Community Development Corporations in us civil Society

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Community Development Corporations in US Civil Society

By Carol Steinbach

The paper examines a unique American creation known as a community development corporation – or CDC. Operating as nonprofits within the civil society, CDCs work to achieve economic and social revival of low income areas. CDCs undertake housing and commercial development projects. They start their own businesses and, increasingly, provide capital to other businesses in their target areas. CDCs raise funds from government, foundations, corporations, and religious institutions and, in turn, invest the monies back into their communities.

Thousands of CDCs have sprung up in poor areas, from Appalachia to Watts. While there is no precise count of the number of CDCs, estimates range from 4,000 to 8,000 groups.1 CDCs are among the most entrepreneurial institutions in the entire civil society sector. Over the past three decades, they have collectively produced hundreds of thousands of affordable homes, constructed millions of square feet of commercial space, and provided billions of dollars in capital to businesses in distressed areas.

This paper examines the contributions CDCs have made to the civil society and to governance in the United States – and recommends how these organizations might be supported to widen their impact.

CDCs began forming in the 1960s to address the failure of mainstream government and market structures to provide decent housing, safe neighborhoods, good jobs, social supports, and citizen participation opportunities for millions of Americans living in poor communities. All CDCs share a common commitment: to assist people on the lowest rungs of the economic ladder. From the outset of the movement, however, the communities served by CDCs spanned a broad continuum. Even today, geographic areas where CDCs operate range from a few square blocks of an urban neighborhood to multi-county rural areas. Their target populations are equally varied -- white, black, Hispanic and Asian Americans, women, farmers, Indians, immigrants, welfare recipients, Eskimos, small business owners, juveniles, the homeless.

Historian Stewart Perry describes the emergence of CDCs as organic. “The CDC movement was not invented just once – but more or less simultaneously in a number of different ghettos in America, where desperate need, combined with ingenuity, opportunity and talent, brought forth a new institution” (Perry 1987:8). A study of 128 CDCs, conducted by the New School of Social Research, found that more than 90 per cent of CDCs had been launched by individuals or small groups (Vidal 1992).

The organic nature of CDC beginnings has helped to foster the view of CDCs as legitimate representatives of communities seeking to better themselves. CDCs’ diversity has also enabled these organizations to build a wide base of support among funders and partners. Even so, however, CDCs could be called the civil society’s version of Mona Lisa’s smile: what you see in these institutions depends on where you are standing.

Varying political constituencies have claimed CDCs as their own, and CDCs have alternatively been described as fulfilling all three models of the civil society institution: as complementary to government, as alternatives to government, and as enhancement to government and markets.

During the 1960s, as Lyndon Johnson’s Great Society era began, CDCs were viewed as complementary to government. Their role was to encourage neighborhood development, promote anti-poverty strategies, and deliver social services – with generous federal support provided to fuel them.

During the Reagan years, the lens shifted. Political conservatives espoused the philosophy that the United States should rely on philanthropies, nonprofit organizations, and religious groups – the “thousand points of light” – to address social problems, not government. CDCs quickly came to be seen by conservatives as alternatives to government. They lost most of their federal funding, but continued to enjoy broad political support. During this period, CDCs developed stronger alliances with state and local governments and with private sector partners. In the long run, these alliances would greatly expand CDC impact.

By the 1990s, CDCs had settled into the civil society role that most naturally suits them and which they continue to fulfill today – as enhancements to government and markets. The political constituency for CDCs has remained strong. Many new sources of funds have been found – including renewed federal funding.

While CDCs’ inventiveness reflects positive aspects of the civil society, CDCs’ limitations mirror the civil society’s weaknesses. Because they are voluntary and autonomous, CDCs have not been established in nearly enough areas where they could be pivotal, nor reached anywhere near the size and scale of activities required to reduce poverty dramatically. At worst, critics charge, CDCs have given mainstream society a vehicle to contribute token support to poor communities – instead of making the larger socio-economic changes needed to address poverty in a more significant way. These critics cite studies which show that neighborhoods with active CDCs still experienced growing poverty from 1970 – 1990 at about the same ratio as communities without CDCs.

Is realistic to expect CDCs to replace a failed private marketplace? Is this a fair critique? Probably not. A better assessment would be to judge how CDCs have fared as civil society institutions in general -- and as enhancements to government and markets in particular. Against that backdrop, the CDC record of accomplishment is solid.

Civil society institutions which serve to enhance government and private markets strive above all to make the “system” work more equitably. They try to help poor and disenfranchised citizens participate more fully in mainstream society and enhance public dialogue. Many also try to innovate better approaches and give voice and representation to people and communities left behind. How do CDCs stack up?

  • CDCs as policy proving ground. CDCs have had the greatest civil society success being a proving ground for new initiatives that eventually become larger public policy. CDCs’ approach to community development – stressing responsible local action, partnerships among the sectors, adherence to private market forces, and flexibility over bureaucracy – has become the primary means of revitalizing distressed communities across the US. The contrast to earlier approaches -- bulldozing ghettos in the name of urban renewal, concentrating poor people in high rise apartments, slashing older city neighborhoods with huge suburban freeways, building gleaming downtowns in the shadows of hopeless poverty – could hardly be more stark. New federal initiatives in a wide array of program areas – in welfare, homeownership, affordable housing, job training, and business development – all reflect the poverty-fighting methods pioneered by CDCs.

The US Department of Housing and Urban Development affirmed CDCs’ growing importance in the 1999 State of the Cities report. “Today’s successful revitalization initiatives operate on a smaller scale than the large federal programs of the past,” the report noted. “They focus on the neighborhood level and are much more local and more personal. [HUD] continues to refashion federal programs to support and encourage the work of community-based organizations” (State of the Cities 1999: 45-46). HUD is also apparently putting its money where its mouth is. The percentage of federal housing dollars flowing to CDCs and allied nonprofit housing groups grew from 16 per cent in 1990 to 37 per cent in 1995. (Walker and Weinheimer, 1999:7)

  • CDCs as market enhancers. Most civil society institutions do not seriously tackle the challenge of promoting equity for society’s have-nots. CDCs do. And while CDCs clearly can’t replace the power of the state in rectifying equity imbalances, here, too, CDCs are providing a roadmap of the most effective ways to link poor people to the economic mainstream. CDCs promote equity through home ownership, savings clubs (where foundations or businesses enlisted by CDCs “match” the dollars put aside by savers in special accounts) education and business training. CDCs increasingly serve as mediating institutions to connect inner city residents to employers in job-rich suburban markets. And CDCs do a reasonably good job of aggregating resources from many diverse institutions and channeling them to poor communities. CDC are an infrastructure through which mainstream community building activities are supported in low income areas.

  • CDCs as voice of the people. Civil society institutions often seek to give political voice to society’s poor and disenfranchised. While many CDCs make this a priority, most groups have focused much more heavily on brick and mortar development. Some CDCs are so project-oriented that they have little time or energy to promote citizen involvement in political or governmental issues. Others shy away from political advocacy for fear of alienating the powerful businesses and governmental interests with whom they partner. In fairness, many CDCs view citizen participation through a nontraditional lens. In the 1960s, citizen participation meant ensuring that poor people had a “say” in the economic and political decisions affecting their lives. Today, for CDCs, citizen participation often means ensuring participation by poor people in the economy -- through good jobs, home ownership, and business enterprise creation – which, in turn, creates the links that enables disenfranchised voices to be heard.

How could CDCs be more effective as civil society institutions? There is widespread agreement within the industry that improved internal management would widen CDC impact. Despite CDCs’ relatively long history, community development has, from a management standpoint, continued to more closely resemble a political movement than a multi-billion dollar industry, which it has become. Entrepreneurial leaders, not managers, dominate the ranks of CDC directors. An ideological aura still surrounds many CDC activities. And while CDC staffs are among the most dedicated people anywhere, the field has done little to ensure consistent standards among its professionals, train CDC boards, or invest in staff development and resource packages. Investments by CDC supporters in broad management capacity-building – by foundations, public sector institutions, corporate partners and other allies – could significantly leverage the field’s performance.

Community Development Corporations in US Civil Society

The community development movement officially began on a blustery February day in 1966 when Senator Robert F. Kennedy toured the dilapidated streets of New York’s Bedford-Stuyvesant neighborhood and planted the seeds for what would become the Bedford-Stuyvesant Restoration Corporation (BSRC) – the nation’s first community development corporation (Peirce and Steinbach 1987).

Kennedy was despondent over urban riots that had happened a few months earlier in the Watts section of Los Angeles. He worried that there were fatal flaws in the nation’s 1950s urban renewal programs and in all the liberal social efforts to aid black and other poor Americans that had begun during his brother’s presidency and had accelerated under Lyndon Johnson’s Great Society.

Neither new civil rights legislation passed in 1964 – nor new programs supporting the poor with income supplements, food stamps and health care – had quelled the unrest boiling up in troubled neighborhoods. The federal government had tried creating local community organizations to enable residents to build a stronger political power base. But that initiative had run afoul of big city mayors, who resented the intrusion into local politics. Senator Kennedy told the Bedford-Stuyvesant leaders on his tour that he’d decided to launch a major study of what to do next.

The local leaders walking along with Kennedy quickly rejected that idea. "Senator, I am tired of people coming to study our community," said then-Assemblyman Thomas Jones, now, at age 84, a New York Civil Court judge (Standora 1998). Jones and his companions told Kennedy that what they really needed were places to shop, a supermarket, better housing. They convinced Kennedy that rather than simply opening the doors to political participation by the poor, it was time for the federal government to try to create stronger economic bases in troubled communities.

Soon after his visit to Bed-Stuy, Kennedy teamed up with his fellow New York Senator, Jacob Javits to amend the 1964 Economic Opportunity Act, the centerpiece of the nation’s War on Poverty, to add a special program for CDCs. The legislation provided federal grants to nonprofit groups working to generate jobs and economic opportunities for residents in poor urban and rural communities. To ensure Bed-Stuy’s CDC got off to a good start, Kennedy enlisted the support of New York Mayor John Lindsay, IBM Chairman Thomas B. Watson, Jr., former Treasury Secretary Douglas Dillon, and the heads of Citibank and CBS (Rusk 1999). In 1968, Bedford-Stuyvesant Restoration Corporation became the first CDC to receive federal funds.

Three decades later, BSRC was still going strong. It had created a community commercial hub – Restoration Plaza – fashioned out of an abandoned milk bottling factory, to house its headquarters, as well as stores and offices, a bank, art gallery, skating rink, health center and the Billie Holiday Theater, entertaining 40,000 patrons annually. It had joined with Pathmark to open a new supermarket in Restoration Plaza – the first new supermarket in Bed-Stuy in 30 years. It had renovated 4,200 homes covering 150 blocks and provided more than $250 million in home mortgages and rehabilitation loans to neighborhood homeowners. It had enticed IBM to build a manufacturing plant in the neighborhood, employing hundreds of people. And it had created Family Health Center, serving 55,000 outpatients annually. All told, BSRC had helped 20,000 Bed-Stuy residents find jobs (Rusk 1999).

What characteristics distinguish CDCs?

As CDCs go, BSRC is extraordinary. And yet, through their development activities, all CDCs try to mitigate the unsettling effects of private market forces. They take on projects that the private sector has bypassed because of stronger market opportunities elsewhere or because of the complexity of doing development in distressed areas.

In determining what projects to support, CDCs review investments and conduct due diligence much as any other investors do. But because of their interest in community development, CDCs often consider factors that do not interest traditional venture capitalists, such as the jobs and tax revenues the proposed business will generate for the community. Businesses that meet a community need can often secure funding from a CDC when other investors might not be interested. And the funding they secure is sometimes at lower rates and for longer terms than other sources will provide.

Many community development organizations march behind the CDC banner. Depending on their origins, in addition to CDCs, these groups go by such names as neighborhood development organizations, neighborhood housing services, community economic development organizations, and community-based development organizations. Over the past two decades, any technical distinction that may have once existed among these terms has largely been lost.

The following characteristics are present in all CDCs:

  • CDCs undertake economic development. CDCs take on physical development projects, start businesses or provide financial support to private job-creating enterprises. Nonprofit organizations which only provide social services, technical assistance or training – without a development component – are not CDCs.

  • CDCs target poor communities. CDCs target their development activities in clearly defined geographic areas with high concentrations of low income people.

  • CDCs involve the community. A central tenet of community development is that CDCs should be guided by boards of directors comprised of area residents and business and community leaders. When CDCs back a project, odds are good that the project will have community support.

  • CDCs try to be comprehensive. Virtually all CDCs complement their physical development activities with a softer component more closely related to community building and social services – education and job training, child and elder care, advocacy and organizing, crime control and health care programs.

  • CDCs spark private investment in poor areas. CDCs have a broader vision than ad hoc revitalization projects. Most strive to become catalysts for wider regeneration of their communities by enticing private development to return. CDCs do this by demonstrating through their projects that profitable development and investment are possible, or by removing major community eyesores – abandoned buildings, for example – to create better underlying conditions for development. They also provide capital, technical assistance and market information to private enterprises in their communities to reduce their costs and risks of operation.

Many diverse groups march behind the CDC banner

Early CDCs. Many of the earliest CDCs in the US had ties to the civil rights and anti-poverty movements. Between 1970 and 1980, the Office of Economic Opportunity and its successor agency, the Community Services Administration, funded about 40 CDCs nationwide.

With generous federal support behind them, the early CDCs had expansive agendas, large corps of professional and technical consultants, ambitious housing and commercial ventures, and social service programs. In addition to BSRC, these CDCs included the Watts Labor Community Action Committee (started with critical support from the United Auto Workers), The Woodlawn Organization in Chicago, the Spanish Speaking Unity Council, Mississippi Action for Community Education, and the East Los Angeles Community Union. While some early CDCs faltered, many remain active today.

The Second Wave. During the 1970s, a second wave of CDCs arrived on the scene. Smaller and leaner than their 1960s forerunners, these CDCs had their roots in urban protest movements, tenant associations, and organizations formed to support the growing influx of immigrants from the Far East and Central America. These groups applied the community development approach on a more modest scale. Like their predecessors, many second generation CDCs received federal support. But competition for funds became fierce during the Reagan Administration, which dismantled many of the programs that had provided support to CDCs. Housing, job programs and other social supports were reduced significantly. CDCs responded by turning to state and local governments and private sector institutions for support.

Neighborhood Development Corporation of Jamaica Plain (NDC) grew out of a 1977 campaign by the residents of this Boston. MA neighborhood to stop a planned expansion of Interstate 95, which would have obliterated their community. The protest succeeded. But rather than disband, the group went on to tackle other pressing needs. NDC’s flagship project is a small business center in a renovated brewery in the heart of Jamaica Plain. The 16-building complex, constructed in the 1870s by the Haffenreffer Brewery, had been vacant for almost two decades. NDC purchased the 160,000 square foot complex in 1983 and developed it in phases. By 1999, with four phases completed, the Brewery housed 28 small businesses, employing about 150 people. The Brewery provides common services for the firms, as well as technical assistance and access to financing. Many of the businesses are owned by women and minorities.

The CDC model expands dramatically. During the 1980s, CDCs began a dramatic growth surge with the addition of hundreds of groups, primarily organized around the provision of affordable housing. The rapid expansion continues today. At least 1,000 more new CDCs formed in the 1990s (NCCED 1999).

CDCs launched by churches and other faith-based institutions, in particular, are on the rise – with African American churches leading the charge. Religious congregations have been integral to the community development movement since its early days. Hundreds of CDCs began life in church basements. Regional and national religious councils contributed millions of dollars for organizing and projects. Thousands of local congregations, too, supplied contributions, staff services, volunteers and meeting space, or prevailed on congregants to fill the collection plates for CDC projects. Among the most prominent CDCs started by faith-based organizations are Bethel New Life in Chicago (Lutheran), New Community Corporation in Newark (Catholic), Jubilee Housing in Washington, DC (Church of the Savior) and Abyssinian Development Corporation in New York City’s Harlem neighborhood (African Methodist Episcopal).

The newfound community development activism by faith based organizations in the 1990s is reminiscent of church participation in the civil rights movement. “African American churches have stepped up to the challenge of creating jobs and restoring neighborhoods with the same enthusiasm and resources that the exhibited during the struggle for civil rights and educational opportunities,” writes Diane Winston in Progressions magazine. “Churches have realized that if they don’t act to save their neighborhoods, no one else will” (Winston 1995: 14).

Habitat for Humanity has also contributed to expanded religious involvement in community development initiatives. Originally a faith-based effort to help low income families build homes in the tradition of the old New England barn-raising, many groups in Habitat’s vast network today are becoming much more closely integrated into community development systems in their cities and towns. Habitat has been instrumental in drawing conservative participation in the CDC movement.

Another important root for CDCs are Community Action Agencies (CAA) and Community Action Programs (CAP). These organizations, like CDCs, were launched in the 1960s with War on Poverty funds from the Office of Economic Opportunity. About 1,000 CAAs and CAPs operate today, and they are especially consequential in rural areas. CAAs and CAPs engage primarily in social service activities, such as running Head Start programs for children and delivering energy assistance to low income households. But about half of these organizations have also undertaken job creation, housing and other development activities, or started their own CDCs (NCCED 1999).

Where and how CDCs operate

Most CDCs work in urban areas, serving target areas of up to 50,000 people. But some of the oldest and largest CDCs operate in rural areas, many covering wide territory. The Community Enterprise Development Corporation of Alaska promotes rural development throughout the entire breadth of the nation’s largest state. Mississippi Action for Community Education targets its programs on 40 counties in the Mississippi Delta. The Mountain Association for Community Economic Development, headquartered in Berea, KY, has a target area that spans all of central Appalachia. And the Northern Community Investment Corporation in St. Johnsbury, VT, focuses its development activities on six rural counties in Vermont and New Hampshire.

CDCs operate in every state and region: 27 per cent in the Northeast; 25 per cent in the North Central; 28 per cent in the South; and 20 per cent in the West (NCCED 1999). Until the mid-1980s, the Northeast and Midwest, with longer traditions of community organizing, had significantly more CDCs than the rest of the country. In recent years, however, the number of CDCs has grown most rapidly in the South and West.

Among cities, Boston, Cleveland, Chicago, New York, Miami and Washington, DC have mature community development systems and the largest number of capable CDCs. Other cities considered in the top tier of CDC activity are Minneapolis-St. Paul, Detroit, Philadelphia, Denver, Pittsburgh and Baltimore. CDC networks in Columbus, Oakland, Indianapolis and Seattle are gaining strength and capacity, but they do not yet rank with the strongest community development sectors. CDC networks are on the ground and growing in Atlanta, Los Angeles, Portland, Dallas, Phoenix, Newark, Kansas City and San Antonio (Walker and Weinheimer 1999).

Unlike the earliest generation CDCs, most groups today are relatively modest in size and budget. The median CDC budget ranges from $200,000 to $400,000 annually, and the median size of a CDC staff is six. The staff generally includes a director, one or two people working on development, with the remaining staff involved in community building and supports activities, such as helping people qualify for home mortgages or accessing quality child care. The median age for CDCs is about 15 years (NCCED 1999).

Some CDCs, however, are mammoth organizations – with large staffs, wide ranging activities and major real estate portfolios. In Newark, NJ, for example, 31-year old New Community Corporation (NCC) is the city’s largest employer of Newark residents, providing jobs for more than 1,400 people. NCC has developed 3,000 homes and apartment. It provides safe and affordable child care to 700 children and additional support services – from job training the substance abuse counseling -- to hundreds of families. NCC’s real estate assets exceed $250 million. NCC’s shopping center is perhaps its most dramatic success, with a supermarket and a variety of other retail outlets and restaurants. NCC’s founder and chairman, Monsignor William Linder, estimates that NCC’s housing, commercial development, training and social service programs assist 25,000 people daily (Zdenek 1999).

What have CDCs accomplished?

A nationwide survey of CDCs released in April 1999 documents the achievements of 3,600 of the nation’s CDCs. Since 1968, these groups had collectively produced 550,000 units of affordable housing, developed 71 million square feet of commercial or industrial space in low income neighborhoods, had $1.9 billion in loans outstanding to 59,000 businesses, and had created 247,000 jobs (NCCED 1999).

Housing. More than eight of ten CDCs are involved in housing activities. While CDCs produce housing for the homeless and very low income renters, not all of their housing is for the poorest of the poor. Many CDCs put working class families on the road to homeownership. This has become a key strategy for stabilizing communities. CDCs manage about 59 per cent of the rental units they produce. (NCCED 1999).

One of the nation’s best housing-oriented CDCs is Manna, which designs, renovates, and builds houses for sale to lower income families in Washington, DC. Manna offers training and community building services to help families prepare for and deal with homeownership. Since 1982, Manna has produced more than 500 affordable homes, condo units and cooperative apartments and developed a construction style that is high quality, practical and inexpensive. The typical Manna homebuyer is a black or Hispanic woman with one or two children, with an average annual household income of $25,000.

Manna’s location in Washington, DC has helped all CDCs gain recognition. Manna is frequently cited by HUD and other government officials as a model for community revitalization. Manna has helped change the way community development is carried out by local government, too. Washington’s network of CDCs has grown increasingly influential. The city has asked these civil society organizations, with Manna playing a lead role, to take over hundreds of vacant public housing units and redevelop them.

Commercial and industrial Development. Traditionally, only a small percentage of CDCs developed shopping centers, industrial parks, office buildings or community centers. The amount of CDC-produced commercial space is rising. By 1999, more than 1,000 groups had completed commercial projects, compared to only 18 per cent of CDCs in 1994 (NCCED 1999).

The Community Development Corporation of Kansas City built its commercial and retail center on the site of an abandoned hospital. The group stitched together so many funding sources to finance the Linwood Shopping Center that the collaboration won an “All America Cities Award” for Kansas City. Another CDC, The East Los Angeles Community Union (Telacu) developed a 56-acre complex on the site of an abandoned B.F. Goodrich tire plant and battery factory. Telacu’s industrial park, one of the largest ever developed by a CDC, houses 51 businesses and stores, employing 2,000 people. Telacu opened a second park in 1992 and a third in 1997.

Business development. In the early days of the CDC movement, many CDCs tried to start their own businesses. While some succeeded, many failed to sustain the hoped-for number of jobs. Today, about 20 per cent of CDCs start their own business enterprises.

Dineh Cooperatives, serving 25,000 people living on the Navaho Nation in Arizona, operates two profitable subsidiaries –Tooh Dineh Industries and the Tseyi shopping center. From a three person precision machine shop begun in 1983, Tooh Dineh Industries has grown to become the largest electronics manufacturing firm in northern Arizona. Tooh Dineh’s highly trained work force of over 100 employees manufactures electronic components for the information, manufacturing and transportation industries. The company’s 1997 payroll was $1.8 million, and its worldwide sales exceeded $20 million. Tooh Dineh Industries supplies such major corporations as Apple Computer, General Motors, Hewlett-Packard and Motorola. The company has expanded steadily over the years, and now occupies a 55,000 square foot facility in Leupp, AZ, about 45 miles from Flagstaff (NCCED 1999).

Unlike Dineh Cooperatives, however, most CDCs do not own their own enterprises anymore. Instead, they supply capital and technical assistance to private enterprises in their communities. The average loan portfolio value of CDCs engaged in business lending is about $2.5 million. (NCCED 1999).

Rural CDCs, in particular, have pursued business development, largely because the economic development challenges are much greater in sparsely populated rural communities. A prime example is Coastal Enterprises Inc., headquartered in Wiccasset, Maine. CEI delivers sophisticated financial and technical assistance for small and mid-sized businesses. It also helps people get off welfare and train for jobs, builds affordable housing, and undertakes economic research and development. Since 1977, CEI’s initiatives have created or sustained 10,000 jobs and supplied $200 million in financing to 1,000 businesses and other projects (CEI 1999).

CEI operates several funds for entrepreneurs. The Enterprise Fund provides financing of up to $50,000 for microenterprises. Typical loans range from $10,000 - $25,000, and go primarily to women and minority entrepreneurs, child care providers, small manufacturers, and young businesses without access to credit through conventional sources. Technical assistance is also available. CEI funds larger businesses, too. The Development Fund can provide up to $500,000 for manufacturers, natural resource-based companies, and other Maine employers. CEI devotes special attention to Maine’s fishing industry. CEI has funded several businesses on the Portland Fish Pier, including the Portland Fish Exchange, where more than 30 million pounds of fish are sold annually. Another CEI supported venture, Resource Trading Company, accounts for 25 per cent of all the shrimp caught in Maine and exports to more than 26 countries. By 1999, CEI's fisheries portfolio had grown to $6.3 million in 81 marine ventures – including boats, shoreside suppliers and aquaculture firms. (NCCED 1995).

Advocacy, Organizing and Society Services. Part of the uniqueness of community development is its reliance on a comprehensive strategy of community revitalization. From its earliest days, the movement has acknowledged that bricks and mortar are not enough to address the problems of underclass communities. “Being poor is a systematic disease that afflicts whole communities,” noted historian Stewart Perry. “Deteriorated housing, impaired health, nonexistent or low wages, the welfare assault on self-respect, high crime rates, low tax base and reduced police and social services, child neglect and wife abuse, and always the continuing export of human and financial capital -- all these feed on each other...nest together to create the impoverished community” (Peirce and Steinbach 1987:21).

The early generation CDCs put heavy emphasis on advocacy, organizing, and human services. Physical development, particularly housing, took center stage during the 1980s, but in recent years, CDCs have been paying renewed attention to community building activities. Among the most popular activities are homeownership training, education, job training and job placement, youth programs, senior citizen programs, emergency food and homeless assistance, anti-crime and anti-drug programs and transportation to work (NCCED 1999).

Where the money comes from

The early CDCs relied heavily on federal aid. Federal support remains critical to the industry, but CDCs have greatly expanded their financial base. Today, a wide range of institutions support CDCs, including state and city governments, foundations, banks, private corporations, religious institutions, utilities, universities and hospitals.

Multi-partnered financing is now a feature of virtually all community development initiatives. The most significant sources of federal funding are Community Development Block Grants, which are passed through from the federal government for distribution by cities and states (NCCED 1999). About half of the groups in NCCED’s census listed states as a source of at least $50,000 in financing. And many cities help community developers finance specific projects. Some cities have designated specialists on their staffs to work with community developers. A number of cities -- Philadelphia and Cleveland among them -- have made it easier for community development organizations to acquire tax delinquent properties to redevelop.

Private banks have been particularly active in supporting community development. Much of that support can be tied directly to the passage of the 1978 Community Reinvestment Act (CRA), obligating banks to invest in communities where they have branches. Half of the CDCs in NCCED’s census reported receiving investments of at least $50,000 from private banking institutions, up from 36 per cent of groups in 1991 (NCCED 1999).

Foundations, too, have been a linchpin of CDC funding since the earliest days. Over the years, the Ford Foundation has led philanthropies in providing major support. Today, 46 per cent of all CDCs receive significant foundation funds. Among the newest participants in CDC funding is United Way (NCCED 1999). CDC funders have maintained a steady flow of dollars for CDC housing projects over the years, but their support for other activities has varied. In the 1970s, for example, many CDCs received foundation funds to support organizing activities. Today, by contrast, funders’ favored activities include microenterprise development, asset building, urban parks, and homeownership.

The Role of Intermediaries

Since 1980, a brigade of professional support groups has grown up to assist CDCs. Known as intermediaries, these organizations operate both on a national and local level. Intermediaries provide two basic types of support – funding for community development initiatives and technical assistance and training. Intermediaries have been particularly consequential in coalescing CDCs as a political force in Washington and in state capitals. Intermediaries helped to convince Congress to give community development groups a major role in the National Affordable Housing Act of 1990 and were instrumental in persuading the lawmakers to pass a permanent extension of the Low Income Housing Tax Credit in 1993.

Intermediaries connect CDCs with powerful corporations, banks and other institutional resources. They develop standard financing and production models to help CDCs achieve efficiencies of scale. Intermediaries occupy a unique niche in the civil society -- at the juncture where the civil society ends and the mainstream economy begins.

Nationally, the most prominent intermediaries are the Local Initiatives Support Corporation (LISC), the Enterprise Foundation, and the Neighborhood Reinvestment Corporation.

Launched in 1979 with $10 million from the Ford Foundation and six corporate sponsors, LISC provides loans, grants, equity investments and technical assistance to its large network of community development groups in cities and rural areas nationwide. The Enterprise Foundation, founded by developer James Rouse, performs similar work for the approximately 100 groups in its extended network. Both LISC and Enterprise have made extensive use the Low Income Housing Tax Credits to bring corporate resources to housing projects sponsored by community development organizations. LISC and Enterprise have collectively aggregated about $5 billion in private sector funds for community development.

The Neighborhood Reinvestment Corporation receives direct appropriations from Congress of about $28 million annually to promote homeownership and community development through its NeighborWorks network. As with LISC and Enterprise, each of the more than 200 NeighborWorks groups is locally funded and autonomous.

The community development movement has always been characterized by a high degree of experimentation, and intermediaries have become particularly adept at spreading and replicating successful development tools nationwide.

A major advance in the field in the 1990s has been the growth of smaller intermediaries such as the McAuley Institute, founded by the Sisters of Mercy. McAuley has assisted 2,000 grassroots organizations with funds and technical support. Seventy-five per cent of McAuley’s loan dollars and staff resources support initiatives led by or serving women. (McAuley website 1999).

Major issues in the CDC field

Issue #1: CDCs need to achieve wider scale

The major criticism of CDCs since their earliest days is that they have never achieved sufficient scale to make much impact on poverty levels and distress. That debate reached center stage nationally in 1994, when reporter Nicholas Lehmann wrote "The Myth of Community Development" in the New York Times Magazine. Lehmann’s sober message was that while CDCs may have succeeded in building some housing, they had achieved virtually no success at turning around inner-city economies (Lehmann 1994).

Five years later, David Rusk, former Mayor of Albuquerque, NM, reached the same conclusion. Using government income statistics, Rusk found that the presence of active CDCs in a neighborhood made virtually no difference in the economic fortunes of families. Between 1970 -1990, family poverty rates rose significantly in poor neighborhoods, Rusk found, whether or not they had CDCs. (Rusk 1999:49).

“In cities across the country,” Rusk wrote, “the 34 target areas served by the most successful CDCs as a group still became poorer, fell farther behind regional income levels, and lost real buying power” (Rusk 1999:49). Rusk likened CDCs’ task as akin to trying to help a crowd of poor people run up a down-escalator (Rusk 1999:59). He charged that corporations, banks, foundations and governments poured token aid into CDCs rather than "rewire the escalator" because that would require adopting controversial regional growth strategies, sharing taxes among poorer cities and their suburbs, and giving inner city families places in suburban neighborhoods and schools (Peirce 1999).

CDC advocates wholeheartedly agree that CDCs have not reversed the market forces and economic restructuring which caused poverty to increase until the mid-1990s. However, they contend that Lehmann and Rusk miss the point. “You know CDCs are making a critical difference when you go to Roxbury in Boston or Hough in Cleveland, or any of these once utterly desolated communities, and see how the graffiti has dissolved, supermarkets are reappearing and enterprises like Magic Johnson theaters springing up," said Paul Grogan, former president of LISC and now vice president at Harvard University.

Grogan’s showcase example is the South Bronx. "In 1979 it was rubble, the dust bin of history,” he said. “Today, it's still poor. But housing is booming, crime is down, and you can see the start of economic revival. Imagine a child who walks to school with broken glass and drug dealers as opposed to a still poor child who walks to school where life is normal, a new supermarket is opening, there's a little league team playing. Which would you rather have? That's been the achievement of CDCs” (Grogan interview 1999).

Grogan’s perspective has broad support within the CDC movement. “There is no evidence that self-help efforts can turn around neighborhoods without substantial investments of outside resources,” wrote Xavier De Souza Briggs, now a top official at HUD. “Building community is wise for various reasons, but such efforts will be most meaningful, and their impacts most lasting, when companies, local governments, and others also make substantial investments in poor neighborhoods. [CDCs] can be the oil in the gears -- not the gears” (DeSousa Briggs 1999).

Issue #2: CDCs focus too much attention on physical development

There remains an unsettled argument in the community development field about whether or not CDCs are too passive about challenging the economic and social systems that led to poor neighborhoods in the first instance.

Bill Traynor, a former CDC director, captured the views of a body of CDC critics who believe CDCs will never achieve major turnaround in poor neighborhoods because they are too reluctant to take on the prevailing power structures which fund their projects. “A major failure,” Traynor says, “has been the dominance of a narrowly focused, technical production related model of community development which is estranged from strong neighborhood control and which does not impact many of the issues affecting poor neighborhoods” (Medhoff and Sklar 1994: 260).

But while CDCs’ limited use of aggressive advocacy could be seen as growing out of a desire to please powerful elites and keep the funds flowing, another explanation is probably more likely. CDCs emerged following a period of intense advocacy and political action across the country, including riots in many communities. From the outset, CDCs incorporated advocacy and organizing as one part of a community building strategy, but not the major driving force. This attitude grew out of a recognition that advocacy tactics alone weren’t making progress on improving conditions on the ground in low income communities. In many cases, in fact, it can be argued that neighborhoods were worst off after intensive political action than before.

Issue #3: CDCs should be more comprehensive in their community building

A major strategic question confronting a growing number of successful CDCs is whether or not to branch our beyond physical development to engage in more comprehensive community building activities. CDC lore has encouraged such holistic interventions since the 1960s, and CDCs which pursue a comprehensive agenda are routinely accorded national recognition for being so innovative. In fact, going comprehensive is difficult for many CDCs because it puts undue strain on their organizational structure.

To engage in comprehensive community building, CDCs need more resources, organizational depth and capacity than most groups currently have. No longer are real estate development and business lending sufficient as core competencies. To be comprehensive, CDCs also have to learn how to work with social service agencies, which have their own unique funding streams and requirements. The comprehensive CDC must find an entirely new set of expertise, including case management, education and training, transportation to work, and job and family counseling.

“Pushing CDCs to expand activities too fast can cause harm,” write community development commentators Chris Walker and Mark Weinheimer. “We urge caution in making big leaps into community building.” (Walker and Weinheimer 1999: 73).

Eastside Community Investments (ECI) was one of the nation’s most successful organizations until it suffered a major financial collapse in 1997. ECI had rehabilitated more than 800 homes and apartments in its blue collar neighborhood near downtown Indianapolis. Through its business activities, it had generated more than 1,500 jobs. It developed its own industrial park, invested in more than 100 local enterprises, and pioneered an asset building program to promote savings among neighborhood families. Its economic support services helped at risk populations from teen parents to the mentally ill. But as it become more comprehensive, ECI became seriously overextended. Its management and board could not keep up and the CDC collapsed.

One CDC that rejected pressure to expand its activity range is Community Equity Investments, Inc., which undertakes business lending in the Florida Panhandle. Since 1982, CEI has loaned over $7 million to 250 small businesses, generating 1,000 jobs.

“A CDC should stay focused where you know what you’re doing,” said CEI President Dan Horvath. “We have a lot of finance expertise and we do lending. We don’t do anything in social services or education.” Horvath worries that too many CDCs take a shotgun approach to their activities. “If there’s funding available, they’ll go after it,” he said. “They become monster organizations – with 100 employees or more – doing Head Start, Meals on Wheels, energy weatherization and two dozen other activities” (Horvath interview 1999)

Most CDCs have chosen a middle course. They maintain a focus on housing and physical development, for example, and partner with other organizations to deliver job training and placement, credit unions and savings programs, and human services rather than operating such activities internally. NEWSED, a Latino CDC in Denver, is a prime example. Its expertise has always been in commercial revitalization and real estate development, combined with cultural activities. When funders asked NEWSED to take on more human services activities, the CDC agreed. But it has done so by establishing a collaborative, rather than take on the responsibility for human services activities internally. The 20 organizations in the network offer services ranging from mental health counseling and domestic violence intervention to advocating for education reform.

Issue #4: CDCs should do more to link to growing metropolitan economies

A major CDC tenet has always been to focus activities in targeted areas with high levels of poverty. For most CDCs, that has meant never doing any significant development work outside of their own neighborhood or rural community.

Increasingly, today, however, that basic dictum is under challenge. One reason is the performance of the national economy, which has created more than 18 million new jobs since 1992, along with record low unemployment. A significant proportion of those jobs are not in CDC target areas, but in metropolitan counties surrounding central cities. Many counties are suffering labor shortages, and a growing number of employers are willing to take a chance on the untapped markets for workers in CDC neighborhoods.

Consequently, some CDCs are finding it more cost effective to pursue a concerted strategy to place low income residents in those jobs, rather than try to create jobs from scratch in the neighborhood. Linking to jobs in growing metropolitan regions not only requires that most CDCs modify their philosophy about what it means to redevelop a target area. It also requires a far different set of competencies than business lending or real estate development. The new strategies require that CDCs learn how to link residents with job training and placement agencies serving suburban markets and ensure the provision of child care and transportation, particularly since many of the fastest growing job markets are not easily accessed by public transit.

Leveraging Wider Impact

When it comes to management, many CDCs are doubly challenged. Not only have they embraced a visionary leadership style which often relegates management to a lesser role. Quite a few groups have inherited the anti-management culture that once pervaded the civil society. Management across that sector is improving. But quite a few CDC directors still drive their organizations too hard, fail to act strategically, misues their boards, and resist taking time out from their good works for needed reflection or mid-course corrections.

Because the vast majority of CDCs are staffed and structured to handle projects, not operations, there is typically unevenness in capabilities within a single organization. Groups can exhibit great strengths in some areas, especially housing development, and surprising weakness in others, such as personnel policies. Examples abound of CDCs which masterfully develop millions of dollars worth of real estate and can forge alliances with the most powerful banks and foundations in the country, and yet offer their employees paltry salaries and benefits and little training. Ignoring organizational details is dangerous. It tempts too many CDCs to embark on ambitious development projects without having identified the required staff resources. This costs the CDC in terms of effectiveness and community support.

The Development Training Institute (DTI), which has trained hundreds of CDC leaders since 1981, has struggled to get foundations and other funders interested in supplying more resources for CDC leadership training, management and operations. There has been some progress. But despite DTI’s best efforts, management is not a high priority for most community development funders. Most would rather put their money instead into CDC projects, programs and services. As a result, community development has long been characterized by limited core operating support, limited training resources, and limited opportunities for professional development.

One result is high CDC staff turnover. “Six years seems to be our magic number for keeping staff,” says Lynne Cunningham, executive director of the Southeast Chicago Development Commission. “We lose our best staff to intermediaries,” adds REACH’s Dee Walsh. “Intermediaries take our people and the best people who might come to us. And we can’t offer stock options.”

The problem of too little training is especially acute for CDC staff below the level of executive director. It’s not uncommon for a CDC office manager to come to work one morning and discover he’s been shifted to another role – for example, property manager – with responsibility for hundreds of apartments and a dozen contract maintenance employees.

CDCs would also benefit if their funders would stop changing the ground rules so often. In today’s results-oriented culture, most CDC funders expect performance. But many are not consistent from year to year in the activities they fund or the performance measures they use. One year the funding community tilts grantmaking toward programs that build tenant management councils. Another year, it’s microenterprises. After years of operating in this environment, most CDCs have become highly reactive in their strategic planning and resource deployment. Rather than stay focused on achieving the neighborhood’s strategic goals, they constantly adapt to follow the money.

Because CDCs have under invested in their own operations, the vast majority have not yet figured out how to capitalize on the revolution in information technology to help rebuild poor communities. True, most CDCs do use computers to manage their projects and payrolls, draw up plans, create proposals, and communicate by e-mail. But these functions are the tip of the iceberg of the true power of the information age. Geographic Information Systems (GIS), now widely accessible, could be a fundamental tool for a CDC to track neighborhood conditions and assets. For relatively small costs, CDCs could place computers and Internet access in all of the apartments they develop, enabling residents to work on line or network with the CDC staff, with city officials, with schools and businesses. CDCs could use computers for distance learning programs, job training and small business support. Most CDCs, technology-wise, have a lot of catching up to do. By making it a priority to investigate how new technologies can strengthen poor communities, CDCs have yet another opportunity to pioneer a strategy that could then be widely embraced by public sector policies.


CDCs have made important contributions to the civil society – and to better governance in the United States. Their chief contribution has been to pioneer an innovative approach to fighting poverty – stressing local action, flexibility, alliances with public and private sector institutions, and interventions on multiple fronts to attack distress. CDCs’ community-based approach, considered so novel when it began in the 1960s Great Society era, is now widely viewed as the nation’s best strategy for revitalizing poor areas. In no small measure, this is because the community development strategy has adapted with changing times and draws wide political support from across the conservative to liberal spectrum.

CDCs do not have the power of the state to rectify equity imbalances, and as a result, the scale of their activities is too small to remove poverty as a national concern. Nevertheless, CDCs are helping to devise a blueprint of how to link poor people to the economic mainstream – through jobs, homeownership, and enterprise development. The CDC approach works. The overriding challenge for CDC funders and policymakers is to strengthen the infrastructure of grassroots organizations that carry out community-based strategies. Across the field, there is broad consensus that targeted investments to improve CDC management and operations would pay large dividends.


Since 1988, the National Congress for Community Economic Development (NCCED) has conducted an extensive census of CDC activities and achievements. The latest NCCED survey, released in April 1999, estimates that 3,600 CDCs nationwide have completed at least one development project or operated a business enterprise, or provided loans or equity to businesses. Joseph McNeeley, President of the Development Training Institute, an organization which trains CDC leaders, estimates that as many as 8,000 community based development organizations could be operating in the US today. McNeeley’s estimate uses more liberal criteria and counts fledgling groups which may not yet have passed NCCED’s development thresholds.


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Community Development Corporations: 04/26/16 Page

Carol Steinbach

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