A previous version of this abstract incorrectly said that Chicago’s Neighborhood Opportunity Fund was created in 2019. It was created in 2016 (corrected 7/19/19).
Commercial corridors are the cornerstones of many American communities. These bustling epicenters provide opportunities for employment, neighborhood engagement, and creation of community identity. However, many commercial corridors have been neglected by developers in favor of city downtowns, resulting in a lack of investment and access to capital required to prosper in these areas. As a result, wealth creation and local employment are limited in some corridors, especially those with a large nonwhite population.
Chicago’s Neighborhood Opportunity Fund is a creative solution that links the wealth generated by development of the city’s downtown with small businesses in underserved commercial corridors. The fund was created in 2016 by Mayor Emanuel and has approved grants of $23.3 million to 174 small businesses.
A new financial opportunity
Chicago’s Neighborhood Opportunity Fund aims to create financial opportunity through contributions from developers who request and receive floor-area bonuses in the city’s downtown area. (Floor-area bonuses are government-allowed increases in the space that can be used to construct buildings in a given area of land.) For every dollar received by developers, 80 cents goes into the Neighborhood Opportunity Fund. By using this model, the fund creates and pulls from a source of funding that did not exist before.
The fund’s application process is simple and accessible. Entrepreneurs can apply as long as they have a real estate project in an eligible corridor, which are areas in the West, Southwest, and South Sides of the city. These areas were selected based on indicators of poverty and unemployment. The fund also requires the project to enhance retail and cultural offerings in the community.
Projects are judged by the City of Chicago and an advisory committee and are selected on the basis of project readiness and community utilization. If a project is chosen, the fund covers 30 to 65 percent of business development costs. Grantees are required to cover the remainder of their project costs, which keeps them personally invested.
In addition to financial support, the fund emphasizes connecting entrepreneurs with resources and tools. The fund also helps grantees quickly navigate regulatory challenges, such as building permits and licenses.
Current challenges with the Neighborhood Opportunity Fund
When advertising the program, the City has encountered some resistance from potential participants who lack trust in the government, either because of their immigration status or other concerns related to working with public officials. In addition, many community development financial institutions (CDFIs) find difficulty in authorizing loans to start-ups for the portion of the project costs the fund does not cover. The fund is working to curb some of these challenges by providing better support materials, like lending coaches and list of potential project managers.
Recommendations for communities considering similar programs
We believe these eight lessons will benefit other cities, counties, and states that are considering a program like the Neighborhood Opportunity Fund.