potential of the inner city, a coalition of 65 business and community leaders and government officials in 1997 concluded that private-sector investment in areas considered economically broken would actually pay off. Three years later, the federal government passed the New Markets Tax Credit program to stimulate “community capitalism.” Similar in concept to Low Income Housing Tax Credits, the program allocated tax credits to organizations (including affiliates of many CDFIs) to attract investment in businesses in low-income communities. And similar to the response to the Low Income Housing Tax Credit, both local community developers and corporate investors quickly embraced the New Markets Tax Credit program.
The Maturing of Community Development
By the early years of the twenty-first century, community development activities and institutions had spread across the United States. The once experimental organization known as the community development corporation had become established in the American landscape. By 2005 the number of CDCs had multiplied to 4,600, and they could be found in large cities and rural areas in each of the country’s major regions.38
A large financial and technical infrastructure buttressed community development efforts. At present, the community capital field boasts more than 1,000 CDFIs in cities, rural areas, and Native American reservations. In 2008, the authors of an industry study found that a sample of 495 CDFIs had $20.4 billion in financing outstanding and originated $5.53 billion in new community development financing.39 The Low Income Investment Fund, to name just one example, to date has served more than one million people and through loans and grants has invested its billionth dollar, which leveraged an additional $6 billion to help pay for tens of thousands of homes, school facilities, and child care spaces in low-income communities.
Since 1980 LISC has invested $11.1 billion ($1.1 billion in 2010 alone) in community development, which contributed to $33.9 billion in total development of 277,000 affordable homes, millions of square feet of retail and community space, not to mention schools, child care facilities, and children’s playing fields. Similarly, since 1982 Enterprise Community Partners has collected more than $11 billion in equity, grants, and loans to help build or preserve nearly 300,000 affordable rental and for-sale homes and provide more than 410,000 jobs nationwide. By 2000, NeighborWorks America and its affiliates had reached an annual direct investment in economically distressed communities of $1 billion. The network included 235 local nonprofit organizations, which served more than 4,500 neighborhoods. Since the economic downturn, its prodigious home buying and counseling machinery has turned to foreclosure mitigation counseling and administering mortgage payment relief to homeowners with falling income stemming from unemployment.40
Even as the government, banking, and philanthropic systems of financial support grew strong in the new millennium, community development organizations were forced to confront new and not always pleasant realities. The leaders of the founding generation had aged, and many now retired from the business. Sometimes the new leaders had trouble coping with changed circumstances. In some cities, boosted by the real estate boom, the areas that the CDCs served had indeed revived, raising the question of the necessity of such organizations.
In any case, a lack of vacant lots or decrepit buildings and the high costs of land limited the scope of what local community development organizations were able to do. As opportunities for community development lessened, so too did the need for many nonprofits operating in the same city. Meanwhile, not all the leaders of community development organizations could avoid missteps: in some cases, the search for new projects distracted them from managing the company’s real estate assets, which could be financially disastrous. For such reasons, the ranks of community development organizations thinned significantly, dropping from about 8,400 CDCs in 2002 to perhaps half that number in 2010.41
The nonprofit field adjusted to the new conditions. CDCs increasingly turned to partnerships with other organizations and institutions as a way of stretching their resources and the scope of their activities. Some CDCs expanded into new service areas, either to take up the slack of groups that had gone out of business or to inaugurate community development in new territories.
Increasingly local groups and governments turned to large specialized nonprofit housing companies for housing development. Regional and national groups such as Mercy Housing, National Church Residences, BRIDGE Housing Corporation, and The Community Builders operated with the kind of business acumen—including asset management officers—and the size of real estate portfolios that compared well with for-profit real estate companies. With such skilled and yet socially committed organizations, it did not seem necessary for as many small groups to develop housing on their own.