#121 Jan/Feb 2002

Fundraising: Federal Funding for Community Economic Development

Seeking federal funds for community economic development involves dealing with constantly changing sources, new programs and the need to think creatively. Office of Community Services Some of the old alphabet […]

Seeking federal funds for community economic development involves dealing with constantly changing sources, new programs and the need to think creatively.

Office of Community Services

Some of the old alphabet soup of Federal programs are still around but are extremely competitive. Arguably the best existing source is the Discretionary Program of the Office of Community Services, Department of Health and Human Services. This program, in existence since 1981, awards approximately $20 million per year, in grants of up to $500,000, to Community Development Corporations (CDCs) to create jobs for low-income persons. It does not fund housing.

The advantages of OCS funds are:
1) They are flexible and can be used for equity investments, loans, “soft” costs of development, business start-ups, partnerships, etc.
2) They can be matched by other federal funds.
3) They are “patient” capital that can be a long-term investment.
4) The competition is only other CDCs, not all nonprofits and local governments.
5) They go directly to the CDC with no intervening layer of bureaucracy.
6) While the funding process is competitive, approximately one out of four applicants is funded.

OCS grants have been used for a wide variety of projects such as a Pathmark in Harlem (Abyssinian Development Corporation), New Horizons Shopping Center in the Bronx (MBD Development Corporation) and Specialty Plastic Products of Kentucky in McKee, Kentucky (Mountain Association for Community Economic Development). OCS grants are awarded competitively through a Program Announcement published in the Federal Register. For Fiscal Year 2002, the announcement will probably be published in February 2002. Funds must be awarded by September 30, 2002.

“Political” Sources
Over the past 10 years there has been an increasing tendency for members of Congress to target or make line item appropriations for specific projects for specific organizations. This process has become a major non-competitive funding opportunity for cities and community-based organizations. For example, the FY2002 appropriation for the Community Development Block Grant (CDBG) was $5 billion. However, in the conference report for the appropriation, the Senate and House conferees proceeded to list at least 800 individual “economic development initiatives” (EDIs) by amount, recipient and purpose, to be awarded outside the competitive process, totaling $294,200,000. Any project that is CDBG-eligible can receive an EDI grant. (This is a year-to-year phenomenon, but it has been in the HUD budget every year since 1995.) EDIs are the perfect constituent service for Congress since the EDI comes out of the already agreed-upon CDBG budget and does not change the overall HUD appropriation.

However one may feel about this process, while it exists community-based organizations should have as much access to it as anyone else. Obtaining one of these targeted grants is based on your access to, and support from, your member of Congress. If he/she is a chair of an appropriations subcommittee or is on the full appropriations committee, your chances are better. The process starts at the beginning of the appropriations cycle and is generally in flux until the conference committee report is complete.

New Sources
The recently passed FY 2002 appropriations bill for the Departments of Labor, Health and Human Services, and Education, and Related Agencies, contains $30 million for the new Compassion Capital Fund, described as giving “grants to public/private partnerships to support charitable organizations in expanding or emulating model social services agencies.” This program is designed to introduce faith-based organizations to the federal funding process. However, it mandates private/public partnerships, which enlarges the applicant base, and it focuses on social services, which could include job training, counseling, economic development, or entrepreneurship. The regulations have yet to be written for this program but the appropriated funds must be awarded by September 30, 2002. Pre-planning for this program can help organizations get a foot in the door.

The New Markets Tax Credit Program, another new federal program, brings equity investors for commercial developments or new businesses into designated areas. (See Shelterforce #110 & #113.) A total of $2.5 billion in tax credits has been allocated to this program in calendar year 2002 with an additional $12.5 billion through 2007.

The first step in the process is to establish a for-profit Community Development Entity (See Federal Register, December 20, 2001, Department of the Treasury, Guidance for Certification of Community Development Entities, New Markets Tax Credit Program, Notice.) that will receive equity contributions. The key to participation will be identifying attractive investments for equity investors, a task that organizations can start doing now. It is expected that financial intermediaries such as LISC or Enterprise will apply for large tax credits and then seek investments opportunities through their constituent community-based organizations.


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