Donate to Truthout and receive a free copy.This is part 13 of an exclusive Truthout series from political economist and author Gar Alperovitz. We will be publishing weekly installments of the new edition of “America Beyond Capitalism,” a visionary book, first published in 2005, whose time has come. Today’s excerpt is Chapter 9 of the book.
The neighborhood-based Community Development Corporation (CDC) grew out of the need to combine the community-serving mission of a nonprofit organization with the wealth-building and ownership capacities of an economic enterprise. It has been remarkably successful in many communities.
The Bedford-Stuyvesant neighborhood in Brooklyn, New York, was hit hard. Redlining by banks, blockbusting by real estate speculators, and extortionate rents devastated low-income housing. Between 1940 and 1960 “Bed-Stuy” went from three-quarters white to almost 85 percent African American and Latino. Nearly 30 percent of families lived on less than $3,000 a year. Infant mortality was the highest in the nation.
Was there anything that could be done? Especially given that public funds available were inevitably minimal compared to the scale of need?
Some things were obvious. First, local residents themselves would have to take the lead. Second, if public support was not going to do the job, some other source of funding would have to be found. Third, anyone who expected a quick fix was naive. The only way forward was to think long-term – and to start organizing now to solve immediate problems, step-by-step, in a manner that also laid foundations for an approach that might ultimately build to a new answer.
But this required a new institutional form – one that combined the community-serving mission of a nonprofit organization with the wealth-building and ownership capacities of an economic enterprise.
The neighborhood-based Community Development Corporation (CDC) grew out of such circumstances – a hybrid self-help entity that operates at both the community-building level and the economic level, and that exhibits micro-level applications of Pluralist Commonwealth principles. The Bedford-Stuyvesant Restoration Corporation – a CDC developed in the 1960s with the bipartisan support of then senators Robert F. Kennedy and Jacob Javits – helped set the terms of reference for an institution that can now be found in thousands of communities.
In its initial ten years of operation, the Bedford Stuyvesant Restoration Corporation provided start-up capital and other assistance to 116 new businesses, helped create 3,300 jobs, arranged training programs or new jobs for 7,000 local residents, and renovated or built some 650 new housing units. It also launched and still owns a major commercial development (Restoration Plaza), a property management company, and a construction firm. It receives two-thirds of the profits of a Pathmark supermarket that had over $28 million in annual sales by 2001. The Bedford Stuyvesant Restoration Corporation also operates a two-hundred-seat theater and a revolving loan fund for local start-up businesses. As of 2002, the CDC had roughly $26 million in assets. Its 2002 budget was $10.5 million, $7 million of which was funded by income from rental and other commercial ventures.
Another leading example is the New Community Corporation in Newark, New Jersey, a CDC established after urban riots during the 1960s left many dead and over a thousand injured. New Community now owns an estimated $500 million in real estate and other ventures, including a shopping center and three thousand units of housing. New Community Corporation enterprises employ 2,000 neighborhood residents and create roughly $200 million in economic activity each year. Profits help operate day care and after-school programs, a nursing home, and two medical day care centers for seniors. Proceeds from business activities help support job-training, educational, health, and other programs. The New Community Corporation also runs a Youth Automotive Training Center; young people who complete its courses are guaranteed jobs offering $20,000-plus starting salaries.
A well-known rural example is the Kentucky Highlands Investment Corporation. This CDC provides both venture capital and small-business loans to assist rural firms. Over the last several decades Kentucky Highlands has made or helped generate more than $175 million in investments in 140 companies, creating some 7,900 jobs in rural southeast Kentucky. It has assets of roughly $30 million.
Since the 1960s almost four thousand neighborhood-based CDCs have come into existence in U.S. communities. The majority are not nearly as large and sophisticated as the leaders, but all employ wealth-related principles to serve “small publics” in geographically defined areas. The assets that the far more numerous smaller CDCs commonly develop center, above all, on housing, but many also own retail firms and, in several cases, larger businesses.
The more than thirty-five-year developmental trend that has produced the modern CDC is intimately related to the U.S. political economy ‘ s declining capacity to address problems of inequality and poverty directly through redistribution or through major job-creation strategies. Fiscal considerations have set the terms of reference from the beginning. At the time of the 1960s “War on Poverty,” which gave the institution its first major backing, the Johnson administration explicitly rejected as financially and politically infeasible a large-scale public jobs program to deal with poverty in a more explicit and comprehensive manner.8
The trajectory of development has also been instructive. The first generation of CDCs began with a broad strategic conception that directly echoed Pluralist Commonwealth themes. The initial goal involved a community-building vision and included the provision of services, the ownership of productive enterprise, and advocacy on behalf of local residents. As the political scientist Rita Mae Kelly observes, institutional development, community control, and community ownership of property and other resources were “expected to foster, support, and sustain the development of managerial and entrepreneurial leadership within the community – and to keep it there.”
The advent of the Nixon administration, decisions by the Ford Foundation, and generally reduced funding in the Reagan years forced many CDCs to alter their initial approach. Two important ideas of the early period – direct ownership of assets beyond housing and community organizing and advocacy – were often abandoned or reduced to minor functions. Instead, most CDCs concentrated primarily on an important but narrow form of wealth ownership (the development of low-income housing); and secondarily on technical assistance and small-business loans to individual entrepreneurs.
The basic concept, however, proved to be resilient. The number of CDCs expanded steadily; more than a thousand new CDCs emerged during the Reagan era alone. CDC housing development was strongly assisted by special tax incentives for investors who helped CDCs and others build low-income housing. (Numerous financial intermediaries now develop and market tax-based packages to facilitate the financing of a broad range of efforts.)11 Although CDCs encountered financial difficulties, and some were victims of poor and occasionally corrupt leadership, the overall trial and error learning curve was impressive.
Community Development Corporations also developed a number of new strategies that added to their strength during this period. “The lack of federal support,” former Local Initiatives Support Corporation (LISC) president Paul Grogan and his coauthor Tony Proscio point out, “meant there was no federal bureaucracy prescribing what was supposed to happen.” They go on:
“CDCs were free to develop and pursue their local agendas. And as they scrounged for dollars and technical help, they were building a web of relationships and a diversified funding base that would be with them for the long term, not for the short cycle of the latest federal program. . . . CDCs in city after city are now raising capital both for projects and for overhead from a wide range of charities, banks and other financial institutions, private corporations, city governments, and increasingly, state governments.”
CDC development also capitalized on the achievements of a parallel citizens movement that used the Community Reinvestment Act to fight redlining by banks – thereby helping allocate more than $60 billion to neighborhood investment by the early 1990s. The emergence of new Community Development Financial Institutions (CDFIs) also provided new support for neighborhood development. During the Clinton years federal legislation gave CDFIs – and thus also CDCs – a further significant boost.
A number of organized support efforts have also been critical. One of the most important, the Local Initiatives Support Corporation was established with broad foundation and corporate backing. Since 1979 LISC has raised over $4 billion – and leveraged almost $7 billion in additional investment – to help some 1,700 CDCs. In a development that acknowledged both the CDCs ‘ important role and the coming-of-age of the movement in general, former Clinton treasury secretary Robert Rubin accepted chairmanship of the Local Initiatives board in 1999.
Some critics charge that in turning primarily to housing production during the second phase of development, many CDCs lost touch with their local communities. Urban Studies professor Robert Fisher writes that most “avoided political controversy, were dominated by professionals with a technical orientation, had narrow membership bases, and rejected social action activity.” On the other hand, another close observer – Andy Mott (at the time executive director of the Center for Community Change) – concluded in 2000 that an “increasing number of CDC coalitions are offering community organizing training to their members, and CDC associations . . . have taken on – and won – major policy battles on jobs, housing and reinvestment.”
In general, housing production remains central to Community Development Corporation efforts – along with the principle of public-benefiting ownership. Roughly three-quarters of new or rehabbed housing units are owned directly by the CDC that produces them. In addition, by 1998 CDCs had developed 71 million square feet of commercial and industrial space.
The experience of Dudley Street Neighborhood Initiative in Boston – a nonprofit community-based institution similar to a traditional CDC – suggests additional possibilities for future change. The Initiative has won the right of eminent domain to acquire abandoned parcels of land, a unique development in modern urban policy. The Initiative also manages residential properties as part of a community land trust and has established several village commons, a series of “Tot Lots,” two community centers, and commercial developments at key points in the neighborhood.
In general, a 1998 survey found 40 percent of urban CDCs reported owning and/or operating a business (34 percent of rural CDCs did so). Over half also reported some form of business-lending activity with a total of nearly $2 billion in outstanding loans.
Substantial economic projects continue to be exceptional. However, given the level of experience developed over the past several decades – and the example being set by the leaders – increasing numbers of CDCs appear likely to slowly broaden their ownership focus beyond housing and commercial real estate development in coming years.
Louis Winnick of the Institute for Public Administration suggests that the “meteoric growth of CDCs and related grassroots initiatives owes much to their appeal across the political spectrum.” As he observes: “The anti-statist Right saluted community development as a proxy for government, which might shield the succored poor from the dead hand of bureaucracy. . . . On the opposite end of the ideological spectrum, radical activists envisioned community-based organizations as weapons of political empowerment, instruments to liberate the poor from chronic neglect.”
Many states and local municipalities now back CDC activity – both directly and indirectly. In cities with a large number of cooperating CDCs, local governments have often become active development partners, making foreclosed properties available to them or earmarking Community Development Block Grant funds for housing subsidies. Particularly innovative state programs include New York ‘ s Neighborhood Preservation Companies Program, the North Carolina Community Development Initiative, and two efforts of the Commonwealth of Massachusetts: the Community Economic Development Assistance Corporation and the Community Enterprise Economic Development Program, the latter of which provides both financial and technical assistance to CDCs in economically depressed communities.
Federal programs also provide significant support to CDCs, including Community Development Block Grants, the HOME Program, and the Low Income Housing Tax Credit. One of the last pieces of legislation of the Clinton administration, the Community Renewal Tax Relief Act of 2000, provides additional “new-market” tax credits and other assistance. The 2000 Act – which enjoyed the broad backing of Republican leaders in the House of Representatives – also suggests the potential for expanding the base of political support for housing and other wealth-ownership principles at the community and neighborhood level.
There is little likelihood that the social and financial pressures that helped produce the CDC hybrid will let up – or that the steady step-by-step developmental trend will come to a halt. Indeed, given the fiscal problems facing the nation, the prospect is for more rather than less pressure to create additional forms of ownership – and of further forms of revenue-generating institutional change. Community organizing and advocacy efforts by CDCs also appear likely to increase.
Other nonprofit organizations with a service mission at the community, state, and national levels have picked up on the underlying principles exhibited by CDC development – and here, too, it is clear that the overarching fiscal crisis is producing forces that make ongoing evolutionary development all but certain. Pioneer Human Services in Seattle, Washington – an organization initially established with donations and grants – is now almost entirely self-supporting, and suggests some of the possibilities. It provides drug-and-alcohol-free housing, employment, job training, counseling, and education to recovering alcoholics and drug addicts. Its annual operating budget is $54 million – over 99 percent is earned through fees for services or sales of products.
Pioneer Human Services and its subsidiaries own and manage a light-metal fabricator that employs people traditionally thought to be unemployable and that has contracts with Boeing, Xantrex, Leviton, and others; as well as a Food Buying Service that distributes roughly 7 million pounds of food to nonprofit organizations in twenty states.
The Roberts Enterprise Development Fund [now REDF] in the San Francisco Bay Area works with nonprofit umbrella organizations. These, in turn, have operated roughly twenty businesses – from thrift stores and janitorial services to a bakery and a furniture manufacturer – that also both make money and help specific groups in the community. Revenues grew from $10 million in 1997 to $20 million in 2000, with profits increasing from $230,000 to $630,000. Enterprises target specific employee/trainee populations – including landscaping and packaging and shipping services for individuals with developmental disabilities; bike repair training for young people; and a cleaning service, a café, and a temp agency that provide jobs for individuals with psychiatric disabilities.
Educational and health institutions in many areas, of course, have also long operated as nonprofits-in-business charging fees for services. A recent study found that in the twenty largest U.S. cities, sixty-nine of the two hundred largest private enterprises (35 percent) were universities and medical institutions, most of which were nonprofit. In four cities – Washington, Philadelphia, San Diego, and Baltimore – what the study called “eds” and “meds” accounted for more than 50 percent of all jobs generated.
Some analysts who have studied hybrid nonprofits have raised serious questions about whether important service missions may be compromised by their economic activities; and several have suggested guidelines to maintain institutional integrity. Conversely, others point out that by reducing the reliance of organizations on public (often politically influenced) funding and from foundation and individual donor support, new sources of revenue can often produce offsetting advantages in terms of institutional independence.
Such questions are certain to take on increasing urgency as time goes on. Given the fiscal pressures driving change and the growing support the strategies are beginning to attract, the trend is unlikely to be reversed. The real question is how the conflict between organizational goals can be managed intelligently – and whether those concerned with critical public missions organize themselves to ensure the integrity of the various efforts.