Black-and-white close-up of church architecture, showing arched window over a door and bas-relief crosses higher up.

#115 Jan/Feb 2001 — Faith-Based Initiatives

Not By Faith Alone

Some religious institutions may be jumping into community development without fully comprehending the political, financial, or organizational implications.

Photo by Flickr user Brenda Gottsabend, CC BY-NC 2.0

Black-and-white close-up of church architecture, showing arched window over a door and bas-relief crosses higher up.

Photo by Flickr user Brenda Gottsabend, CC BY-NC 2.0

On a bright summer day last year, the Rev. Richard C. Corbin Sr. of Washington, D.C.’s First Rock Baptist Church proudly surveyed five beautiful new homes his church had developed in one of D.C.’s most distressed neighborhoods. He had reason to be proud. First Rock, a small but growing church of several hundred devoted members, had purchased and rehabilitated a cluster of dilapidated government-owned properties, and the project had succeeded in reversing the decline of the block. Corbin and the church leadership had ambitious plans to become a major nonprofit developer in the Southeast district neighborhood; they planned to use this project as a springboard for creating First Rock’s own community development corporation.

Unfortunately, pride was not the only thing Corbin felt that day. He also felt angry, exploited, and a bit naïve that he could have thought that getting into the community development business would be so easy. He couldn’t fathom how the church had lost thousands of dollars on what was supposed to be a profit-making venture. He had unanswered questions that would have seemed unthinkable in 1988 when the church first acquired the properties. Had he erred by putting a development team together that consisted almost exclusively of church members and their associates? Did the church rely on the wrong professional advice when negotiating with the government, banks, real estate brokers, and vendors?

“The congregation and church board were totally committed to this project,” says Corbin. But, he adds, “we had no systems in place to monitor the process, which is how we ended up losing a lot of money and creating unnecessary tension within the church family. It’s been a really painful process.”

Corbin, a retired army officer, says lessons he learned in the military, particularly about the importance of assessing failure and not making the same the mistake twice, will drive First Rock’s development activities going forward. The church has begun the process of setting up a community development corporation and is hiring an experienced professional as its director so it can compete more effectively for government and private dollars. With renewed vigor and a sobering experience under its belt, First Rock is planning a $7.5 million tax credit project for 2001 and considering a HUD 202 seniors project.

The Allure and the Reality

First Rock is not alone in succumbing unprepared to the allure of housing and community development. Across the country, religious institutions, particularly Black churches, are feverishly engaged in a broad range of community building initiatives: workforce development, shopping centers, charter schools, homeownership programs, youth programs, micro-enterprise lending, organizing, and other activities. And why not? Religious institutions, especially in communities of color, have for years been bedrock institutions of their neighborhoods, serving as hubs for social capital development and economic empowerment. It’s quite reasonable to expect that these community assets would become active in a broader and more sophisticated range of community building projects.

The current political climate is fostering this trend. Indeed, George W. Bush has said that a hallmark of his administration will be the expansion of “Charitable Choice” to include an array of programs that reach far beyond social services.

Moreover, there are a few well-known examples of phenomenally large and successful faith-based development corporations that congregations across the country look up to and aspire to match. Allen AME and Abyssinian Baptist Development Corporation in New York City, Windsor Village’s Power Center in Houston, and Los Angeles’s First AME are some of these visible institutions. Led by well-connected and charismatic ministers, they have created thousands of units of housing, constructed major retail centers, built schools, operated credit unions, and been singled out by the two major presidential candidates. They are catalysts for change in their communities, and massive institutional presences.

But despite the attractions and the well-publicized successes, community development is a complex and technical field, and some religious institutions may be jumping headfirst into it without fully comprehending the political, financial, or organizational capacity implications.

“There are numerous examples of highly publicized national models for faith-based community development,” says the Rev. Dr. Fred Lucas, founder and president of the Faith Center for Community Development Inc., a nonprofit technical assistance group based in New York City. “But the preponderance of local religious institutions have not yet found the proper equation for significant community impact. Although many may run soup kitchens or youth programs successfully, expanding into building housing and economic development is a huge leap that most churches do not have the capacity to accomplish.”

Lucas knows firsthand what it takes to build a faith-based CDC. As the former pastor of Bridge Street AME Church, he initiated what is arguably Brooklyn’s most cutting-edge and effective CDC: the Bridge Street Development Corporation. “It takes prayer, persistence, and professional expertise to succeed,” he says emphatically.

But it’s easy for any congregation to overlook some major issues when they make the decision to start a CDC. Here are a few frequent stumbling blocks.

We Thought We’d Make Money

There is a saying: “A not-for-profit that doesn’t make a profit is a bankrupt not-for-profit.” It rings loud and true in the community development field. It is important to build a strong balance sheet over time by developing projects that produce revenue through developer and administrative fees. This makes it possible to have equity for other projects, attract financing, and take risk when appropriate. Building that little cushion, however, takes years.

In fact, as Rev. Corbin and his congregants learned, initial forays into community development can require significant front-end investment, sometimes with little or no hope of repayment. Many community development projects have financing gaps, which government and banks are increasingly looking to religious institutions to help fill. “Each church in our collaborative had to put money up for a while before we were able to form the partnerships with government, foundations and banks that made us financially viable,” remembers Susana Vasquez, deputy director of The Resurrection Project, a partnership of Catholic churches in Chicago’s Pilsen neighborhood.

Colvin Grannum, a former Wall Street attorney and the CEO at Bridge Street, notes that when Bridge Street AME Church started its CDC, it had to put up approximately $300,000 in predevelopment funds to acquire land, pay architects and engineers, and order environmental studies. It took several years to recoup those funds.

Bridge Street’s startup required investments of more than money too; the CDC’s first projects were a huge drain on the time of the pastor and church staff, not to mention hidden overhead costs. “It was a huge up-front investment,” says Grannum.

The TA Dilemma

Assembling the right team of technical assistance providers is the most critical element of project development. In particular, the architect, real estate adviser/project manager, attorney, and accountant play pivotal roles. Although it is only right that congregations look within their membership to find these professionals, the selection process still needs to be approached from a business perspective. For example, just because the congregation has an architect as a member doesn’t mean she is the right person for the job. If the proposed project is a 100-unit, multifamily housing development and the member’s experience has primarily been in single-family detached housing, the congregation would be ill advised to hire that person. “At the end of the day, if the project is over budget or behind schedule, the congregation and the community get hurt, so it’s best to do your due diligence, even if that makes some who don’t get the business unhappy,” says Grannum.

Corbin relied on a group of church members to move First Rock’s project forward, which ultimately proved untenable. “In working with church members the line was blurred around issues of accountability, liability and who really calls the shots,” the Corbin recalls. Looking back, he says bluntly, “We probably didn’t do our due diligence on the project. We relied too much on one or two people because we didn’t know what questions to ask. We were just unprepared to take on issues like construction management and monitoring, completion guarantees, fee negotiation, and the like.”

For help determining what constitutes effective due diligence, religious groups can turn to organizations such as LISC and the Enterprise Foundation; local professional associations of architects, engineers or real estate advisory firms; or the local chapters of National Organization of Minority Architects.

Public Accountability

In the United States, by constitutional mandate, religious institutions operate free from government interference. Unlike other 501(c)(3) not-for-profits, they are not legally obliged to file tax returns, produce annual audits, or prepare disclosure for public review. Although religious institutions have trustees, deacons, and lay leadership, the institutional culture is generally insular, responsive only to the church membership and sometimes to a national denomination.

By contrast, most community development activity is funded by government agencies and foundations and thus requires a more significant level of disclosure, review and public discourse than most congregations are accustomed to. For example, the members of the board of a New York City faith-based CDC were recently shocked to find that they had to submit personal financial information and disclose personal real estate holdings in order to be awarded a city contract. “If I had known they were going to get this deep into my personal business,” said one board member, “I would have told them to keep the money.” Yet this is exactly the type of information congregation leaders have to be prepared to share if they expect to expand to broader community development activities.

Incorporating Separately

Usually, successful faith-based CDCs are organized as separate 501(c)(3) nonprofit organizations. If not, the sponsoring religious organization becomes subject to government review and standards as described above as soon as it accepts government community development funding into its own budget. With a 501(c)(3), the congregation itself remains free from government scrutiny, while the CDC has all the rights and responsibilities of a secular nonprofit. This protects the congregation, but it means the CDC must be prepared to operate very differently from its religious sponsor. “The church has to run [its CDC] like a corporation,” says Grannum, “based on best practices from a business model.” For example, it is important that the CDC’s board have a balance of passion and technical expertise, he says, noting that CDCs usually require more professional boards than do congregations.

The Omnipotent Leader Syndrome

There is a tendency, particularly in communities of color, to vest clerical leaders with tremendous authority. Often they are virtually omnipotent in the affairs of the institution and the local community, serving as spiritual adviser, financial overseer, counselor, political broker, job finder, and the community’s pitch person, emissary, and ambassador. Unfortunately, though, these leaders have rarely received training in business administration, financial management, or public policy. “Ministers operate on the basis of tremendous charismatic gifts; however, most are not well versed in the prerequisites for running complex business organizations like CDCs,” says Lucas. “Seminary education needs to become more interdisciplinary,” he argues.

Even with broader divinity school training, however, clergy in congregations embarking on community development often find they need to hire people to take responsibility for it. At the very least, they find they need to delegate some responsibilities to those with technical expertise. Such delegating can be a tall order for ministers accustomed to controlling every aspect of congregation business. It requires putting ego aside, sharing power, and placing control of significant congregation resources in the hands of others.

The Case for Collaboration

Although successful collaboration is hard to achieve in any environment – faith-based or secular – some of the most successful faith-based CDCs are in fact collaboratives. In New York City, Harlem Congregations for Community Improvement represents over 80 religious congregations, giving it a financial and political strength that has created astounding success. The Resurrection Project, which has garnered national acclaim for its innovative work, operates through a consortium of parishes. Susana Vasquez, Resurrection’s deputy director, sees virtue and practicality in collaboration. “No church is an island,” she says, “and speaking realistically, politicians recognize the power within a group of churches.” Vasquez also notes that there may be times when it is in the interest of the faith community to collaborate with secular CDCs as well. “When the outcome requires collaboration, we seek partnerships, regardless of their faith or secular role, so long as we share a common vision and some basic values,” she says.

Before partnering, particularly with private developers, faith-based CDCs should have financial and community objectives that are clearly defined. Religious groups often sell themselves short. It’s not enough to say, “Well at least the community got its new housing development or child care center.” If the faith-based partner didn’t receive a developer’s fee or other compensation, then the community is not being served because that group will ultimately not be sustainable.

Foundations and corporations who fund faith-based development organizations also see value in a collaborative approach. Robert Rosenbloom is responsible for Chase Bank’s Faith-Based Community Development Grants Program. The program gives one-time grants of up to $25,000 to religious congregations for community development projects and has made 110 grants totaling over $2.5 million in the past three years. Rosenbloom sees collaboration, especially partnering with an experienced nonprofit or for-profit developer, as the best insurance of success by fledgling faith-based CDCs.

For example, an experienced developer could construct a social service facility, such as a child care center or housing project, that the faith-based group will ultimately manage. “In the process of working with the developer,” says Rosenbloom, “the staff of the faith-based groups can learn the development process and gain the knowledge and skills that allow them to serve as a developer on a subsequent project.” Congregations in a neighborhood that already has an established local CDC can also use such partnerships as a way to have maximum impact on their neighborhood while not duplicating others’ efforts.

Leveraging Our Greatest Asset

In spite of the challenges experienced by First Rock and many other faith-based institutions, it remains true that in in many communities, the religious congregations are probably the best and most effective vehicle for community empowerment. These institutions are rooted in a long tradition of community service, seeking to transform the community like they seek to transform the soul. As religious historian Christine D. Chapman has written, “It is because of this unique ability to minister to both the body and spirit that the church remains a vital force.”

The ways in which congregations can pursue community empowerment are myriad. Housing and community development can be a powerful and transformative role for a faith-based group – as long as they realize it will take more than faith to succeed.

Ask Yourself! Before You Start That CDC

1. Can we absorb the potential financial risk associated with development? This means being committed to making an investment and receiving no return beyond the physical impact a project has on the community, and knowing the congregation may actually lose money.

2. Are we willing to allow our clergy to divert significant time away from ministerial duties to work with banks, intermediaries, proposal writers, etc.? The same will be asked of other congregational employees.

3. Are there systems within our governance structure that reinforce checks and balances and support objective due diligence?

4. Does our institution have support within the broader community, particularly with other community leaders and government?

5. Does the congregation have contacts in the private sector that can be used to its benefit?