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Community Development Corporations and their Changing Support Systems

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Document date: December 01, 2002
Released online: December 01, 2002

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.


TABLE OF CONTENTS

Summary of Findings and Methods
Section-by-Section Findings
Research Approach and Methods

Section 1: Neighborhood Problems and CDC Responses
CDC Impacts on Neighborhood Markets
Why Support Systems for CDCs Are Necessary

Section 2: Activities, Size, and Quality of CDC Industries
CDC Projects and Activities
Growth in CDC Development Activity between 1991 and 2000
Growth in Industry Size between 1990 and 1998
Variations in Industry Strength across Cities
What Explains the Relative Performance of the 23 Cities?

Section 3: Changes in Production Systems
Production System Characteristics and Problems
Production System Changes over the 1990s
Differences in Quality of Local Production Systems
Continuing Challenges and New Opportunities

Section 4: Changes in Capacity-Building Systems
How Capable Are CDCs and How Has This Changed?
Creation and Growth of New Capacity-Building Systems in the 1990s
Continuing Challenges and New Opportunities

Section 5: Leadership Systems
Leadership Systems and Their Problems
Methods of Engagement
Trends over the 1990s
The Critical Role of Intermediation
Continuing Challenges and New Opportunities

Conclusion

References

Appendix A: The National Community Development Initiative

Appendix B: Research Methodology


Summary of Findings and Methods

In recent years, community development corporations (CDCs) have received major attention from government and private funders as a promising way to improve urban neighborhoods and the lives of those who live in them. These groups are nonprofit, community-controlled real estate development organizations dedicated to the revitalization of poor neighborhoods. They undertake physical revitalization as well as economic development, social services, and organizing and advocacy activities. Because public services for poor communities are fragmented across multiple agencies and levels of government, CDCs often are the only institution with a comprehensive and coordinated program agenda.

This paper assesses changes over the 1990s in community development corporations and the growing support systems that have been constructed to further their work. The analysis relies on 10 years of research in the 23 cities funded by the National Community Development Initiative (NCDI), a consortium of national corporations, foundations, and the U.S. Department of Housing and Urban Development. In 2001, NCDI funders committed to an additional ten years of investment. Since that time, the organization has expanded its activities and incorporated as a nonprofit with a new name: Living Cities: The National Community Development Initiative.

This paper's central conclusion is that CDCs as an industry made strong gains in their number, size, outputs, and contributions to neighborhood revitalization over the 1990s. They increased their ability to influence neighborhood markets and to respond to neighborhood problems. They expanded their physical revitalization activities and began to pursue more comprehensive approaches to community improvement. These advances were largely the result of an institutional revolution within most major U.S. cities. Support for CDC initiatives had been largely ad hoc and poorly coordinated before 1990. By decade's end, support for CDCs had became more rational, entrenched, and effective.

Community development support "systems" had emerged in many cities. These systems are comprised of the interrelated people and institutions that mobilize money, expertise, and political support for community development. As prominent aspects of these systems, governments, financial institutions, and philanthropic organizations came together to create new collaborative bodies to support CDCs. These bodies linked CDCs to money, expertise, and political power. They attracted resources from local and national sources and channeled them to CDCs as project capital, operating subsidies, and technical assistance grants. They also engaged civic and political leaders in a neighborhood improvement agenda.

Two national intermediary organizations—the Local Initiatives Support Corporation (LISC) and The Enterprise Foundation (Enterprise)—can take major credit for the creation and growth of these new local collaboratives. Through their network of field offices in nearly 60 U.S. cities, LISC and Enterprise aggressively promote nonprofit community development and invest directly in CDC projects.

During the 1990s, the LISC and Enterprise networks served as the delivery mechanism for the infusion of approximately $250 million into community development from the National Community Development Initiative (NCDI). Launched in 1991 by a collaboration of national foundations, corporations, and the U.S. Department of Housing and Urban Development, and managed by a small Secretariat of part-time consultants, NCDI supported CDC projects and invested heavily in CDC organizational capacity in 23 cities.1 NCDI played a key role in catalyzing CDC gains over the 1990s.

Section-by-Section Findings

Section 1 discusses CDCs as an alternative model to government administration of comprehensive community programs. Unlike government, CDCs can respond quickly to development opportunities, and they can more easily assemble and coordinate the disparate programs needed to respond to neighborhood problems effectively. The record shows CDC successes. Experimental econometric analysis finds that CDC efforts do lead to improvements in neighborhood quality that the market recognizes, as shown by increases in residential property values. Local community development practitioners in most NCDI cities can identify at least one neighborhood where property values are rising and CDCs are most likely responsible; in two-thirds of cities, this has happened in more than one neighborhood. But to accomplish improvement objectives, CDCs must rely on the support of the broader community development system of which they are a part. This support has helped CDCs move partway toward resolution of long-standing organizational capacity issues, which stem from CDCs' unique status as community-based development organizations that take on complex public-purpose projects, usually in stagnant or declining markets.

Section 2 examines the CDC industry itself—the organizations and the projects and activities they pursue to redevelop neighborhoods. Over the 1990s, CDCs diversified their range of community development activities, with increasing interest in adopting or expanding commercial development, workforce and youth development, and community facilities programs. This diversification took place across a variety of cities in all regions of the country. Total value of CDC projects receiving support from intermediaries doubled between 1991 and 2000, and the overall size of CDC industries grew as well. The quality of CDC industries, however, as measured in terms of their size and capabilities, differed greatly over the 23 NCDI cities, even though they all improved over the decade. Differences in industry strength can best be explained by differences in the performance of community development systems.

Section 3 focuses on community development production systems—the relationships among people and institutions that mobilize, allocate, and regulate the use of land and capital for community development. Why did CDCs substantially boost their productive capabilities in the 1990s? Section 3 explores the major factors. The affordable housing industry became more adept at using the Low-Income Housing Tax Credit. Private capital became easier to secure for affordable housing. And federal housing resources grew, as did some local funds. National intermediaries supplied large amounts of hard-to-get predevelopment funding to CDC projects, which went partway toward filling a long-standing gap in the financing system. These funds also helped CDCs move into new types of community development activities, most notably the development of for-sale housing, commercial centers, and community facilities. By the end of the decade, some CDCs were in position to take full advantage of new national sources of support for housing and commercial development.

Section 4 examines community development capacity-building systems—the relationships among people and institutions that accumulate and allocate resources to strengthen organizations' ability to pursue community development. Both local LISC and Enterprise and CDC staff recognize the organizational improvements CDCs have made over the 1990s, especially in core financial systems, and CDCs' strong performance in establishing and maintaining community ties. But CDCs remain vulnerable, financially, especially in view of the more expanded set of community development responsibilities they have assumed. Fortunately, community development capacity-building systems have registered larger gains than any other system. A key feature of good capacity-building programs is operating support. Before 1991, only 8 of the 23 NCDI cities had operating support programs—and these were rudimentary. By 2001, 21 cities had such programs, and many were comprehensive. Section 4 concludes by examining how the new collaboratives and capacity-building programs strengthened CDCs as organizations. Among the key factors: offering multiyear grants and establishing stronger performance standards.

Section 5 explores community development leadership systems—the relationships among CDCs and those who command community development resources. The new collaborations forged in the 1990s drew leaders across multiple sectors into community development. CDCs rose on local political agendas. Section 5 focuses especially on the intermediaries' role in strengthening CDC leadership systems. It traces how a collaborative typically operates. The section concludes by examining factors that contributed to CDCs' rising political credibility—including CDCs' stronger production capability, the high profiled involvement of NCDI, and stronger local leadership for community development.

By the end of the decade, CDCs had made modest gains in improving poor communities, even though most CDC neighborhoods remained isolated from the economic and social mainstream. Nevertheless, the 1990s was an important decade for community development and for CDCs. By decade's end, a growing number of cities had created the basic elements of a well-functioning community development industry. Success in these cities paved the way for widespread future improvements in community development systems. This report assesses the record of change in CDC industries—an alternative (but not replacement) to public or for-profit development efforts—and links these changes to the support they received from government and private sector sources.

Research Approach and Methods

Research for this paper was conducted by senior research staff from the Urban Institute and its consultants.2 It draws on a seven-year investigation of NCDI by the Urban Institute, drawing on the experience of the 23 cities participating in the NCDI program ("NCDI cities").

Community development systems are comprised of the relationships among neighborhood leaders, including CDCs, and citywide institutions that mobilize, allocate, and wield finance, expertise, and political influence for community development purposes.

Our research answers one core question: How have community development systems changed over the decade of the 1990s? To answer this question, we divided community development systems into four components.

  • CDC industries, consisting of individual CDCs, and their projects and activities.
  • Production systems to support physical revitalization projects. A production system includes the relationships among people and institutions that mobilize, allocate, and regulate the use of land and capital for community development purposes. Typical activities include development of affordable housing, commercial buildings, and community facilities.
  • Capacity-building systems to support CDCs' ability to carry out neighborhood improvement activities effectively. The capacity-building system consists of the relationships among people and institutions that accumulate and allocate resources to strengthen organizations' ability to pursue community development purposes. Typical activities include provision of operating support, consulting assistance, training and seminars, and upgrades to financial, personnel, and information and asset management systems.
  • Leadership systems to mobilize political support and resources for a community development agenda. The leadership system consists of the relationships among CDCs and those who command community development resources.

In the best functioning community development systems, these components reinforce one another, and they often do so through the following:

  • Intermediation, which in NCDI cities was most often provided by the Local Initiatives Support Corporation (LISC) and The Enterprise Foundation. These national organizations, with offices in most major cities and all of the 23 NCDI cities, provide technical help and operating support to community organizations, principally including CDCs, and financial assistance to community development projects. In the most advanced community development environments, local intermediaries also have arisen to mobilize funding from local financial institutions and to supply technical help to a portion of the community development industry or for special types of projects.

One reason why intermediation is important is that it bridges gaps between portions of systems that have not worked together well in the past. For example, capacity systems may build the CDC staff skills needed to take advantage of the opportunities offered by the production system, or production systems are streamlined to permit small organizations to apply for funding without incurring excessive transaction costs. But as noted in the introduction, production and capacity systems do not always work together well. At the beginning of the 1990s, the most pervasive disconnects between the two lay in the inability of production systems, however well functioning, to generate sufficient operating support to fully cover the costs of CDC revitalization activities. One of the most important roles of intermediaries is to provide this working capital.

Our findings are based on our review of the accumulated evidence of community development systems change across all 23 NCDI cities during the 1990s. We rely heavily on field reports, compiled by a team of community development experts, who visited their assigned NCDI cities about every 18 months. These reports follow a common format, typically covering each of the four system components, but emphasizing different aspects of these components in each reporting cycle. Field researchers gathered information through interviews with representatives from local intermediaries, CDCs, city agencies, banks, foundations, and other informed observers.

We also rely on other sources of evidence gathered throughout the course of this research. Specifically, some of the findings contained in this report rely on the following:

  1. A mail survey of CDCs to find out about CDCs' activities, assessment of capacity and priorities for the future, and ratings of other community development actors. We surveyed all CDCs in the 23 NCDI cities that were capable of producing 10 housing units per year or more (or the commercial space equivalent) as judged by local LISC and Enterprise staff. We received 163 completed surveys from 270 surveys mailed, a 60 percent response rate.
  2. Documentary material on CDC activities and accomplishments, city administration programs and policies, and other local activities, as well as published reports on changes in federal policy, national funding patterns, and others. We also analyzed data from the Department of Treasury's Home Mortgage Disclosure Act files, information from the U.S. Census, and other public databases.
  3. Information from LISC and Enterprise management information systems on the amount, purpose, and CDC beneficiaries of NCDI and non-NCDI funding for projects and capacity building in each NCDI city.
  4. Information from LISC and Enterprise program documents submitted to the NCDI Secretariat and funders as part of their planning and reporting requirements. Most helpful were the system "Portraits" compiled in 2001 in preparation for NCDI's second decade, the local workplans prepared at the beginning of each of the three NCDI funding cycles, and annual and semiannual reports on problems and progress in implementing NCDI-funded activities.

Our analysis relies on multiple pieces of evidence, assembled and analyzed to arrive at solid conclusions about the direction and pace of change in each NCDI community.

This report is available in its entirety in the Portable Document Format (PDF).


1. Please see appendix A for a more complete description of NCDI.

2. Please see Appendix B for more detail on the data collection and analysis methods used.

Acknowledgments

The author thanks the many individuals who contributed information, insights, and commentary to the drafting and publication of this report. George Galster, Lang Keyes, Neil Mayer, Robin Redford, Munro Richardson, Ken Temkin, Avis Vidal, and Mark Weinheimer conducted field research used in this report. Jeremy Gustafson, Kim Marschner, Sandy Padilla, and Chris Snow helped with the analysis, and Diane Hendricks produced the report. Dozens of Local Initiatives Support Corporation (LISC) and The Enterprise Foundation (Enterprise) staff members throughout the 23 cities contributed time and logistical support to the field data collection effort, as did hundreds of persons from community development corporations, foundations, financial institutions, and government agencies. Michael Tang of LISC and Angela Gravely Smith of Enterprise provided important technical support throughout data collection and analysis.

We especially thank Reese Fayde and Mark Weinheimer of Living Cities: The National Community Development Initiative (NCDI) for the quality and thoroughness of their comments on drafts. We acknowledge the helpful commentary of: Carol Berde (McKnight Foundation) chair of the NCDI Learning Committee and the comments of other committee members—John Bare (Knight Foundation), Mark Willis (JP Morgan Chase), Sandy Jibrell (A.E. Casey Foundation), Lyn Whitcomb and Karen Daley (HUD), as well as comments from Michael Rubinger and Mindy Leiterman (LISC), Bart Harvey, Kelly Cartales and Diana Meyer (Enterprise) and Marge Turner of the Urban Institute.



Topics/Tags: | Cities and Neighborhoods | Housing | Nonprofits


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