Did ECI push the envelope too far?
We did a whole lot of things right for a long time. In spite of what happened, there’s a pretty remarkable legacy. The difference between success and failure is a very thin line. And it’s getting more acute all the time. It’s becoming a very competitive environment for CDCs.
ECI went through an 18 month period in which, for all the good luck we’d had, we had a lot of bad luck. We lost key staff. We didn’t get tax credit deals we expected. We had another project that would have generated income but that got held up because of a political issue that had nothing to do with our community.
You start the year with a budget and plan – you’re all set to go. And some years, things happen that you could never have predicted. In the for-profit world, if the customer cuts off your account, you look for another customer and try to improve your sales. In the nonprofit world, if a funding source turns you down or doesn’t materialize, it’s very hard to replace that easily.
In our early years, we’d have a good year when earnings and net assets were up and then another year when the balance sheet wasn’t so good. As we grew, our cycles stayed pretty strong. Then we hit another dip, and this time it was more severe. But if you look at the balance sheet and progression over a 20-year period, the financial indicators say ECI was a pretty good little enterprise that was growing at a prudent rate.
Are CDCs paying too little attention to organization and management issues?
The whole CDC industry doesn’t pay enough attention. The industry needs to step back and focus less on teaching the technical aspects of development and more on systems and operational issues. That would help support the maturing of the CDC industry and improved performance.
At ECI, we had gone from being a pretty small organization to putting together a critical mass for management in the early 1990s. We had capable people running the construction area. We had beefed up our accounting. We had strong people overseeing the human investment work and financial management. We were doing a credible job of bringing in the necessary human resources. We had talented board people we could rely on. Then we went from having a critical mass of staff competency to not having it – just like that. It would have been nice to think there were funders and intermediaries who could have helped us work things through – to encourage peer-to-peer review and discussion. That would have helped.
What else could have helped you negotiate through ECI’s financial problems?
Cash reserves. We had a pretty good balance sheet, but we had to do a lot of work to convert assets to cash to manage operations. Reserves aren’t encouraged within the funding community. In many cases, they’re not eligible for funding. Either the funding community or the large intermediaries should build these backstops, particularly for CDCs doing real estate developments. A CDC can be running its operation in a really fine manner. But if it doesn’t get an award of tax credits or a particular grant, its operations will slide back. A cash reserve pool can help CDCs over the bumpy spots.
What other lessons do you take from this experience that may be useful for CDCs?
I wish more support was out there addressing how to make sure CDC board and staff functions are in concert, and that boards have processes and a system to be effective. CDCs and their boards especially need support in making risk management decisions. Had we continued thinking about our strength as real estate development – and that to support our operations we needed to do real estate because it’s our “A” game – we might have been better off. But it was a challenge of balancing our mission against the need to build financial security for the organization.
Having the right board mix is a critical component, too. It is a big challenge to create the right setting and set of abilities to look at issues from all sides. No matter what their standing, you need people who are themselves leaders, unafraid to state what they believe. You also need expertise in the array of fields that are relevant to your work. We had real limits in our board knowledge of some areas. It limited our means of forming true board/staff partnerships. There were imbalances that placed too much reliance on staff for expertise.
Another lesson is to maintain the importance and value of community ownership and participation. The fact that ECI is still around is a tribute to the fact that people wanted to keep it going. We gained a great deal of value from the representation on our board. It was somewhat remarkable how many professional people we could pull out of the Near Eastside to participate and contribute.