Determining the Right Geographic Size and Support
Once the CDC board and staff refine the strategic direction of the organization and build the organizational capacity, the next question is where the CDC should concentrate its development initiatives. In the early years of their existence, most CDCs focus on a specific, relatively small geographic neighborhood and successfully develop numerous real-estate initiatives. Many of the neighborhoods have a limited number of housing and economic opportunities. In some of these neighborhoods, low-income families who lived there have been pushed to outer-ring neighborhoods and suburbs by rapid gentrification. To continue serving the displaced population, CDCs need to shift their focus to new areas and new low- and moderate-income populations.
A major challenge faced by CDCs with large staffs is having enough current and future projects to be able to pay salaries and overhead to maintain organizational capacity. Some large CDCs serving small geographic areas have completed numerous real-estate projects, and new projects in their target neighborhood are limited. This provides an opportunity for the CDC to carefully explore expanding into additional neighborhoods, often contiguous to their original community. Rural CDCs with a service area of several counties find themselves expanding to statewide organizations given their capacity and financing resources.
A good example of a community-based organization that has expanded its service area and works with diverse local organizations is Manna Inc., a CDC founded in Washington, D.C., in 1982 to create homeownership opportunities for low-income residents. Manna’s initial focus was mostly in the Shaw neighborhood, but it grew sufficiently to be able to expand its work into many other neighborhoods in Washington, D.C. It has developed considerable expertise in project design, homeownership strategies including limited-equity coops, condos, construction management, homebuyer clubs, affordable mortgages, often partnering with tenant associations of buildings with low-income tenants to help them develop their rental buildings into homeownership opportunities. Manna currently has more than 250 units in the pipeline and a full-time staff of 50.
Another example of a CDC serving a broad geographic area is Community Enterprise Investments, Inc. (CEII) in Pensacola, Fla., which focuses on small-business lending. According to Dan Horvath, CEI’s president, “CEII targets activities that make use of our competitive strength in small-business lending and then expand to related products as well as geographically.” The organization has expanded its geographic area from Pensacola to the entire Florida panhandle as well as Southern Alabama. Pensacola is a small city with a population of less than 100,000, and by having a regional economic development strategy, CEII is able to build capacity as well as to generate significant and diverse resources over several states to increase its impact and financial sustainability.
These examples of CDCs that have expanded their size and geographic reach raise important governance, policy, and stakeholder issues. CDC boards historically have represented the interests of the constituencies they serve. If a CDC’s purview changes, what governance structure should the organization use? How does it ensure that it is representing the interests of the communities it intends to benefit? In response to these concerns, some CDCs have developed outreach strategies and advisory committees. Rural Opportunities Inc., a rural farm-worker and community development organization that operates in five states and Puerto Rico, has formed community development advisory committees for each location and has several representatives from each state on the board.
CDCs expanding their geographic area also must build new program and political relationships with public-sector administrators and elected officials, especially since the they are heavily dependent upon public-sector funding streams. Isles, Inc., a CDC serving Trenton, N.J., is in the process of becoming a regional organization to both meet the needs of additional low-income families in Mercer County and to raise new resources to support Isles’ objectives. Trenton has a high concentration of poverty, and Isles, whose mission is strengthening families and fostering healthy communities, is working to help families become more self-sufficient through housing, social, and economic opportunities. Isles is completing several major real-estate initiatives outside of Trenton and intends to do others in the future.
Marty Johnson, Isles’ founder and president, says that a regional approach requires a significant organizational investment to understand the new markets and opportunities. Johnson cautions that CDCs pursuing regional strategies need advisers and committees that help build and maintain regional relationships. To reflect its new reach, Isles has refashioned its board of directors. One-third of the board members are direct recipients of products; 1/3 are board members with regional connections and resources; and 1/3 serve as ambassadors to other nonprofit and for-profit organizations in the Trenton region. Isles has launched a $10 million capital campaign and the regional supporters will be critical to the success of the campaign.
Financing Tools and Strategies for Financial Sustainability
Given the steady drop in federal housing and economic-development support over the past two decades, CEOs need to be creative and innovative in accessing new capital streams to keep the projects coming. Several CEOs have worked through trade organizations, such as the Housing Partnership Network, to create new financing instruments such as conduit bond and predevelopment loan programs and property insurance products to meet their needs. Others have formed partnerships with for-profit developers that have allowed them to get into larger deals. Restructuring old deals has also been a fruitful way of creating new capital for some groups.
For example, to increase its financial sustainability, Bethel New Life has adopted a fee-for-service strategy and provides services to attract market-rate clients in addition to low-income clients. It is expanding the reach of its elder-care and in-home care programs in surrounding communities aimed at a client base that can pay market rate.
In addition to creative financing, CDCs need to be involved in policy development that will ultimately deliver more resources to the field. For example, in California, two engines of affordable-housing development are a mandatory 20-percent set-aside of TIF (tax-increment financing) funds for affordable housing, and inclusionary-zoning ordinances adopted by many jurisdictions. These policies have carved out existing resources for housing and spurred for-profit developers to work with nonprofits to meet their inclusionary housing requirements.
Once a CDC has a large portfolio of properties, managing the assets becomes a time-consuming and important task. Where that responsibility rests varies among the organizations. Development staff is likely focused on new deals, so someone on staff must be designated to focus on existing assets. Regular review of the properties’ financing, reserves, operating surpluses or deficits, and condition will help keep the portfolio in top form and may also generate additional equity through restructuring and refinancing—a growing source of revenue for large-scale CDCs.
Federal, state, and local policies and regulations often make it impossible for groups to benefit financially from their own success. For example, restrictions on project cash flow or the use of reserves can easily work against organizations that are trying to become more self-sufficient.
Practitioners and trade associations need to actively promote new local, state, and federal policies that will benefit the organizations working to achieve a greater degree of financial independence. Documenting best practices and success stories on regulatory and policy changes can often help in educating policymakers and generating support from our public-sector partners.
The environment in which CDCs operate has changed dramatically since their inception in the late 1960s. While there are many organizational factors that contribute to the effectiveness and growth of CDCs, the most important ones in the current environment are thinking strategically, leveraging resources, and using sound management practices in assessing and implementing the agenda. These are the benchmarks for a successful 21st-century community development organization.
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