Community Financing

The typical source of capital for community development is usually Community Development Block Grants (CDBG), Low Income Housing Tax Credits, tax increment financing, and other specific and limited support. However, increasing, these resources have become inadequate. The reason being government programs cannot handle the size and liquidity of the private capital market. Further, government funding for housing and community is becoming increasingly had to get. While public funding continues to play a part, albeit limited part, in urban redevelopment, private funding needs to be increased. Strangely, many low-income minority communities that face a shortage in capital are ones with rich and undervalued resources. As they say in real estate, it's all about location. Since these resources are often surrounded by blight, they are overlooked and undervalued by financial institutions and developers. These assets often include historic sites, vintage housing stock, proximity to transit lines, religious institutions, traditional commercial thoroughfares, proximity to major employers, cultural or recreational facilities, restaurants, shops, educational institutions, and other city landmarks. If developed properly, these assets can generate enormous value for the residents and extraordinary investment opportunities. Can you say intelligent citizen participation in urban renewal? In recent years, Wall Street (yes I know, the devil's banker) has developed a variety of innovative investment strategies that can be used to rehabilitate distressed communities. Complex financial modeling with sophisticated technology provide the structure and mechanisms that allow wide flexibility in the creation of financial products aimed at meeting a variety of investment needs. Let us step back and examine how we get the money and what are the finance issues before presenting solutions. The key issues are financial institutions are ill-fitted to met the financial needs of low-income household needs. Also, there is a general, well-founded, mistrust or misunderstanding of the way banks work. There are about three categories of individual participation in financial institutions: banked (actively use banks); cross-over, meaning at least one bank account and use alternative financial services (AFS); the third category is cash only (7.7%). An AFS can be defined as check cashing outlets, payday lenders, pawnshops, rent-to-own stores, and refund anticipation services. In a Pew Study of low-income census tracts in Los Angeles, the study found that the banked tend to be older on average then unbanked, both are foreign born but have been residing in the United Staes for about twenty years, both are employed in non-technical professions, similar family size, and two-thirds of banked have completed high school while half of the unbanked never finished. The findings revealed that having a bank account correlated with higher rates of savings while the savings of the unbanked are usually in remittance. One-third of the banked used AFS and most of the unbanked have never had a bank account. In 1975 The Home Mortgage Disclosure Act (HMDA) was passed. This required banks and other lenders to report information about loan application and their resolution. Files are distributed annually and made available to the public. This process is overseen by the Federal Reserve Bank and HMDA data must present the number of applications and denials. The HMDA has passed through three phases. The first phase occurred between 1975 and 1989: Anti-Redlining. The act did not prohibit relining and allowed people to sue or penalize lenders. Lender had to disclose the location of mortgage and, although, data showed a lack of lending, there was no action taken against the banks. The second phase took place between 1989 and 2002. The third phase took place from 2002 to 2010: the growth of the subprime. This period period was characterized as time of subprime lending or "reverse redlining." In 2002, the HMDA was amended to require lenders to collect interest on their loans. In 2005, a study showed that African-American and Latinos were twice as a likely than Caucasians to obtain subprime loans. In 2010, Anti-predatory lending amendments were enacted which required the following information to be made public: all loan data, type of loan, property type, purpose of the loan, occupancy, loan amount, if initiated as "pre-approved," action taken and date, property location; race, ethnicity, and gender of lendee, income, and if denied up to three reasons why. In 1977 The Community Reinvestment Act (CRA) was passed. This legislation written by then-Senator William Proxmire was a follow up to HMDA. It required banks to maintain records where loans were issued and make this information available. When banks asked regulatory agencies for permission to merge with another financial institution, community representatives had the right to testify about a bank's communal responsibility. Based on the testimony, the regulator could deny a merger or anything else. It also established three test fo banks with $1 billion in assets: the Lending Test which evaluated records of meeting credit needs through direct lending. The Investment Test which evaluated the number and responsiveness of investment including Low Income Housing Tax Credits and equity investments in small business. Finally, the Service Test which measured the availability and effectiveness of bank branches, basic banking services such as low-cost deposit accounts and community development. Banks with with assets between $250 million and $1 billion only had to meet the lending and community development test. Less than $250 million in assets had a more streamlined lending test. Financial institutions were rated substantial or noncompliant. What the CRA does not cover are mortgage lenders, insurance companies, payday lenders, or check-cashing companies. This makes it possible for these institutions to take advantage of their clients. Community Development Financing Institutions (CDFI)go back as far as the nineteenth century with minority owned banks. Credit unions were first established in the 1930s. The first CDFIs came in the form of business loan from the Department of Housing and Urban Development. There are also micro lenders such as the Grameen Bank and Self-Help Credit. In 1994 the CDFI Fund was established which made government funds available to individual CDFIs. In 1995, the CRA was revised to recognize Community Development Financial Union(?) loans and investment. The purpose of CDFIs is the development of loan funds, banks, credit unions, venture capital funds and other financial mechanisms. There are also different type of CDFI lending: personal loans made by credit unions, small business loans, equity or venture loans, and affordable housing. Credit unions are often mutual self-help institutions that toffer individual accounts and direct financial services. Community CDFI and Affordable Housing CDFI- single family lending that go directly to the homeowner and accompanied with homebuyer education. Does not engage in sub-prime loans only traditional lending. They fought against predatory lending. Some of the larger institutions engage in multi-family lending, small business loans. Usually they work with national intermediaries that provide local initiative support corporations. CDFIs are a response to the failure of conventional institutions. They allow for local control of capital. CDFIs are intermediaries between low-income communities and conventional market lenders. However, do CDFIs compete with banks or are they partners or some form of hybrid? There is no straight answer, regardless, a CDFI cannot meet all the community credit needs. What is the measure of a Community Development program? Jobs. How do we mesure CDFI jobs? The answer is complicated because is no national standard for what counts as a job. Is it a new job, permanent, temporary, part time, or full time? Was someone retrained. What is the anatomy of a CRA agreement. When a bank comes up for evaluation and merger hearings, community groups will go the bank for negotiations. The agreements have a three to ten year life span and cover a range of products, services, and lending. The goals for CRA agreements are: single family lending, small business investment, multi-family lending, community investment, accessible product lines, financial services, philanthropy, minority vendor/contract, retail branch access, and employee diversity. One example of an agreement is Wells Fargo. Wells Fargo agreed to a ten year, $45 billion pledge during their acquisition of First Interstate bank. Twenty-five billion dollars were pledged towards small business loans and $2 billion was pledge towards low-income customer service. Wells also increased bank access and the number of bilingual representations. Philanthropy was part of Washington Mutual's CRA agreement in 1999.

PCA and Urban Renewal

Urban renewal has ominous tones. At face value, it implies a clean sweep of a blight or supposedly blighted area and creating a shiny new built environment while pushing out the low and moderate income residents. Urban renewal, in a more modest fashion, continues today. Witness the ongoing Hollywood, California Community redevelopment project. However, what are the social implications of urban renewal? James G. Banks, examines the question in his 1963 article that has implications for the urban renewal projects of today. In 1961, President John F. Kennedy signed the Housing Act of 1961, dubbed the most important piece of housing legislation since the Fair Housing Act of 1949. It gave the Federal government the tools to meet the needs not addressed in 1949. One of those needs was making adequate provisions for senior housing. Through a direct loan program, new housing was constructed for seniors. Under the 1961 Act housing loans for elderly housing was increased from 50 to 125 million and consumer cooperative and some public bodies were made eligible borrowers. Further, in places where rent was so low that it threatened the solvency of a low-rent housing project, additional federal subsidy payments of up $120 per year was authorized. This enlarged the opportunity to provide good and comfortable privately-owned housing for the elderly. These housing units were developed by nonprofit groups such as churches and labor groups in order to meet the needs of seniors. One immediate question is were these units available only to members and the families of these groups or were they opened to anyone who qualified? Since the passage of both acts, it has become increasingly urgent that positive action be taken to assist in providing good housing for low and moderate income families. This issue has become more urgent in the twenty-first century as the number of homeless intact families has increased. Also, the low to moderate income housing needs of the disabled has to be provided for. The 1961 Act did not address this because, it seemingly was not an issue. Why wasn't this an issue? Perhaps the reason was, that the disabled were either institutionalized or in the care of their families. Under a Federal Housing Authority (FHA) provision, Section 221 (d)(3), a sub-market interest rate program was created. This allowed the FHA to insure mortgages to certain nonprofit or limited-profit developers at rates as low as 3-1/8 percent. The FHA could also insure mortgages with reduced insurance premiums or no premiums at all. In sales housing for low- and middle-income families, under FHA programs, the dollar limits on a single family house is raise. Down payments could have been as low as $200 per unit. This sound quite utopian but could this work today? The answer is no because the loans were bought by FANNIE MAE and we all know how that worked out. another issue has been the small number of public housing units authorized to meet the of low-income citizens. This problem has only increased over the passage of time as government housing programs were felled by the budget ax while the number of low income individuals and families has increased. Coupled with this is the increased number of low-income seniors, veterans, and disabled. In terms of urban renewal, as cities increase in size and population, since 1949, when original slum clearance and urban renewal authority passed, the total grant amounts have not been sufficient to deal with blight and deterioration. The original amount was $2 billion for a twelve year period. The 1961 act made an additional $2 billion available over a four year period. This still was not enough. Additional provisions increased the relocation payment limitation previously placed on businesses and permits the write-down of land resale prices if the land was used for moderate or low-income family housing. While Los Angeles housing ordinance mandates that a certain number of new housing units for low and moderate income families and individuals, I suspect that the lure of higher income families and individuals provide developers with motivation to find a way to get around this ordinance. What this means is that less housing becomes available for those who genuinely need it. From a Historic Preservation perspective, it means that older buildings in urban centers are left to deteriorate which creates more blight. Coupled with this is poor planning which ultimately affect all urban dwellers regardless of socio-economic standing. In order to remedy this, citizens must be willing to make some sacrifies in order to develop the type of city they want. So what type of cities do we want? Excellent question. Ideally, the type of city we want is the one that takes its users into account, meaning the people that live there. This can take on the form of proper family relocation from blighted areas, which to frequently gets overlooked in favor of more grand projects that many feel is far more necessary. Often, the people residing in the urban centers get overlooked. This is happening right as Downtown Los Angeles is being turned into what can only be described as Manhattan, New York west. Also, relocation should be temporary and feasible for the families and individuals as well as decent, safe, and sanitary. When families and individuals relocate on their own accord, the local housing authorities should make every effort to make sure that the new location meet acceptable standards of housing. Essentially, the housing authority inspectors should ask themselves if they would live in the unit or not. Further, housing authorities should take the initiative to track down families that have moved but left no forwarding address. How should this be accomplished? First, a good relocation plan is essential. The primary objective of the plan should be the proper relocation of families and individuals in housing appropriate to size and income. Another issue are the social and economic problems of displaced families and individuals. When faced with a move, long dormant problems often rise to the surface.. These problems need to be dealt with in a positive manner if successful relocation is to take place. For urban renewal to take place then families and individuals must receive adequate support services. However, sometimes a community lacks these services. Support services are necessary for the success of renewal projects. Moreover, if urban renewal is to have long term success then all segments of the community must contribute, including social welfare groups. Some individuals have encouraged urban renewal groups to assume responsibility for for the socio-economic conditions that result from displacement. This sometimes comes off as community groups attempting to exhort money from the city and private developers. One example of this, was recent attempts by opponents of a proposed new football stadium in Los Angeles. They attempted to get Anschutz Entertainment Group and the City of Los Angeles to fund a variety of community projects. This was eventually settled. Another issue is citizen participation. This sounds like a vague term but in this case, citizen participation means participation in urban planning and renewal by citizens as a way to assure continued enthusiasm for good maintenance and planning after the initial impact of the programs. The reality is that in order for good urban planning and renewal to take place we have to make an effort to preserve what we have and what we can rehabilitate. As they say in my field, all preservation is local. Renewal is only successful with intelligent citizen participation. This requires an awareness of issues facing a community, the ability to constructively problem solve, and individual citizen confidence that active cooperation among neighbors can result in real benefits to a community. This means getting citizens from long discounted segments of society to get involved. Sometimes this is a formidable task but it is one that requires patience and understanding.

What is Preservation of Community Assets?

I recently read a series of articles on the subject of Preservation of Community Assets (PCA). The idea for this started out as a way to take my mind off of waiting for my advisor to return my final thesis revisions and has now become something that is quickly moving to the forefront of my brain. Essentially what a PCA is an attempt to create or revive meaningful surroundings for communities, especially in underprivileged ones that often lack the architectural resources that can connect a community's memory to its living culture. This is acutely important in fast growing urban areas that are populated with immigrants. Thus, a multi-disciplinary approach is needed that takes into account multi-cultural awareness, professional transparency, social responsibility that come together to form the foundation of the PCA approach. The potential for this method in heritage preservation projects in underserved communities is ripe. In addition to serving a social purpose, it can provide means for economic development by creating an attractive and unique sense of place while fostering local arts, site specific public art, and ethnic traditions. This sounds like a rather lofty goal but it seems like it has merit. The reality is in historic preservation, there has been a shift from saving monuments from the wrecking ball to the vernacular and landscape. I believe that this shift acknowledges the fact that the everyday is just as important as the boldface because it is often in the commonplace where history is made. For example, who would've thought that a log cabin in the middle of nowhere could be the birthplace of one of America's greatest presidents (Abraham Lincoln)? Certainly, not the Lincoln family at the time. Contemporary ethnic communities are often populated by newly arrived immigrants who put their imprint on the everyday landscape. These communities sometimes lacke the necessary material assest such as tangible artifacts or the physical settings which can serve as an anchor for communal heritage. This lack of tangible assets for heritage preservation is part of the characteristics that make up a rapidly growing population, specifically communities living around the newly created surroundings of expanding metropolises. Often, these marginalized neighborhoods consist of immigrants or refugees that deliberately move closer to the urban areas for better opportunities. In the West, immigrants and refugees are aided by social and government policies that attempt to address the social, legal, and economic needs of the newly arrived. In the United States, the "melting pot" concept has had particular resonance. This utopian ideal seeks to blend immigrants from diverse ethnic, religious, and cultural background into one, new, secular nation with a common identity, history, and culture. This has gained traction in the policies enacted by the Federal government since the end of the Civil War and has seen fruition in the American Civil Rights Movement, the enactment of the Immigration and Nationality Act of 1965, and the Fall of the Soviet Union. This has given way to a "salad bowl" metaphor in which every distinctive culture blends together to form a whole. Delores Hayden offers a different approach which celebrates the historic urban landscape and its ethnic diversity as a source of self-identity, (re)construction, and socio-political empowerment. It follows that issues of urban identity can be met at the local level by involving communities in urban policy making, education and creativity, and by maintaining multi-culturalism as the normal human experience. This can be accomplished through a knowledge and art-based intervention in the built surroundings, couched in preservation practices and directed towards the enhancement of the community's identity where material-architectural assets are lacking. These practices have the capacity to anchor a community's assets through the combination of field work with community (research, identification, documentation, and recordation); architectural, urban, or environmental design as well as other design practices. The focus is on the past history of the community as interpreted in its current location, not on folklore or commemorations of the past. Thus far, the definition of a PCA has not addressed the issue of disney-faction or what if a new immigrant community with a completely different culture than the previous one, supplanted the previous resident-i.e an Asian community taking over a previously Latino neighborhood? PCA focuses on the impermanence of tangible architectural resources-low architectural value (the vernacular?)/artistic value of an artifact, and the likely probability it will need some framework to highlight it. This begs the question, who makes this decision and based on what criteria? In the broadest sense, PCA can convey community heritage and spirit even when there exists not physical base for preservation. Another question, how is that spirit and heritage filtered? Community assets from local, social, and cultural sources can be preserved and promoted through a new built environment. Great but can this new built environment respect the integrity of the asset? PCA requires an investment and has a modest economic potential. PCA has the potential to be part of urban renewal projects, help communities develop financial institutions that support a wide range of immigrant and low-income programs, be part of Main Street programs, and enhance the development of cultural and heritage tourism, but the greatest contribution is likely to be felt in social and educational programs. This last statement, the greatest impact of PCA is likely to be felt in social and educational programs can be geared towards second, third, and succeeding generations of immigrants whose ties to community have weakened and are seeking to reconnect with their parents and grandparents' generations. PCA as part of an urban renewal project is fraught with certain issues that will be addressed in future posts as will the development of financial institutions and case law.